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Resource centre on India's rural distress
 
 

The viability crisis in Indian agriculture -CP Chandrasekhar and Jayati Ghosh
-The Hindu Business Line

The dilution of government intervention in the form of minimum support prices, procurement and public distribution is undermining agricultural production in the country

Farmer movements and farm loan waivers in different States have driven home the fact that the viability of agriculture is under challenge. This is surprising, since the comprehensive framework for reviving agricultural production, introduced in response to the agricultural crisis in mid-1960s, is in principle still in place. There were many components to that framework besides the adoption of Green Revolution technology. The most relevant aspects are the measures that were aimed to ensure the viability of agriculture.

The measure directly relevant to the purpose was the promise to procure at a pre-specified, cost-plus remunerative price, any supplies of identified crops that farmers chose to sell to the Government. With these minimum support prices (MSPs) revised each year, this measure was aimed at ensuring that there was a rising floor to agricultural prices, which would stabilise income increases and guarantee farmers a return on investments that helped raise productivity.

There were two problems deriving from this measure that needed to be addressed: managing the supplies procured by the Government; and, insulating the consumer from increases in market prices at rates much higher than the procurement price. On the first problem, the Government decided to dispose of the stocks it procured and accumulated through the public distribution system, which was already in place to manage regional differences in food grain availability.

This was to be done at affordable prices, which given the procurement, storage and transportation costs incurred by the government, had to include a subsidy that moderated prices paid by the consumer. Thus, it was hoped that agricultural production would be incentivised, farmer incomes would be stabilised and consumers would be protected against agricultural price inflation.

Not so supportive

Many years have passed since this system was first put in place, so country-wide coverage should have been ensured and the Government should have accumulated enough experience to implement it without difficulty. The result should have been a viable agriculture and satisfied consumers. So, the evidence that crop production is increasingly unviable is indeed surprising.

More recently, the problem appears to be that annual increases in the MSP have been smaller than earlier with farmers complaining that support prices have not kept pace with costs. Since support prices, at which the government offers to procure as much as farmers want to sell, influence the level of market prices, the latter too have been depressed. The net result, according to farmers, is a closing of the gap between costs and prices, despite the claim that MSPs are computed on a cost-plus basis by the Commission for Agricultural Costs and Prices, with an average cost taken for the whole of the country in the context of often substantial regional variations.

This view has been corroborated by the market observers. Thus, a research report from rating agency CRISIL has found that “While the average annual growth (in MSP) between agriculture year 2009 and 2013 was 19.3 per cent, it was only 3.6 per cent between 2014 and 2017,” and argues that this deceleration during the tenure of the current government has added significantly to farmers’ distress. A study specifically of pulses reported that: “Cost of cultivation increased 3.7 per cent year-on-year in agriculture year (July to June) 2016-17, compared with 2.8 per cent in the previous year and hence increase in MSPs did little to stem the fall in their (farmers’) earnings.”

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