Crumbs for farmers -R Ramakumar
Hidden in the Modi government’s Budget promises to India’s farmers, who are in distress, is the admission: we have failed you.
No section of society has perhaps fared worse under the Narendra Modi regime than small peasants and agricultural labourers. Rural India, particularly peasants, voted in large numbers for the Bharatiya Janata Party-led National Democratic Alliance (NDA) in 2014. Once in power, the NDA government promised to double the incomes of farmers between 2015 and 2022. But by the fag end of his term, Modi, taken down a peg by a restive peasantry, is reduced to the sorry state of offering Rs.17 a day to cajole them to vote again for his party.
There are two dimensions—one long term and another short term—of the current agrarian distress that are striking. Between 2003 and 2010, Indian agriculture grew commendably thanks to two fortuitous factors: externally, higher global prices and, internally, higher minimum support prices (MSPs). The terms of trade—the ratio of “prices received” to “prices paid out” by farmers for inputs—rose, allowing farmers to survive a period of rising costs of production. After 2011, however, global prices began to fall and the domestic policy atmosphere turned hostile to agriculture. The goal of inflation targeting became the cherished goal of monetary policy. The United Progressive Alliance (UPA)-2 government refused to raise MSPs at the same rate as earlier, fearing that higher MSPs would lead to higher inflation. This fear was passed on from the UPA-2 to the NDA government after 2014. In sum, MSPs rose only moderately between 2011 and 2018.
After 2011, terms of trade turned adverse for farmers (see Figure 1). Figure 2 plots data on the sectoral deflator in agriculture—the difference between the rates of growth of gross domestic product from agriculture at current and constant prices—up to the first half of 2018-19. The sectoral deflator rose between 2005-06 and 2009-10 and then fell sharply after 2010-11, even turning negative by the second quarter of 2018-19. In other words, the economics of agriculture under the UPA-2 and NDA governments’ tenures was marked by the presence of acute disincentives.
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