Agriculture in Crisis (Part-2)

Inadequate institutional credit

Meanwhile, the difficulties farmers face in accessing credit at reasonable rates to finance agricultural production have become more intense in the recent past. Institutional credit to agriculture did increase under the United Progressive Alliance (UPA) government even though the increase was not as much as expected or as would be necessary, and small cultivators still found it difficult, if not impossible, to get loans. Recently, things got worse in this regard, despite all the grand talk of financial inclusion under the Jan Dhan scheme, as small farmers have once again been forced to take recourse to local moneylenders and input dealers who charge exorbitant interest. The rigidity of the institutional loan structure, as also the public humiliation of defaulters by many commercial and cooperative banks, makes it difficult to deal with even for farmers who can access such loans.

Meanwhile, the crisis in agriculture has been sharpened by the lack of productive non-agricultural activities, including livestock rearing and off-farm employment. The inadequate generation of properly remunerative employment in the economy, which has been a shameful feature of the recent growth process, has meant that farmers do not have the real choice of engaging in other work even as cultivation becomes less profitable. This has added to the insecurity created by the threat of involuntary displacement because of the requirements of so-called “development”, and at least partly explains the animosity among farmers to the Narendra Modi government’s Land Acquisition Bill.

‘Shining India’ syndrome

All in all, suddenly the current conditions in rural areas are harking back to the conditions that prevailed in the early 2000s, and especially in 2004, when the devastation of agriculture and rural livelihoods proved both economically painful and politically disastrous for the then-ruling National Democratic Alliance (NDA) government. The similarities are both remarkable and perplexing: the NDA government then chose to believe in its own propaganda of “India Shining” and was punished in the elections for what seemed to be an almost insulting denial of reality. Today, as farmers reel under a combination of naturally caused problems and policy-driven adversities, the Narendra Modi government is apparently planning a major publicity campaign to persuade the people that the promised “achhe din” have already arrived for all Indians, including farmers! During that period of what can only be considered extremely depressed conditions in the rural economy, there was a growing recognition that this reflected not only structural conditions but also, and especially, the collapse of public institutions that affect farmers and farming.

UPA policy measures

The Congress-led UPA government promised to revive agriculture, and several commissions, including the National Commission on Farmers, provided detailed suggestions on how this could be done. It was evident that to put agriculture on a more viable and sustainable footing, some policy measures were urgently required in several interlinked areas. These included the correction of spatial inequities in access to irrigation and working towards sustainable water management; bringing all cultivators, including tenant farmers, into the ambit of institutional credit; shifting policies to focus on dryland farming through technology, extension, price and other incentives; encouraging cheaper and more sustainable input use, with greater public provision and regulation of private input supply and strong research and extension support; protecting farmers from high volatility in output prices; and placing emphasis on rural economic diversification to more value-added activities and non-agricultural activities.

Of course, not all of these were even sought to be implemented, and the same analysis of what needs to be done could be just as relevant today. But the UPA government was elected on promises of reversing the material decline in the countryside, and in its first five-year tenure it did undertake a number of measures that were designed to improve things at least partially. As it happens, most of the years of the UPA government turned out to be “achhe” for farmers or, in any case, certainly better than the ravages of the early 2000s. Credit to agriculture increased manifold; public investment directed to the rural areas also increased; agricultural research and extension services (critical to ensure farmers’ access to current and relevant knowledge for production) were given significant boosts through more public spending and reorganisation; and, most of all, the rural employment guarantee Act (MGNREGA) provided the rural poor a secure base of income that helped to revive the rural economy through enhanced demand and entailed some activities that could improve agricultural supply through the public works that were put in place. At the same time, movements in world trade prices were also beneficial to farmers, and so terms of trade shifts also assisted the relative improvement in farm incomes. These measures did bear fruit by the end of the decade, with significant increases in the volume of production of both food grains and non-food crops. The value-added in agriculture also improved substantially, especially between 2009-10 and 2011-12, driven by both higher output and favourable relative price changes. In consequence, investment in agriculture also increased, both in real terms and as a share of agricultural income. But thereafter there was already some indication of a tapering off of both production and value-added in agriculture. Capital formation in agriculture increased substantially under the UPA-1 regime and in the early years of UPA-2, driven in the later part of the decade by private investment that responded to higher crop prices and more opportunities for crop diversification as well as improved extension services. 

Most recent period has witnessed a sharp fall in capital investment in agriculture, according to the New Series of National Accounts Statistics that has just been released. The decline was especially sharp in the last two years of the UPA government. So, in a sense, the rot, in terms of deceleration of agricultural performance, had set in by then. Indeed, for many small and marginal farmers, especially in dryland areas, even the “good years” of supposed agricultural boom did not really translate into better material conditions.

It was this gap that Modi, as the prime ministerial candidate of the NDA, exploited during the course of the 2014 general election. In his campaign speeches, he promised to ensure that farmers would get a 50 per cent return on their input costs; that agricultural prices would be stabilised and kept on a higher trajectory for cultivators even as urban consumers would pay lower prices because of improved distribution; that rural people would be able to access affordable and good quality health services; and many other things besides. After having their hopes raised sky-high by such promises, it is not surprising that farmers feel betrayed by this government. Even the Land Bill, unpopular as it is, is only one of many grievances that cultivators now nurse against official policies because of many acts of commission and omission that have led to dramatically deteriorating conditions of cultivation.

In the first year of the Modi government, the Central Statistics Office’s (CSO) advance estimates of national income suggest that growth of value-added in agriculture will be only 1 per cent compared with 3.7 per cent in the previous year. But even this may well be an overestimate given the damage to the rabi crop because of freak weather conditions. Instead of higher crop prices, farmers had to face declining global trade prices of most cash crops and a near-stagnant minimum support price (MSP) for important foodgrains and sugarcane. In addition, the Central government has now declared that it will procure crops only from farmers in deficit States, a peculiar strategy that will defeat the original purpose of moving grains from surplus to deficit areas and will expose farmers in all other places to the vagaries of market price fluctuations and declines. It has told State governments that wish to top up the MSP on offer to their own farmers that they will then have to foot the entire bill for such purchase rather than only the difference between their own price and the Centre’s price.

