Jun 19, 2015

Impending drought: farmers too need an economic bailout package



It has been a bad year for agriculture. Deficient monsoon in Kharif 2014, followed by unseasonal rains, hailstorms and strong winds in the months of March-April 2015 had left the farmers battered. Accompanied by a crash in global prices of wheat, rice, cotton, soybean and maize and the refusal by the government to provide a higher domestic price to farmers had left the farmers in a lurch.

As if this is not enough, ominous signs stare ahead. With the Indian Meteorological Department (IMD) predicting a significant shortfall of 12 per cent in monsoon rains for the second year in a row, stopping short of pointing to a drought year ahead, the misery, suffering and the severe blow it is likely to inflict on the livelihood security of over 600 million farmers is in itself frightening.

The Third Advance Estimates of Production of Foodgrains for the Agricultural year 2014-15 shows a drastic fall of 13.92 million tonnes in foodgrains production, slumping from a high of 265.04 million tonnes harvested a year earlier in 2013/14 to an expected 251.52 million tonnes. This surely is a significant decline in production pulling down the agricultural growth rate in the bargain to a low of 0.2 per cent. Statistics apart, what is often ignored is the hit the farmers’ household economy receives in the process.

With comfortable stocks of wheat, rice and sugar in the kitty there is no undue reason for alarm. Food inflation in staple foods can easily be kept under check with strategic food management. It’s only in the case of vegetables that the government will have to ensure that market sentiments are not able to exploit the crisis situation.

Erratic weather is one part of the story. What is often glossed over is the fact that farmers have suffered a double whammy with not only the weather gods playing truant but also the crop prices declining sharply. First, the global crash in prices of agricultural commodities had resulted in a sharp fall in the prices of cotton, basmati rice, soybean and milk. This was followed by the refusal of the government to pay a higher minimum support price (MSP) to farmers, keeping the hike to Rs 50 per quintal only, and at the same time withdrawing the bonus of Rs 150 or more that was being paid in Madhya Pradesh, Chhattisgarh and Rajasthan. 

In an affidavit before the Supreme Court, the government has acknowledged that it is not possible to pay a higher price since it will distort the markets. RBI Governor Raghuram Rajan too had warned against a rise in food inflation shifting the blame on the expected hike in MSP for rice and wheat in the months to come. In other words, farmers are being penalized for keeping food inflation under control.

The bigger challenge therefore is to rescue farmers. If you recall, in the aftermath of 2008-09 global economic meltdown, the government was quick to provide an economic bailout package of Rs 3 lakh crore to the industry. I see no reason why at a time when international agricultural commodity prices have crashed, followed by an autonomous regime of maintaining artificially low domestic prices, the burden of keeping food cheaper for the consumers has to be borne entirely by the hapless farming community.

It is high time the government provides an economic bailout package of at least Rs 1.5 lakh crore to farmers. This should be relatively easy now considering that almost all farmers have a bank account now under the jan dhan yojna. This has to be accompanied by more public sector investments in agriculture. In the 12th Five year Plan, the total investment for agriculture, which benefits 600 million farmers, was a paltry Rs 1.5 lakh crore. Compare this with the subsidy for the new and swanky T-3 airport terminal in New Delhi, which stood at Rs 1.62 lakh crore. The budget for MNREGA is higher than the total outlay for agriculture.  

Somehow it is not being understood by policy makers that if the farmers have more money in their hands, they drive faster the wheels of the economy. Effectively, this also translates into what the Prime Minister Narendra Modi often calls for: Sabka Saath, Sabka Vikas. 

1 comment:

Rakesh Mallick said...

Its sad that billions of dollars have been given to other countries while the farmers affected with unseasonal rains get cheques ranging from Rs 2 to Rs 93. Except for Delhi government that paid a compensation or Rs 50,000 per hectare no government has given apt compensation to the farmers.