Give land-based subsidy to farmers

Manmohan Singh had waived the loans of farmers across the country, including UP, in 2008. The farmers of UP, however, again fell into debt. Now the Adityanath Government has waived their loans once again.

The fire of loan waivers is consequently spreading across the country. A number of farmers have been killed in Madhya Pradesh. Maharashtra has promised to waive these loans.

However, the problems that led to the indebtedness will remain. Our farmers today are like a person whose kidney has failed and he is being taken to the hospital for dialysis every few days.

Similarly, the farmers are being kept alive by waiving their loans every few years. Waiving debt is clearly not a solution to their problems.

A farmer falls into debt when his income is inadequate to pay the loan. The farmers’ incomes have, however, risen over the years.

The Economic Survey published by the Ministry of Finance says that the index of food grain price between 2005 and 2014 increased from 100 to 231.

The index of the price of all commodities increased in the same period from 100 to 180. This means that the price of agricultural produce increased more than the cost of inputs.

In consequence we must conclude that the income of the farmers has increased in this period. Our direct observation confirms this. Farmers are building pucca houses. Their incomes certainly appear to have risen.

Why, then, are they getting into debt? The reason seems to be that there is a pressure upon farmers to “catch up” with the lifestyles of the people living in the cities.

The city folks own a smartphone, TV, fridge and motor bike. The farmer’s children also want to own these gadgets and more. Thus most farmers reportedly take “crop” loans for such expenditures though they tell the banks that they need the loan for crop purposes.

Farm expert Devender Sharma says that between 1970 and 2015 the Minimum Support Price of food grains was increased about 20 times. In this same period, the salaries of the government servants increased 120 times.

The increase in the incomes of the farmers has crawled like a turtle while increase in the incomes of the government servants has galloped ahead like a rabbit. Thus the farmers are left behind even though their incomes are crawling.

They are unhappy and want waivers not because their incomes are falling but because they too want to enjoy the same lifestyles as the government servants and other city people. They incur huge expenditures in the process and fall into debt. The problem of farmer’s debt is essentially due to the slow growth in the incomes from agriculture.

It is difficult to secure a substantial increase in farmer’s incomes from agriculture by increasing the prices of agricultural commodities. The global prices of agricultural commodities are declining.

The Food Price Index published by the Food and Agriculture Organization of the United Nations declined from 229 in 2011 to 151 in 2016. Reason is that new technologies, expansion of irrigation and brining more land into cultivation has led to increase in production globally, just as it has increased in our country.

However, the demand for agricultural produce has increased at a snail’s pace. We are seeing a rapid increase in food production along with a slow increase in food consumption which is leading to a decline in the prices due increased supply and stagnant demand.

The government wants to increase the incomes of the farmers by helping them increase production. Better application of fertilizers, sowing of improved varieties of crops, storage of produce in cold storages, and other such measures are being taken.

These measures have indeed been successful. We had faced a huge food grain crisis in the sixties. We had to import wheat from the United States under their foreign aid program. We had become beggars. Not anymore.

We are today in a position to export a number of agricultural commodities. The Food Corporation of India was overflowing with stocks of wheat a few years ago. The Supreme Court had then asked why those grains may not be distributed to the poor instead of letting them rot in the storage godowns of FCI.

This increase in production has not led to an increase in the incomes of the farmers though, as seen in the persistence in suicides undertaken by them. Actually, increased production has led to lower incomes in the face of limited demand.

Thus farmers had to destroy the bumper crops of potatoes last year. They dumped trailer loads of potatoes in front of the mandis in Gujarat and Rajasthan. An increase in production is, therefore, unlikely to lead to an increase in our farmers’ incomes.

The government is climbing up the wrong hill in pursuing the same policy that has failed to secure an improvement in the economic conditions of the farmers the last 70 years after independence despite a many times increase in the production.

The only solution to this problem is to give direct subsidy to the farmers. The National Sample Survey Organisation has estimated that there are about 9.5 crore farmer households in the country. Of these about 6 crore are small farmers having less than 0.4 hectares land.

The large amounts of money being spent by the government in the name of the farmers can be directly credited into their bank accounts. The Union government spent about Rs 103,000 crore on agriculture in 2014-15; and the states spent Rs 263,000 crore.

Considering the increase since 2015, the figure for the present year 2017-18 would be about Rs 450,000 crore. We assume that one-half of this amount is in the form of essential services such as research. The other one-half is for farmer’s welfare such as under MNREGA.

Thus Rs 225,000 crores per year can be made available by redirecting these expenditures. More money is being spent on electricity subsidy and by other ministries. I reckon another 175,000 crore can be made available by scrapping these subsidies and giving the money directly to the small farmers.

An amount of about Rs 400,000 crore per year can be made available from readjustment of the present budget. This money can be distributed among the 6 crore small farmers.

They can be given Rs 5,500 per month from this amount. Then they can be left to face the market. There will be no need to waive their loans thereafter since their livelihoods shall be secure. Author was formerly Professor of Economics at IIM Bengaluru

By Dr Bharat Jhunjhunwala