With falling oil prices, domestic oil and diesel prices should have come down sharply, thus benefiting farmers, but this has barely occurred because the benefits were mostly garnered by the government instead, which took advantage of the global price fall to raise its own excise duties and sales taxes. Fertilizer subsidies are planned to be cut, and the policy-created imbalance between use of nitrogenous and phosphatic fertilizers will worsen, with associated terrible effects on future soil quality and yield.

To add injury to all this insult, the past year has experienced sweeping cuts in some essential items of Central government expenditure that impact farmers directly. Public spending on agricultural development and on research and extension has already fallen in real terms and is set to decline even further in the coming year. The money for irrigation has been cut. Central government spending on health and other services which would reduce the financial burden on farmers is also being cut severely. The employment guarantee scheme has been squeezed so much that it is no longer any kind of guarantee at all, and the programme will struggle simply to survive. Those who feel that this will not affect farmers because they employ workers rather than the other way around miss the point that around 40 per cent of cultivators joined the programme as wage labour to supplement their meagre and uncertain farm incomes. So, reducing or killing this programme will also affect them very badly, and that too at a time when other sources of rural income are drying up. This is the context in which the unseasonal rain and other weather changes have had such a devastating impact on so many farmers. Even in this punishing context, government responses have been at best tardy and at worst downright offensive.

The Central government is effectively treating this as the responsibility of State governments, passing the buck on this critical area of public intervention to States that are already hugely financially stretched because of the reduction of so much other Central social spending. It is hard to understand why the Modi government is persisting with such blatantly anti-farmer policies. It is even harder to understand how it can presume that periodic radio broadcasts by the Prime Minister and optimistic media blitzes can somehow change public and farmer perceptions when the experienced reality is so very different from both the promises

END.(Published in Frontline.in)

Agriculture in crisis(Part-1)

The Narendra Modi government is pushing ahead with policies that disadvantage farmers at a time when Indian agriculture is already in deep crisis. By JAYATI GHOSH

ONCE AGAIN, the spectre of agrarian distress, which is unfortunately never far from the surface in much of India, is rearing its ugly head. Across the country, farmers, especially small cultivators, are facing severe problems with already dire outcomes. There has been a spike in farmers’ suicides in several States. Among several other signs of acute hardship are reports that once again more people are migrating from the countryside in search of work to cope with collapsing livelihoods at home. This is occurring even in places where such outcomes have not been so common in the past few years and at a time of the year (just before the rabi harvest) when they are less expected.

In Maharashtra, it is estimated that there has been a 40 per cent increase in farmers’ suicides in the past seven months compared with the corresponding previous seven-month period. In West Bengal, the State government appears to be in denial mode even though the number of farmers who have committed suicide this year in Bardhaman district alone is 106. Reports from Rajasthan, Punjab and elsewhere also point to more suicides by those from the farming community.

Of course, it is shocking that it takes something as drastic and final as a suicide to generate public acknowledgement of severe economic distress. It is even more shocking that the tendency among officialdom is to downplay the increase by changing the classification of some of these deaths into suicides by “non-farmers” (if they do not have land titles, for instance, or are women) or attributing them to “personal reasons” rather than severe economic adversity.

Indeed, the Central government recently told the Supreme Court that the number of farmers who committed suicide had decreased since 2009 and that factors other than agrarian and financial distress also led the farmers to take their own lives. Such arguments suggest a cynically callous attitude to farmers and their families, and they are also an attempt to deny the basic problems that farmers face and the extreme difficulties of their situation whether or not they take the drastic step of killing themselves. Agriculturalists in different parts of India are feeling the pressure for different specific reasons. In much of northern and western India, unseasonal rain and hailstorms have battered standing crops of pulses and vegetables, and lower harvests are the primary source of concern here. It is estimated that nearly one-third of the acreage under the rabicrop has been affected. In West Bengal, potato farmers are struggling because of too much output; post-harvest potato prices have collapsed and the appalling but continued lack of adequate storage facilities means that farmers are forced to simply let their crops go to waste. In Maharashtra, farmers face a double whammy: cotton and sugar prices are down even as bad weather has meant lower output. In southern India, agriculturalists are suffering the impact of the global decline in prices of cash crops, accentuated by the adverse effects of the various trade agreements signed by the Central government.

Yet, despite the variations, there are some underlying similarities. In all parts of rural India, farmers are facing what has been called a “scissors crisis”, which is driven by the rising cost of inputs without a commensurate increase in output price. This puts them on an uncertain trajectory where their reliance on (typically very expensive) debt to finance their operations tends to grow over time and any unexpected movement can have extreme consequences. An adverse weather change, for example, can lead to a drastic decline in economic capacities such as the ability to recoup input costs, leave alone the ability to repay loans. So, the greater underlying fragility of the process of cultivation makes farmers even more vulnerable to what may not otherwise be such a major change in the weather pattern. The inadequacy of institutional mechanisms to deal with the risks associated with farming (such as crop insurance and functioning price stabilisation schemes) means that cultivators are forced to deal with these almost entirely on their own.

The rising cost of inputs reflects more than just input price changes, and indeed, the price of one of the most important elements of cost of cultivation, that of fuel, has actually been low or stable in the recent past because of low world oil prices (even though these price declines have not been transmitted fully to Indian consumers). Instead, rising input costs are part of a process of the declining technological viability of cultivation. Soil quality has worsened because of excessive use of chemicals over long periods as well as erosion and waterlogging in some areas. Irrigation is both scarce and ever more expensive as declining water tables make the use of groundwater the privilege of those who are rich enough to keep digging deeper and deeper to extract it. The emergence of new pests resistant to chemical pesticides and the uneven performance of genetically modified seeds that are supposed to reduce reliance on chemicals have complicated the possibilities of pest control and thereby affected crops. And so on.

