Vol. XLIII No. 12 March 24, 2019

Farm Income Deflation the Norm Under Modi Govt

THE promise of the Modi government to double farm incomes by 2022 seems to be a cruel joke on farmers who are suffering the reverse - a steady decline in farm incomes. The Central Statistics Office has added credence to the allegations of the peasantry that the last five years have seen continuously low incomes. CSO figures show that farm income growth crashed to the lowest in 14 years in the last quarter of 2018 (October-December). Growth in nominal agricultural Gross Value Added (the value of output minus the cost of all inputs and raw materials involved in production) is also in single digits. This covers incomes of both farmers and agricultural labourers meaning the kitty is divided among a still bigger population. It clearly indicates that the farmers’ “take-home” incomes are very low even as the government claims surplus production.
Agricultural output grew at only 2.7 per cent during the last October-December quarter which is the lowest in 11 quarters. This growth rate in real terms also did not lead to a corresponding growth in farm incomes. Even more significant than the low increase in “real” terms at constant prices is the fact that the growth in “nominal” terms at current prices unadjusted for inflation is the lowest for any quarter as per the CSO’s new 2011-12 base year series at just 2.04 per cent. For the last quarter, for the second time in a row the gross value added from agriculture has been lower in nominal than in real terms because of fall in prices. It implies that while farm production per se during the last quarter was 2.67 per cent higher than in October-December 2017, the increase in current value terms has been only 2.04 per cent because of prices falling by 0.61 per cent. It is a classic case of agricultural produce deflation.
With demonetisation, GST and other deflationary policy measures, the government has wrecked the economy, resulting in a massive increase in unemployment and fall in incomes. The unabated fall in prices post demonetisation has also created a scenario of negative incomes. Faulty policies like cutting import duty of wheat from 25 per cent to zero also led to dumping of wheat at lesser price than the MSP leading to a double whammy for the farmers.
There are a few factors responsible for the agricultural produce deflation. Firstly, the minimum support prices are fixed by the Commission on Agricultural Costs and Prices(CACP) on the basis of three year old projected data, thereby underestimating the costs of production by about 20-30 per cent according to a recent study. This is despite the fact that organisations like the Kisan Sabha have been demanding correct computation of the costs and taking the comprehensive cost of production C2 for arriving at the MSP as per the C2+50 per cent formula. The CACP deflates the C2 and A2+FL costs proposed by the State Agricultural Departments by this method which is 20-30 per cent lower than the actual costs and then a weighted average is taken which further disadvantages the peasantry in states where the costs of production are higher.
Secondly, while food price inflation is often cited as a reason for keeping the MSP low, there is no concern over input price inflation, nor, any talk of price control which would reduce costs of production and concomitantly the price of produce. Thirdly, the absence of procurement for most crops makes any MSP announced only notional and almost unrealisable in most parts of India. The peasantry are forced to make distress sales at prices often way below the MSP arrived as per the underestimated costs of production.
Given that the tall claims of doubling farm incomes require an annual increase of 14.4 per cent which is a far cry from the reality, the prime minister’s sop of Rs 6,000 per year for farmers holding up to two hectares which translates to Rs 17 a day cuts no ice with farmers who are losing many times this amount due to the low pricing and near absence of procurement. Addressing this is the key to stabilising farm incomes and instilling confidence among farmers.
(March 6, 2019)