What does the Economic Survey hold for India’s farmers?

By Suganya Balakumar

Mahatma Gandhi once said, “To forget to dig the earth and tend the soil is to forget ourselves”. This reflects the importance given to agriculture in our country. Agriculture continues to be the backbone of the Indian economy. It provides employment to around two-third of the total workforce and constitutes 14 percent of our Gross Domestic Product. Despite this, farmers’ demands and suicides have been in the headlines constantly. Time and again it has been observed that the farmers do not get the remunerative prices for their produce. The recent farmers’ agitation in Madhya Pradesh and Maharashtra attracted the attention of the whole nation. Their main demand was the Minimum Support Price (MSP) for their produce — a fixed price that the government provides to the farmers for their product in order to protect them against market fluctuation. This is caused by the excessive profiteering by the middlemen and the absence of a robust marketing infrastructure along the entire value chain of farming.

A risky venture

The mid-year Economic Survey 2016-17 released on 11^th August 2017 enumerates the risks involved in agriculture and suggests solutions for the same. Production risks lead to low yield per hectare. This is contributed by low-quality seeds and their erratic supply, and excessive use of fertilizers. The report suggests that the farmers should be provided with pest and disease-resistant seeds. Also, a standard for quality seeds needs to be enforced. Inefficient irrigation, unreliable rainfall, drought and floods lead to weather and disaster related risks. These risks can be curtailed by increasing the share of irrigated agriculture and maintaining the level of the water table.

Farmers also face credit risks due to their limited access to institutional credit. Though Ground Level Credit (GLC) flow in absolute terms to agriculture has improved over the years, the prevalence of informal sources of finance is a major concern. According to NSSO 70^th round data (January-December 2013), 40 percent of farmer loans are from the informal finance sources. Therefore, the availability of formal credit and institutional credit to farmers should be increased.

Uncertainty associated with prices

Price uncertainties are a major concern for the farmers. Price uncertainties are caused by supply and demand fluctuations, and due to hoarding and speculations by traders and middlemen. Because of the perishable nature of their goods, the farmers’ inability to hold or store their produce and insure against losses is affected. The market price is determined by the supply and demand of the product. For example, if there is a shortage of onions in period 1, it receives a higher price in period 1. The farmer expects a higher price in period 2 and produces more onions but the oversupply of onions results in a lower price of onions. In period 3, the supply decreases and the price increases. Therefore, the market price is impacted by shortages and surpluses, but the response of the farmer comes only after a lag. Thus, the farmer does not benefit from the higher prices.

A farmer needs to be educated to understand such contra-cyclical patterns. The report suggests that a marketing infrastructure along the value chain needs to be built, and there should be timely interventions by the government. Though the government has announced the Minimum Support Price (MSP) for 23 crops, the awareness on MSP and procurement is low amongst farmers for most crops.

Policies and their impact

The policies of agricultural trade and market policies pursued by the government result in market risks. The agriculture markets operate under the Agricultural Produce Market Committee (APMC) Act of the State governments. The positions in the market committee are occupied by politically influential people who tend to exercise monopoly power and who at times tend to form cartels. The farmers do not benefit from such behaviour.

There are various legislations to regulate the agriculture markets— (i) Model APMC Act, 2016 to replace the present state legislations on markets, (ii) Agricultural Produce Trading (Development and Regulation) Act, 2017, (iii) A law that would regulate contract farming and (iv) A law/regulation that would regulate e-NAM. The report suggests that these laws should be dismantled and there should be a move towards a Common National Agriculture Market as envisaged in the e-NAM initiative.

The way ahead

The report proposes to keep the perishable farm produce outside the purview of present APMC Act so that the farmers are provided with an opportunity to sell the perishables through government’s electronic trading portal and get remunerative prices.

The report suggests that the introduction of High Yielding Variety (HYV) and Genetically Modified seeds can help reduce risks. Agriculture, like any economic activity, has its own risks. The Economic Survey of 2016-17 has done an exceptional job in identifying these risks and providing suggestions to curb these risks. Therefore, managing and reducing these risks will provide stability of income and will increase the profitability for the farmers. Irene Rosenfeld, Chairman and CEO of Kraft Foods once said,“It’s clear that agriculture, done right, is the best means the world has today to simultaneously tackle food security, poverty and environmental degradation.”

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