Continued in Part-2... (Published in Frontline.in)

Failing the farmer

Outcomes of the patterns of growth induced by neoliberal economic reforms have increased the

disproportionality between agricultural and non-agricultural growth, and with costs rising and prices not keeping pace, agriculture is becoming increasingly unviable. By C.P. CHANDRASEKHAR

FARMERS across northern and central India—in Maharashtra, Madhya Pradesh, Rajasthan, Haryana and elsewhere—are distressed. Unseasonal rains have damaged their standing crop and help from the government has been meagre and slow in coming. This, however, is only the most recent cause for resentment among small peasants and rich farmers alike. Sugarcane farmers have routinely protested against the fair and remunerative floor prices set by the Union government and the State-advised prices recommended by some State governments, arguing that they are unreasonably low. For some crops, market-driven or administered prices (linked to international prices) have been falling, worsening the problem. Overall, across many crops, the sense is that prices are not keeping pace with increases in cost of production. With indebted farmers not being able to service their loans, suicides have grown in number.

Underlying these short-run sources of discontent are two larger problems. The first is the increasing non-viability of agriculture, with costs rising and prices not keeping pace. A number of factors are responsible for this. One is the increase in input prices, resulting partly from the government’s effort to reduce the subsidies provided on a number of inputs varying from fertilizer and diesel to irrigation. Another is the unwillingness of the government to offer significant increases in the official “support prices” for a number of commodities which often serve as the floor for market prices. And finally, in many areas trade liberalisation is having a dampening effect on prices.

These challenges to economic viability combined with other forms of neglect, varying from reduced public capital formation in agriculture to curtailed spending on extension services, account for the second of the sector’s problems: the low rate of growth of production both in absolute terms and relative to the other sectors of the economy. For the past three years, for example, while evidence points to another round of acceleration in gross domestic product (GDP) growth in India, aided by the revision in the base year used for constructing the estimates, this revival, even dynamism, seems missing when it comes to agriculture. According to new official figures, GDP growth will average 6.5 per cent over the three-year period from 2012- 13 to 2014-15 and is likely to be in the 7 to 8 per cent range in 2015-16. Since this acceleration has occurred in a context of limited inflation, the government is now targeting a further rise in growth rate to two-digit levels.

Structural shift

However, agriculture is still languishing. As against the growth of gross value added at basic prices in manufacturing of 6.23 per cent and 5.32 per cent in 2012-13 and 2013-14 respectively, and in services of 6.16 per cent and 7.64 per cent, the figures for agriculture were only 1.19 per cent and 3.66 per cent. In fact, other than during short periods since the 1980s, the disproportionality between agricultural and non-agricultural growth has been growing. The disparity in the rate of growth of agricultural and non-agricultural GDP increased significantly after the 1970s, with the process being particularly marked after the mid-1990s. What is particularly remarkable is that the acceleration of non-agricultural growth during the 1990s was accompanied by a decline in the rate of agricultural growth. In the period from 1999-2000 to 2004-05, while agricultural GDP grew at 1.7 per cent, the trend rate of growth of non-agricultural GDP exceeded 7 per cent.

One implication of these trends is that domestic agricultural growth has for some time now not been a constraint on the growth of the non-agricultural sector. This does mark a structural shift in the pattern of growth when compared with the first three decades of post-Independence development, when the agricultural bottleneck was seen as an important constraint on development. A common view was that the government had underestimated the agricultural constraint and treated agriculture as a bargain sector in which output growth could be accelerated without much investment, by making suitable institutional  adjustments.

There were four ways in which the inter-sectoral growth linkages between the agricultural and non-agricultural sectors were manifested. First, since agriculture accounted for a high share of the nation’s GDP (61 per cent of non-residential GDP in 1950-51 at constant 1993-94 prices) and employment (76.2 per cent), demand from the agricultural sector was seen as crucial for growth in the non-agricultural sector, especially manufacturing. Second, since agricultural commodities constituted a significant share of input costs in some industries and of the basket of commodities on which wages were spent, increases in agricultural prices were bound to affect industrial costs and performance. When costs rise in agro-based industries or industrial money wages had to be raised to take account of food price increases, manufacturers experienced an increase in costs that was not always neutralised by an increase in final product prices.

The resulting profits squeeze affected manufacturing investment adversely. Thirdly, increases in agricultural prices constrained the growth of demand for the manufacturing sector since consumers allocated a larger share of their incomes to food consumption and a smaller share to manufactures demand. Finally, in response to the inflation in agricultural prices, the government is often forced to cut back on public expenditures to moderate the price increase, undermining an important source of demand for the non-agricultural sector.

Given these effects of an agrarian constraint on non-agricultural growth, any excessive dis-proportionality in growth tended to be self-correcting. Faced with the decline in economy-wide performance, the government soon sought to improve agricultural performance in order to revive non-agricultural and overall growth. In fact, the adoption of the Green Revolution strategy was a response to the overall impasse in development resulting from poor agricultural growth.

It needs to be noted that these mechanisms are operative only if there are limits on altering domestic supply with imports. If foreign exchange can be accessed easily to finance such imports, commodities for which domestic demand exceeds domestic production can be imported to hold down the price level. During the 1950s and early 1960s, India recorded rapid noninflationary growth in manufacturing even when agricultural growth was moderate because of access to food imports through the P.L. 480 route, which enhanced supplies and helped dampen price increases. It was when access to such imports was closed for political reasons that the agricultural constraint proved binding, leading to the deceleration of manufacturing growth in the late 1960s and the 1970s.

