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Rural landless doing better than the landed, says HSBC report

LiveMint logoLiveMint 11-07-2017 Sayantan Bera

New Delhi: India’s rural landless dependent on wage earnings did better than landed farmers for whom rising wages in a record crop year pushed up costs, while falling crop prices took a toll on earnings, said an HSBC research note on rural distress released on Tuesday.

Since 2014, farmers’ real debt has been rising at a rate faster than their real incomes, the report said, adding that the sustained fall in headline inflation over the last few years had increased farmers’ real indebtedness. This has led to a growing clamour for loan waivers by farmers although such waivers spoil the credit culture and erode macro-stability, as states’ quality of spending falls, it said.

As many as five factors— a bumper crop, demonetisation drying up cash supplies, early impact of the goods and services tax (as traders offloaded their stocks in panic), measured increases in crop support prices announced by the government and lower global food prices—shifted the terms of trade against agriculture and contributed to a sharp fall in food prices, the report said.

After a two-year drought, normal rains in 2016 pushed up demand for wage labour leading to rising wages and falling rural employment. While this benefited the landless comprising 70% of rural households in India, landed farmers had to pay these higher wages but sold their crops at lower-than-expected prices.

The research defined landless as those households owning less than a hectare of land, for whom the majority of income comes from wages.

The report said that farmers were more indebted (as they are the ones availing of formal loans) compared to the landless, which explains their demand for loan waivers. According to the research, falling inflation increased real indebtedness of farm households, and a faster rise in real debt compared to incomes, worsened the distress among farmers.

Inflation targeting was a “great reform” with solid benefits like macro-economic stability, but ended up hurting indebted farm households, the report said, adding, “the panacea for rural distress is reforms that will help raise farm productivity and incomes”.

It said that while the government seems committed to improving rural infrastructure, food distribution networks and crop insurance spread, “if it is not able to move from rhetoric to reality in a timely fashion, India will remain stuck with frequent episodes of rural distress”.

Suggestions for the government (in the report) range from raising irrigation coverage and improving water use efficiency and better research and development (R&D) in agriculture, to reforming agricultural markets and transparent and faster crop loss compensation.

It also said that a more steady and predictable export-import policy to reduce volatility in domestic production and doing away with duty-free imports (for items like pulses) will help growers.

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