The farmer has been deceived!
FM among her many ‘tranches’ made some agricultural announcements which she called ‘reforms’. The announcement of the components of the package in tranches, across five days, did have a touch of drama. Some of announcements to directly impact the farmers were:
moratorium of 3 months for agricultural loans of Rs 4.22 lakh crores;
sanctioned new loan of 25k crore under Kisan Credit Card Scheme (KCC);
63 lakh loans of Rs 86.6 crores approved between March 2020 to April 2020;
Refinance Rs 29,500 crores provided by NABARD, to co-op banks & RRBs
WC limit Rs 6.7k crore to State government entities since March
2 lakh crore concessional credit boost to 2.5 crore farmers through KCC also to cover fisherman and animal husbandry farmers to PM-KISAN beneficiaries
Interest subvention scheme to dairy cooperatives for 20-21
Additional 2% p.a. interest subvention on prompt interest servicing
Rs 5k crore additional liquidity benefitting 2 crore farmers
Rs 1 lakh crore Agri Infrastructure Fund for farm-gate infrastructure for farmers
By Unny for the Indian Express
Alas, the reforms were to burden already debt laden farmers with more debt. A committee report chaired by R Radhakrishna in 2007 said: "Though there are a number of factors behind the present agrarian crisis, it is the growing indebtedness that compels attention. It is declining earnings that results in the inability to repay the debt that triggers farmers’ decision to commit suicide. Hence, indebtedness of farmers becomes a central issue to be addressed.” The situation has remained more or less same since 2007. Farmers are laden with bank debts and when they can’t borrow more from banks, they seek loan from sahukaars (private money lenders) at exorbitant rates which may be as high as 30-40% p.a.
Therefore, the term ‘benefit’ used by FM to make those announcements sound hopeful is in fact worthless. How the FM expects a small farmer who lives hand to mouth to repay his debts if he is not allowed to sell their crops amid lockdown. And even they can sell their crops, the prices are plummeted. Mr P Chengal Reddy, chief advisor to the Consortium of Indian Farmers’ Associations believes that “The schemes announced by FM have no time-bound implementation schedule and it was just a budget speech,”
The farmers did not get compensation from either the government or insurance companies. They expected cash relief in the package, but it was nowhere to be found.
Urgent Problems require Immediate Attention
Government had estimated an all-time high food grain output of 295.67 million tonnes in FY 19-20 surpassing previous year production of 285.21 million tonnes (see chart 1). However, the disturbed supply chain due to sudden lockdown is going to mar the sales figures.
Chart 1: Record Output of food grains estimated by Government in FY 19-20
Source: The Economic Times
The plight of the farmers caused due to immediate unplanned lockdown without prior notice is more than that meets the eye. Global prices of major agricultural commodities including Indian exports are falling since 2012 (see chart 2) which is going to aggravate the problem further. The agriculture sector is currently jostling with shortage of labour from Bihar & Jharkhand, paucity of combine harvesters from Punjab, disruption of supply chains throughout the country, closure of transport, mandis and delayed response from govt. to procure crops, etc.
Chart 2: Prices of major agri commodities on a fall since 2012
Source: The Financial Express
As discussed above, the agricultural commodities prices which were already on a decline since 2012 has further diminished. In absence of any system enabling farmers to sell their crop in cities, farmers saw their crops rotting on the fields while residents in cities paid hefty prices for fruits and vegetables. If demand is more than supply, inflation starts rising and that is what happened in major cities even though the government is expecting record crop output as compared to that of last year. Inflation level for April 2020 has been more than 20% for vegetables and pulses in April 2020 (see chart 3). On one hand, the inflation for agricultural commodities is on a rise whereas on the other hand, the farmers are finding it difficult to even cover their transport costs to supply their produce to the mandis. Some farmers let the livestock eat the crops as they would at least save money of fodder. A vegetable growing farmer of Maharashtra said, “It’s better to let the goats eat the crop. They also deposit some dung on the fields that help as manure.” He lost at least ₹40,000 per acre on two acres where he cultivated cauliflower and cabbage.
Chart 3: Rising Inflation in Agri commodities
Source: The ET Magazine
The dairy farmers also were not able to escape from the plight of the lockdown. Due to lockdown the restaurants and hotels were closed which resulted in a drastic plunge in demand for dairy products. Milk is usually in shortage in summers and milk companies convert their winter stock of skimmed milk powder (SMP) to cater to summer season milk demand. Instead, dairy companies are converting milk into SMPs in the summer season. Since, the milk will be available in abundance in winters, milk products wholesale prices will crash significantly, and farmers will suffer in the end. Big companies with deep pockets like Nestle and Amul will either crash their prices and knock out the smaller firms with lesser margins or maintain the existing prices not transferring benefit to the end consumer and keeping the hefty profits.
Farmers were not able to sell crops standing in their fields. at the expected market price which will lead to non-procurement of agricultural inputs likely to further disrupt kharif crops as well. Wasted rabi crops and affected kharif crops will be a double whammy for the farmers. Also due to poor or negligible realisation from rabi crops, farmers are unable to procure necessary agri-inputs for the Kharif sowing. The agricultural commodities’ prices have reached their lowest since 2012. Reduction in international trade volumes will result in further plunge of agri commodity prices.
Therefore, in all farmers and migrant labourers (sons of farmers who used to toil in cities) are the ultimate sufferers of a disease brought into the country by the rich and government has turned its back on them.
Moratorium vs Loan Waiver
It must be surprising to know that first loan waiver was announced in 1989 by then Finance Minister Late Shri Madhu Dandvate of the coalition government led by Janata Dal having outside support from the Left Front and the Bharatiya Janata Party. The next farmer debt waiver was announced by Shri P Chidambaram in 2008 which was inspired from a committee report chaired by R Radhakrishna in 2007.
Even though the share of workforce and the contribution to GDP from and by agriculture has been on a downtrend since last few years (see my earlier post), former RBI Governor Urjit Patel has confirmed in 2017, that bank advances to agriculture and allied activities have risen from about 13 percent of agricultural GDP from 2000-01 to around 53 percent in 2016-17.
An increase of loans from 13 percent to 53 percent is huge. Usually increase in credit resembles growth, but in agriculture farmers are troubled more than ever. This clearly signifies that costs of inputs have been rising constantly but the crop selling prices have not risen accordingly, on the contrary, prices are falling since 2012 (see chart 2 above).
Therefore, instead of boasting the figures that government has extended moratorium of agricultural loans of 4.22 lakh crore for 3 months is useless to the banks, farmers and government itself. Government extending moratorium instead of granting waivers indicates that it doesn’t want to burn its fingers. FM cannot unload all the responsibility on bankers and believe that the bankers can handle the economy’s future course. No one is suggesting foregoing all the 4.22 lakh crore, but government has data to ascertain which farmers are in desperate need for a debt waiver. In addition to waiving debt, government should initiate cash transfers so that the farmer communities may be able to feed their family, prepare for kharif sowing and are not shoved further into poverty.
The scheme(s) for creation of infrastructure (warehouses, cold chains, processing facilities, et al) are critical. These are designed to support farmer producer organisations (FPOs), cooperatives (co-ops), etc, and will be financed by NABARD. How these are rolled out, and the time taken will be key.
As most of the economists have reiterated, its not a time to think about fiscal deficit and government debt to GDP ratios, but time to step in, spend, borrow and monetize the fiscal deficit to boost the economy.