Reforms and the growing hiatus

It is against this background that we need to assess the changed circumstances since the 1990s, when the dis-proportionality in non-agricultural and agricultural growth seems to have widened considerably without triggering alarming rates of inflation that limited non-agricultural growth. Changes in the environment and pattern of growth seem to have changed the nature of inter-sectoral relations. One element of change in the environment of obvious relevance was the transformation of the world of international finance that, for the first time, provided “emerging markets” like India access to private international finance. The Indian government exploited that opportunity during the 1980s to overcome the development impasse of the 1970s. Deficit-financed expenditure was used to accelerate non-agricultural growth, and the resulting disproportionality between non-agricultural and agricultural growth was managed by using imports financed largely with external debt to change the structure of domestic supplies and dampen inflation. This was truer in the 1990s than in the 1980s.

However, this alone does not constitute the full explanation. Rather, changes in the economic policy regime, especially since 1991, have changed the pattern of growth in ways that have transformed the nature of inter-sectoral linkages. The use of more capital-intensive techniques, greater reliance on imported inputs and synthetic substitutes, and changes in the pattern of demand (with shifts in favour of metal- and chemical-based industries) have meant that the derived demand for agricultural products (as wage goods or inputs) from a unit rise in industrial output has declined over time. This reduction in the dependence of the non-agricultural sector on agriculture has been intensified by the high rate and peculiar nature of growth of services in India.

While services accounted for 43 and 48 per cent respectively of the increment of the GDP at current prices in the 1970s and 1980s, the figure rose to 60 per cent and more during the 1990s and 2000s. Given the much lower agricultural input dependence of services, this would have strengthened the tendency noted above. Moreover, the expansion of the service sector has been accompanied by the growth of services (such as business and financial services) where revenue growth is far ahead of employment growth and the share of higher-paid employees is larger. As a result, even the derived demand for agricultural wage goods would grow at a much lower rate than output partly because of the slower growth in employment and partly because increases in per capita incomes accrue to those whose demand for food is satiated.

Finally, there is evidence that even among the relatively poor the share of income allotted to food consumption is being squeezed by the growing requirements set by expenditures on health, fuel, transportation and education. The reform-driven collapse of public provision in some of these areas, requiring purchases from private suppliers, and the increase in prices in others, are responsible for the enforced shift away from food consumption in the household budget.

The net result of all this is that agriculture is increasingly faced with a growing demand constraint at a time when input costs are rising. This worsens the margin squeeze. While the global commodities boom provided some relief in terms of increased relative prices favouring agriculture during the 2006-10 period, that was just about adequate to reverse the decline in the period after the 1997 South-East Asian financial crisis. These medium-term outcomes of the patterns of growth induced by neoliberal economic reform underlie the agricultural crisis and agrarian distress being reported from different parts of the country, at a time when the non-agricultural economy is on a roll and the GDP is rising rapidly. What is disconcerting is that, as a consequence, the pressures to redress the neglect of agriculture and adopt policies that restore a semblance of balance between agricultural and non-agricultural growth are now much weaker.

(Published in Frontline.in)

How not to treat agriculture

If Budget 2015 is any indication, the Modi government is going beyond what could be called benign neglect of agriculture to policy moves that are likely to harm its viability.

 IT is scarcely surprising that farmers are upset with the Narendra Modi government. Indeed, the rosy dreams created by that famous campaign advertisement of the Bharatiya Janata Party (BJP), when farmers spoke of the high crop prices and better cultivation conditions that they would get once the “achhe din” of the new government arrived, probably seem like a cruel joke now.

The most immediate concern is the Land Acquisition Bill that the government is trying to force through Parliament (apparently even considering a joint session to get around the opposition in the Rajya Sabha) after promulgating an ordinance to that effect. In a surreal replay of arguments made by some members of the previous government, those who are demanding fair compensation and proper rehabilitation for farmers are being branded “anti-development”—as if those who will lose their land and their livelihood are not even meant to be part of the development process and should simply make sacrifices for the profits of others.

This reflects a basic unwillingness on the part of this government to accept that economic progress must be sought for in ways that do not trample on basic human rights, and that respect for both nature and people cannot be allowed to wait until some desired goal of per capita income is achieved, but must be a part of the overall growth strategy itself. But it also reflects a degree of contempt for both farmers and farming, a contempt that is manifest in a number of other acts of omission and commission of this government. Consider the acts of omission first. The decade of the United Progressive Alliance (UPA) governments had turned out to be relatively better for farmers because of more public spending directed to agriculture and the rural areas generally as well as higher global prices for many crops, which also influenced domestic crop prices. But signs of deceleration were already evident in the later years of the UPA-II government. Gross capital formation in agriculture has been falling, both as a share of GDP (gross domestic product) in agriculture and as a share of total capital formation in the economy. And things have deteriorated significantly since.

Growth of value-added in agriculture is estimated to have declined from 3.7 per cent in 2013-14 to only 1 per cent in 2014-15, the first year of the Modi government—and that too despite weather conditions that turned out to be much more favourable than expected. The minimum support prices (MSPs) of important grains were increased only slightly, ostensibly to control inflation (which was anyway substantially lower because of favourable global trends). Meanwhile, farm input prices did not really come down despite falling world oil prices, mainly because the government grabbed the benefits by raising taxes and excise duties. Meanwhile, the perverse incentives created by the structure of fertilizer prices, with huge imbalances in the use of nitrogenous and phosphatic fertilizers and consequent adverse effects on soil and yield, have been worse in the past year.

Agricultural credit, which increased quite a bit in the early years of the UPA, has barely increased under the Modi government, and much of it rather than reaching small and marginal farmers has been captured by the wider range of beneficiaries classified under the broad head of “priority lending”. All these forces have combined to create conditions in the countryside far worse than what have been witnessed for around a decade. This situation cries out for much greater policy focus on agriculture. Instead, the Modi government is going beyond what can be called benign neglect of agriculture to policy moves that are likely to harm its viability.

