Getting farmers a fair price

Interest subventions, rise in MSP and focus on irrigation facilities have not been able to effectively address farmer woes

By Author Dr K Srinivasa Rao   |   Published: 29th Jan 2018   12:01 am Updated: 28th Jan 2018   10:22 pm

It is feared that the impending slowdown in the agriculture sector may adversely impact growth prospects in FY18. In a recent congregation of experts, economists were unanimous that the sector needs resuscitation to restore semblance to the economy convalescing in the aftershock of GST and demonetisation.

Despite the dominance of the emerging service sector, agrarian economies like India have a deep umbilical connect with the growth of agriculture sector — the epicentre of our economic prosperity. It is the critical sector for close to two-thirds of our population, which is directly or indirectly dependent on it and absorbs the mass of informal labour. Its lacklustre growth can have wide ramifications, exacerbating agrarian discontent and farmer woes.

Though in terms of sectoral contribution, it forms 17% of the GDP, in terms of spread and penetration and its critical role in the hinterland, it is far-reaching. According to advance GDP estimates, farm growth is expected to go down from 4.9% in FY17 to 2.1% in FY18. This is disappointing when the motto is to double farmer income by 2022.

Institutional Support

Interest subventions, rise in minimum support price (MSP) and increased focus on irrigation facilities and linking of canals have not been able to effectively address farmer woes. Social schemes designed for farmers with huge fiscal allocations are not reaching them in sufficient measure.

Moreover, the recent farm loan waivers in Uttar Pradesh, Punjab, Maharashtra and only crop loans in Karnataka work out to around Rs 88,000 crore.
Such waivers are yet to reflect in the betterment of life of farmers except that they turn a potential threat to the loan repayment culture.

Better strategies to raise farm output include: (a) use of better technology, quality seeds, fertilizers and agro-chemicals (b) providing subsidies on farm inputs and crops (c) increased investments in capital-intensive agriculture projects and (d) extending institutional support of Nabard/banks.

Inadequate Farm Loans

Though loans to the sector qualify as priority sector loan, the flow of farm credit has slowed in the last three years creating a credit crunch for the farm sector. So far, the number of beneficiaries in this sector from banks had reached 7.68 crore borrowers, aggregating Rs 8,94,459 crore loans by March 2016.

The number of cultivators according to 2011 census is 11.86 crore, of which 64.7% is funded by banks. Since a farmer has multiple loan accounts, the coverage comes down. The remaining farmers are funded by informal agencies.

Even of these farm loans, 75% is extended for crop loans. Farm loans for capital-intensive projects are far less and they bring down agriculture produce. Of the farm loan borrowers, 39% belongs to small and marginal farmers holding less than 2 acres of land. The rest have higher holdings.

The percentage distribution of farm loan spread across is Tamil Nadu — 11.4, UP — 11.3, Maharashtra — 9, Karnataka — 8.7 and Andhra Pradesh — 8.5. These top five States constitutes over 50% of the loans extended to the sector.
The quantum of farm loan reached Rs 9,92,400 crore during FY17 but it went down to Rs 9,88,200 crore, recording a negative growth of 0.40% during FY18 up to November 2017. This is against the target of Rs 10,00,000 crore fixed for farm loans in the Budget FY18.
The consistent fall in incremental bank credit from 10.3% in FY16, 8.4% in FY17 and negative growth of 0.40% up to November 2017 can also be one of the reasons for the slowdown of the sector.

Lack of Infrastructure

The inability of farm produce to reach markets due to lack of adequate road connectivity, network of arterial roads and transport facilities is one of the prime reasons for the disparity in food prices in different geographies.

The recent glut in potatoes in local markets and instances of tomatoes thrown on the roads due to their immobility are common. Similarly, prices of onions shooting up and dipping are hitting the farmer community hard. Even prices of tur dal and a few other pulses have witnessed a steep rise and fall due to supply-side dynamics.

Depending on the shortfall in markets, farmers begin to produce scarce commodities to increase supply. But when such commodities cannot move to markets where the shortfall is discernible, due to inadequate infrastructure, they crowd local markets creating excess supply and crashing prices.
When prices go down, farmers diversify into other products creating a scarcity of produce and pushing up prices once again. This phenomenon of peaks and lows in the prices of agriculture produce is often seen hitting the consumer price index, escalating inflation.

Commercial Viability

Therefore, while providing all kinds of support, including adequate institutional credit, sustained efforts are needed to improve transport infrastructure and extend marketing support to farmers to realise fair price to enable commercial viability to farming.

Some States such as Madhya Pradesh and Haryana have started Deficiency Price Payments to compensate farmers, wherever they realise prices are below MSP. They should also be educated to export cash crops and other forms of produce, which have markets abroad. Agriculture produce, if confined to local markets, will be sold at unsustainable prices while they will continue to be dear in other markets.

It will be difficult to resolve farmer distress if a host of collaborative efforts are not taken to provide a seamless flow of farm credit as well as proper road connectivity. Unless farmers’ income increases, the aspiration to double their income cannot be achieved. Revival of the agriculture sector will be critical to spur the economy.

(The author is Director, National Institute of Banking Studies and Corporate Management, Noida)