Down To Earth analysis of India's agrarian crisis warns of severe economic fallouts in report

Agricultural growth rate is down to 0.2 per cent (from 3.7 per cent in 2013-14). Food prices have started to creep up. Union Finance minister Arun Jaitley has said agriculture has become a sector of concern.

But this is not a recent phenomenon, says a new report in Down To Earth, the science and environment fortnightly.

The crisis has been brewing and growing for many years, and is now reaching its tipping point.

Started by successive failures of monsoons and freak weather events, it has been aided by government policies and actions including inadequate and vague measures for compensating crop loss and reduced investments in and support to official schemes and policies and increasing farmer debts.

Down To Earth managing editor Richard Mahapatra says if predictions on El Nino come true, the agrarian crisis will acquire mammoth proportions, given the already distressed condition of farmers.

The economic damages of this, he points out, would be severe. The magazine reports that while in 2013, five states were affected (0.35 million ha of crops destroyed, causing an economic loss of Rs 500 crore), 15 states are suffering already in 2015 (18.23 million ha affected, causing an economic loss till date of Rs 20,000 crore).

Says Mahapatra: “If India is under the impact of El Nino, this will be our second consecutive year of monsoon failure and fifth consecutive year of crop damage. The pattern is hauntingly similar to the most severe droughts in recent Indian history caused by two successive monsoon failures – the Bihar famine (1965-1966) which affected 60 million people, and the 1986-87 drought which impacted 300 million.”

Talking of this daunting scenario, researchers from Centre for Science and Environment (CSE) – which helps publish Down To Earth -- say that India’s foodgrain production may come down by close to 6 per cent, as per recent estimates.

The magazine says while reasons for freak weather events are riddled with meteorological mysteries, the government support structure for handling such calamities is archaic and insufficient. The ways in which the government calculates damage and disburses compensation are neither simple nor adequate or fair.

For example, the entire procedure to assess crop damage is “ancient”. Damage reports are prepared on the basis of guess work. Down To Earth's assessment shows that about 50 per cent of beneficiaries are left out of the compensation procedure. Farmers and farmers' activists say even the maximum compensation amount is 70 per cent less than the market value of the crop lost. Only 4 per cent of farmers have insurance to cover crop loss, as small farmers find the premium too high and the sum assured hard to come by.

Down To Earth has highlighted the trends using data that show the crisis has been brewing for many years and could be far more serious than it seems:

The Economic Survey of 2014 says that rural wage growth declined to 3.6 per cent in 2014 from 20 per cent in 2011 – this also indicated a major dip in income for 400 million daily wagers. The magazine quoted economist C P Chandrasekhar: “Dip in the rural wages and consumption are symptoms of an agrarian crisis. While some of the trends are recent, the crisis has been there for long. Underlying the crisis are unavailability of crops, the collapse of public investment and lowering expenditure in rural India, and the return to unsustainable practices depending on farm loans.”

There are indications that the slowdown in the real estate sector and construction industry in urban areas has triggered a reverse migration. Villages are now flush with more labourers, bringing down the wage rate. The situation will worsen in the near future, as economists say 10 million people will move to rural areas after the urban economy starts slowing down.

Another reason could be the declining interest in MGNREGA which guarantees 100 days of employment. “Since the Act was launched in 2005, it has given a boost to the local wage rate. But fund allocations under the Act have reduced since the NDA government came to power,” says Mahapatra. “This year, despite consequent crop failures, the Act registered only 40 days of job demands -- one of the lowest in recent years,” Chandrasekhar adds.

The minimum support price (MSP), fixed by the government for a crop, should have come to the rescue of the farmers in these trying times, but the government's recent decisions have led to downsizing of official support for higher MSP. Soon after India Meteorological Department (IMD) predicted that the year could witness a deficit rainfall, the Reserve Bank of India suggested that the government should limit the increase in agricultural support prices to control inflation.

This year, foodgrain production is expected to be 5 per cent lower compared to last year. In an ideal situation, the prices would have gone up. But wholesale prices for paddy and wheat have crashed. The situation is not going to improve in the near future, as global food prices are touching a historic low. The Food Price Index has fallen 22 per cent from its 2011 peak. Indian farmers are already feeling the pinch of this crash; farmers growing export-oriented commodities, such as cotton, rubber, tea and sugarcane, have plunged into crisis due to dwindling realizations and surplus stock, the report said.

It also said that rural credit lending is rising. It will lead to a situation where credit lending agencies will be crippled with bad loans. The 70th National Sample Survey Organisation report, released in February, showed that agricultural lending grew by 24 per cent during 2003-13, while the agricultural GDP grew by just 13 per cent.

Say CSE researchers: “This is worrying as it indicates that while other growth factors like production and consumption remain stagnant or are declining, agricultural GDP is growing due to credit growth. In a way, it is a credit bubble waiting to burst as over 80 per cent of the borrowers are small farmers who don’t have the capacity to pay back. This year, Maharashtra, Telengana and Andhra Pradesh governments have demanded the waiver of loans worth Rs 92,000 crore; in 2008-10, it was Rs 65,000 crore. This threatens banks’ ability to sustain lending.”

Says Down To Earth editor Sunita Narain: “All these indicators point to one thing – that farmers are at a critical stage, worse than the situation of early 2000s that resulted in a spate of farmer suicides. The government must act before it is too late. It must analyse where it is going wrong in its strategies and immediately prepare a long-term plan to resolve the crisis."