Budgetary allocations

The Union Budget is only the most recent manifestation of this. Budgetary allocations for agriculture have been slashed drastically—and this after a year in which the Modi government spent 26 per cent less than it had allocated in its first Budget on agriculture, irrigation and flood control (in terms of both Central government Plan spending and transfers to the States under these heads). Compared to 2013-14, the last year of the UPA government, actual spending by the Central government and transfer to States is currently budgeted to decline by 22 per cent in nominal terms. If inflation is taken into account, this amounts to a real decline of nearly one-third. And given the Finance Minister’s propensity to enforce fiscal cuts in the middle of the year, even this amount is not guaranteed and could well turn out to be much lower than the budgetary outlay. So, precisely at a time when agriculture needs much more assistance and public spending, this is set to decline sharply.

The cuts in irrigation are particularly mystifying because this government has already declared itself to be in favour of increased public investment in necessary infrastructure. The allocation for the Accelerated Irrigation Benefit Scheme has been savagely cut from the Rs.4,630 crore that was actually spent in 2013-14 to only Rs.1,000 crore for the Budget year 2015- 16. A part of this shortfall is supposed to be met by the newly constituted Pradhan Mantri Krishi Sinchai Yojana, for which Rs.1,000 crore has been allocated. But since a similar amount had been budgeted for that last year and only Rs.4 crore was finally spent, there can be justified scepticism about how much of that will actually see the light of day. There are other acts of policy commission that have significance. 

The dissolution of the Planning Commission and all the structures and mechanisms in which it was involved, without any clarity about what exactly the NITI (National Institution for Transforming India) Aayog will do in its place, has consequences for many sectors and areas, and agriculture is certainly one of them. Under the Rashtriya Krishi Vikas Yojana (RKVY) of the UPA government, the increased Central spending on agriculture under the Plan was linked to States’ spending. The RKVY provided 100 per cent Central funding if States maintained their share of public spending on agriculture—and this led to a substantial increase in public spending on agriculture across States. This had positive effects on agricultural research and extension systems in particular. Now all of that has simply dissolved, and it is unclear what will happen to such public expenditure other than a basic sense that it will decline.

States’ spending

It could be argued that States will have more funds to spend because of the higher tax devolution as a result of the 14th Finance Commission award. But the additional resources likely to come to States is estimated to be only 0.7 per cent of GDP and the Centre has already clawed back most of this by drastically reducing its spending on many social sectors, including health and education. If the State governments now have to shell out much more simply to pay for salaries under the Integrated Child Development Services (ICDS) Scheme and the National Health Mission as well as to maintain their public educational institutions, how will they possibly find more resources for agriculture? Instead, it is likely that we will see near-chaos in many social sector programmes across the country as well as in public systems set up to assist farmers.

There is another angle to the issue of State spending, which links up to the point about land acquisition and its costs. Whenever land is acquired according to some definition of public purpose, it is State governments that are supposed to provide the resources for compensating those who are displaced. In the current government’s apparently aggressive plans for infrastructure expansion, including its various proposals for new roads, railway expansion, “smart cities” and the like, it

is unclear whether the likely costs of compensation and rehabilitation have been adequately budgeted for. But the threat of these increased costs being passed on to State governments could well be used as a weapon to persuade some political parties ruling State governments to support the NDA’s Land Acquisition Bill, which they would otherwise decry as antifarmer. This may explain the surprising support recently extended to the Bill by the Akali Dal, for example. So there are now greater chances of farmers being thrown off their land and worse chances of them eking out viable livelihoods from their holdings. Either way, the immediate future does not bode well for agriculture, which still accounts for around half of India’s workers. That India can never succeed economically without a vibrant agriculture is obviously a lesson yet to be learned by the current government.

(This piece of article published in Frontline.in)

Budget and Rural Development

Notwithstanding growing urbanization in the last decade or two, India still live in Six lakh
villages and rightly the 2015-16 general budget, the first full year budget of Prime Minister Narendra
Modi rightly gives the due attention to Rural Development coupled with increased allocation to the
farm sector. Several new initiatives have been launched by Finance Minister Arun Jaitley in the
budget, which has gone unnoticed. The overall plan expenditure may look lower but one should not
forget that with the implementation of 14th finance commission recommendations, the states get clear
10 per cent more share of central pool of taxes at 42 per cent giving substantial hike in resources that
are untied thereby helping states to design and provide more resources in those rural programmes that
require more money. Jaitley has also provided significant resources for rural development. Apart from specific allocation of Rs 79,526 crore for rural development, several initiatives and allocations for infrastructure, railways and social schemes for poor will benefit rural folks as these investments are going to be for 60 per cent of 1.2 billion populations living in rural areas.

As Jaitley himself said in his budget speech in Parliament on February 28 that with the economy turning around “dramatically” in the nine months of Modi government coupled with restoration of macroeconomic stability, conditions have been created for stepping on the pedals for sustainable poverty elimination, job creation and durable doubledigit economic growth, which meant
more rural prosperity in the country.

The first and foremost achievement of this government is success of Jan Dhan Yojana in a
short period of 100 days. Through this financial inclusion programme 12.5 crore unbanked families,
mostly in rural areas have been brought into the financial mainstream, thereby providing much needed launching pad for carrying out successfully various social programmes particularly for rural poor. This has led to launch of game changing JAM Trinity programme – Jan Dhan, Aadhar and Mobile—to implement direct transfer of benefits mostly to rural poor in a leakageproof, well targeted and cashless manner. This is a significant development. In fact the leakage in social schemes has been so much that they have not had the desired result in the 67 decades of economic development since independence. As late Prime Minister Rajiv Gandhi himself said only 16 paise reached the beneficiary from every rupee spent. Rajiv Gandhi made this observation 25 years ago and it has not become any better, perhaps marginally better as leakage and corruption is widespread even today. JAM will ensure that the rural schemes are more effective, efficient and better targeted. The budget also puts in place a roadmap that aims at doubledigit economic growth that is “feasible very soon”. greatly benefitting rural India through inclusive growth. In this regard, financial inclusion is going to be a major tool and Jan Dhan Yojana is going to facilitate in a great measure.

“In respect of social and economic indicators, for seven decades now, we have worked in terms of percentages and numbers of beneficiaries covered, it is quite obvious that incremental change is not going to take anywhere. We have to think in terms of a quantum jump,” Jaitley observed and announced several outofbox ideas to transform rural India. He unveiled a 13point agenda that is to be implemented by 2022, the 75th year of independence with a sizeable rural component. This comprise a roof for each family in India—that is six crore houses to be built of which 4 crore houses in rural areas with 24hour power, clean drinking water, a toilet and road connectivity. Electrification of all the remaining 20,000 villages in the country by 2020. Connecting each of 1,78,000 unconnected habitations by all weather roads. This meant completing one lakh km of rorad currently under construction and building of additional one lakh km of road. Increasing farm productivity through irrigation and other measures.

To bring on par North Eastern and Easter regions, which are at present lagging behind particularly in economic development. Jaitley said in spite of the large increase in the devolution to states due to the recommendations of 14th finance commission, adequate provision is being made for the schemes for the poor with allocation of Rs 68,968 crore to the education sector including midday meals, Rs 33,152 crore to the health sector and Rs 79,526 crore for Rural development activities including Mahatma Gandhi National Rural Employment Guarantee programme, Rs 22,407 crore for housing, Rs 10,351 crore for women and child development, Rs 4,173 crore for Water Resources and Namami Ganga (cleaning of the river). A Substantial amount under these heads will go for the development of villages.

Apart from ensuring that farm credit is raised to Rs 8.5 lakh crore next fiscal year from Rs 8 lakh crore this financial year, the government committed to Rs 34, 699 crore for MGNREGA, which would be further stepped up if needed to ensure that no one, who is poor in rural India is left without
employment. MGNREGA will also help in benchmarking rural wages at a higher level and promote
rural consumption that will help kickstarting economy to achieve 88.5 per cent growth in 2015-16 and then move on to doubledigit growth.

While the farmer is no longer in the clutches of the local trader and to increase kisan’s income,
government proposed to create a unified national agriculture market. The problem at present is that
India has thousands of mandis at present and as a result the prices of farm produce goes up by 1520
per cent benefitting several middlemen thereby benefitting neitherthe poor farmer or consumer. To
fund the unfunded, Jaitley proposed to create a Micro Units Development Refinance Agency (Mudra)
Bank. This is a major attempt to generate employment in rural areas particularly in weaker sections of
the society. There are 5.77 crore small business units, mostly individual proprietorship, which run
small manufacturing, trading or service businesses. 62 per cent are owned by scheduled castes,
scheduled tribes or other backward communities. Mudra bank will have a corpuse of Rs 20,000 crore
and credit guarantee corpus of Rs 3,000 crore. Mudra bank will refinance micro finance institutions
through a Pradhan Mantri Mudra Yojana. Jaitley said these measures will greatly increase the
confidence of young, educated or skilled workers, who would now be able to aspire to become first
generation entrepreneurs; existing small businesses, too, will be ale to expand their activieties. “Just as we are banking theunbanked, we are also funding theunfunded,”
he said.

Working capital requirement of micro, small and medium enterprises, located substantially in
rural areas will also get a boost with the establishment of Electronic Trade Receivables Discounting
system soon. This will be help in financing of trade receivables of MSMEs, from corporate and other
buyers, through multiple financiers. This should improve the liquidity in the MSME sector
significantly. To increase access to the formal financial system government proposed to utilize the
vast postal network with nearly 1,54,000 points of presence spread across villages of the country. “I
hope that the Postal Department will make its proposed payments bank venture successful so that if
contributes further to the Pradhan Mantri Jan Dhan Yojana.

The budget also steps up allocation for rural health and social security. To promote jan
Suraksha, Pradhan Mantri Suraksha Bima Yojna will be launched soon to cover accidental risk of Rs 2 lakh for a premium of just Rs 12 per year. Similarly Atal pension yojana, which will provide defined pension, depending on the contribution and its period. Government will contribute 50 per cent of the benefciaries’ premium limited to Rs 1000 each year for five years in the new accounts to be opened in the next nine months. Government also proposed to create senior citizen welfare fund utilizing unclaimed deposits of about Rs 9,000 crore in Public Provident Fund and Employees Provident Fund.

The corpus will be utilized to subsidize the premium of vulnerable groups such as old age pensioners,
BPL cardholders, small and marginal farmers and others. Details of the scheme will be announced
later this month. This social security schemes will largely benefit rural population. Of the 10.5 crore
senior citizens in the country, seventy per cent live in rural areas and a large number are in rural areas. The Budget also allocates Rs one lakh crore allocation to National Bank for Agricultgure and
Rural development will have positive impact on the rural infrastructure. The longterm credit fund has been provided 15,000 crore in the next financial from Rs 5000 crore in the current financial year. This will help in pushing agro based rural industries. Rural roads get Rs 25,000 crore allocation.
The Modi government has quietly stepped rural development and agriculture in the budget
under various heads, which has apparently gone unnoticed giving credence to the opposition criticism
that this year’s budget is mainly for corporate and the middle class. In fact there are several initiatives
and one has to read the fine print of the budget as the initiatives are spread across various departments and if they are implemented in right earnest, it will transform the rural India into a vibrant economy.
*Sh. K R Sudhaman is Senior Business Journalist.
(Copied from pib.nic.in)

Land Acquisition Law

Farmers’ interests are only one part of designing a workable land acquisition law
March 9, 2015, 12:04 AM IST Arghya Sengupta in TOI Edit Page | Edit Page | TOI

The high-decibel debate on land acquisition, playing out in Parliament and media since the opening of the budget session, is asking the wrong question. Asking whether the Land Acquisition (Amendment) Ordinance 2014 promulgated by the president is anti-farmer or not is simplistic and misleading. It forgets that the issue under consideration is establishing a workable mechanism for acquiring land, not laying down the contours of a successful kisan vikas patra scheme. To understand the genesis of this mischaracterisation, go back to 2013 when the Right to Fair Compensation and
Transparency in Land Acquisition, Rehabilitation and Resettlement Act was passed. At that time a view was formed that the Act was a revolutionary pro-farmer legislation, whose noble intentions are now said to have been undone by the ordinance. This assertion concerns clauses that require consent of 70% of affected families in PPP projects and 80% of affected families in private projects prior to acquisition and a mandatory social impact assessment (SIA) of all acquisitions. These clauses, present in the Act, have been exempted from applying to five types of projects in the ordinance.

The rationale for providing for consent was to give the citizenry a say in how the state would deal with their land. As a statement of principle, this is difficult to dispute. However, when the letter of the law is at such variance with the principle, the inference that consent was used to capture a moral high ground with little attention to actual benefits to farmers on the ground is inescapable.
As an illustration, according to Section 2(2) of the Act, consent will have to be sought simultaneously with the SIA process. But whom will consent be sought from? At the stage of conducting SIA, it is neither clear who owns the land, nor whose livelihoods depend on it. Seeking consent without having conclusively identified whom to seek consent from is an inexplicable instance of putting the cart before the horse.

Equally importantly, the incorporation of consent suffers from a fundamental conceptual confusion. If as a polity we have taken a decision that the power of eminent domain is necessary in certain instances, as is evident from both the Act and the ordinance, it implies that we have assented to a core feature of its exercise – the involuntary nature of acquisition. While the involuntariness of the acquisition must be mitigated by setting certain minimum requirements for compensation and rehabilitation, as both the Act and the ordinance do, to flip the concept on its head entirely, incorporate consent and still call it an instance of ‘acquisition’ demonstrates befuddled thinking. If a transfer of land is wholly consensual, it is a purchase; if it is compulsory, it is an acquisition. There is no halfway house between the two. Several other provisions in the Act similarly protect farmers’ interests symbolically and not substantively. But this is the wrong lens to be viewing a land acquisition law through. Farmers’ interests are only one, albeit significant, part of designing a workable land acquisition legislation. Since there is a larger social consensus that acquisition for public purpose projects by government and the private sector is necessary, then the law reflecting such consensus must optimally protect the interests of all stakeholders – farmers, other land-losers, industry and government itself.

It is in everybody’s interest that a workable process of land acquisition is established. This will undoubtedly involve trade-offs, some which will benefit farmers, some of which won’t. To assess each tradeoff solely from the perspective of the farmer, as the public discourse is currently doing, is bound to lead to a misguided assessment of issues. Instead, the key question that ought to be debated now is this: How do we establish an efficient, fair and workable process of land acquisition? As it stands, any land acquisition process under the Act is estimated to take a minimum of 50 months from the initiation of SIA to payment and possession, with multiple layers of review. There is an SIA team, an independent expert group for appraisal, the collector to oversee compensation, an administrator, the R&R project committee, and national and state monitoring committees for rehabilitation and resettlement. This is nothing short of a bureaucratic nightmare that benefits no one other than those occupying the multiple offices created. Unfortunately this bureaucratic nightmare has been seen in public discourse as a problem only for private companies who are keen on acquiring land quickly. However, as experience under the 1894 Act shows, lengthy acquisition procedures benefit no one. The old Act originally had no timelines – they were introduced after multiple court interventions pointing out that delays in acquisition cause immense hardship to land-losers. Taking away one’s land and making one wait interminably for compensation is a severe double whammy.

Unfortunately the ordinance has done little to undo this core flaw in the Act. By seeking to exempt certain projects from certain stages of the procedure, it has taken resort to a shortcut that solves part of the problem for a few, but leaves a bulk of land-losers and acquirers subject to the onerous procedures that the Act sets up. If the country agrees that a land acquisition law is necessary, let it debate how to make such a law efficient, fair and workable without being sidetracked into rhetorical grandstanding using the guise of farmers’ interests.

Critique on HLC Report on Restructuring FCI and PDS system

Food insecurity

A critique of the report of the high-level committee on restructuring the FCI and reviewing its role. BY T.K. Rajalakshmi

    SOON after assuming power at the Centre, Narendra Modi’s National Democratic Alliance government set up a high-level committee on re-structuring the Food Corporation of India that was mandated to make the food management system more efficient. It was headed by Shanta Kumar, former Union Minister for Rural Development and former Chief Minister of Himachal Pradesh. The committee’s main recommendations claim to address the question of reorienting the public distribution system (PDS) in order to give a better deal to economically vulnerable consumers and make storing and stocking operations more efficient.

    On the face of it, the mandate and the terms of reference appear aimed at managing food procurement, stabilising grain markets and addressing public distribution issues. A closer look suggests that the real purpose is to bring in the private sector in procurement operations, reduce the benefits of food security and truncate the FCI’s role as a central procurement agency. The FCI should, according to the committee, hand over all procurement operations of wheat, paddy and rice to States such as Andhra Pradesh, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Punjab, which have gained experience and also created reasonable infrastructure for procurement. The FCI should accept only the surplus to be moved to the deficit States.

     Of more serious import is its suggestion that the private sector should be brought in to compete with state agencies in the procurement of grains. The committee urges the government to review its Minimum Support Price policy in the case of items such as pulses and oilseeds and ensure that the MSP does not fall below the landed cost. This is baffling in view of the Bharatiya Janata Party’s (BJP) electoral promise to raise the MSP to over and above 50 per cent of the cost of production if voted to power. The most damaging recommendations have to do with further dilution of the commitment to implement the National Food Security Act (NFSA), which in any case did not envisage universal coverage.

   The committee recommends deferring of the implementation of the NFSA in States that have not digitalised the PDS, listed the beneficiaries online for verification and formed vigilance committees to check pilferage. In short, the committee proposed to penalise States for administrative lapses that will supposedly lead to leakages.

    The committee also says that 40 per cent of the population should be covered under the NFSA for entitlement to grain at subsidised rates, instead of the current 67 per cent. It argues that the 5 kg grain for every person to priority households was making BPL households worse off, especially those who used to get 7 kg under the Targeted PDS, a scheme launched in the early 1990s. The TPDS failed to produce its intended effect. The high-level committee recommends that BPL beneficiaries be given 7 kg of rice as before, but also says that the number of BPL beneficiaries under the NFSA be reduced. The pricing for priority households, it says, should be linked to the MSP, or else the NFSA would put undue burden on the exchequer. In short, the burden of the heightened MSP should be borne by the beneficiary.

   The committee also resurrects the problematic idea of introducing cash transfers in the PDS, saying it would be much more effective to help the poor without causing any distortion in the production basket and in line with the best international practices. Cash transfers in the PDS in a country like India are not possible if the amount is not indexed to inflation. While the committee partially addresses this issue, it does not offer a plausible argument about whether it can be guaranteed that

the money would be used for purchasing subsidised foodgrain and that leakages would not happen and also does not clarify whether PDS ration shops would continue to function as always or whether the beneficiaries would have to purchase from the open market. Vijoo Krishnan, joint secretary of the All India Kisan Sabha (AIKS), said that the signs were visible soon after the Modi government took charge. A letter titled “Declaration of Bonus by Some State Governments Over and Above MSP—Change in Policy of Procurement for Central Pool”, directed at States that were giving a bonus over and above the MSP, was issued on the pretext that such bonuses “distorted the market” and drove “private buyers out of the market”. The MSP, he explained, was calculated on the basis of the All India Weighted Average Cost of Production and the States exercising the right of providing production incentives or bonuses were usually those that had a higher cost of production than the All India Weighted Average Cost of Production. The MSP did not reflect the actual cost of production, was largely non-remunerative, and was the primary reason for making agriculture unviable, he said.

  He pointed out that the Commission of Agricultural Costs and Prices (CACP) calculations of cost were often based on dated data collected by the Directorate of Economics and Statistics (DES), which were disputed not only by farmers but by several State agricultural departments as well. There were States like Kerala and even some States ruled by the BJP such as Madhya Pradesh and Chhattisgarh that had been providing bonuses to farmers growing wheat and paddy based on these considerations. The withdrawal of these bonuses, the AIKS has said, would compel farmers to quit agriculture and divert the land for non-agricultural purposes, affecting food security further.

    Also, in a seeming violation of federal principles, the Central government declared that in case a surplus Decentralised Procurement State (DCP State) declared bonus for wheat or paddy from Kharif Marketing Season (KMS) 2014-15 and Rabi Marketing Season (RMS) 2015-16 onwards, the Central government would limit the procurement to the central pool to the extent of requirement of foodgrains for TPDS/ Other Welfare Schems (OWS) allocations of that State and would provide acquisition and distribution subsidy to the State accordingly.

   The letter warned that such States alone would be responsible for the disposal of any surplus procured over and above this and also bear all the financial burden in that regard. There were more draconian provisions for non-DCP States wherein it was decreed and decided that if a State announced a bonus over and above the MSP, the FCI would “not take part” in procurement and the MSP operation in the State, and the State agencies would have to mobilise resources and take care of

the entire procurement and MSP operations including storage of the foodgrains procured. Krishnan added that in such States the FCI in consultation with the Department of Food and Public Distribution would decide how much stock of wheat or rice it should acquire in a particular season and restrict its Central Pool procurement to that extent. The rest of the surplus stocks would have to be disposed of by the State government “at its own risk and cost”. The letter that predates the recommendations of the high-level committee seemed to set the tenor of the government’s overall plan regarding the FCI and public stockholding of grains.

     Krishnan said that the committee had far exceeded its brief and made recommendations that would have an adverse and irreversible effect on food security and livelihood security of the peasantry and agricultural workers. On the recommendation to cease procurement from certain States, he said this was no remedy and that further expansion of public procurement was required. He said that the observation that Odisha had sufficient experience and infrastructure was not true as every harvest in the State was accompanied by protests from farmers to open procurement centres and guarantee an MSP. To outsource the stocking operations to various agencies under a Private Entrepreneur Guarantee scheme on a competitive bidding basis would finish off the FCI, which was the backbone of India’s food security programme, he said.

      At a time when developed countries in the European Union and the United States are going ahead with their domestic subsidies (the U.S. spent $100 billion on food aid programmes alone in 2012; India’s food subsidy bill is less than $20 billion annually), and with general food inflation showing no signs of abatement despite the reduction in global and domestic oil prices, the recommendations of the Shanta Kumar Committee are indeed surprising. Its suggestion to the FCI to reduce buffer stocks is also baffling as buffer stocks were to be raised by 60 per cent to meet the needs of the NFSA; besides, buffer stocks are always needed to meet exigencies like floods, famines and droughts. Farmers’ organisations like the AIKS have also expressed their concern over the Trade Facilitation Agreement with the U.S. at the World Trade Organisation (WTO) ministerial talks without so much as a consultation in Parliament or with the State governments. The TFA merely states that a permanent solution would be arrived on food security.

   The Central government seems to be doing exactly what its predecessor had attempted to do, that is, cut down on welfare schemes and allocation, under the name of fiscal prudence and efficiency. The United Progressive Alliance government had coalition compulsions which made it adhere to some semblance of being a welfare government; the present dispensation with its overwhelming majority does not seem to be hamstrung by such compelling factors.

(Published in Frontline.in)