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Land bill row: India's farm economy is broke; more subsidies and freebies won't fix it

Firstpost logoFirstpost 24-04-2015 3
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The suicide of farmer Gajendra Singh in full public view at an Aam Aadmi Party rally in Delhi yesterday (22 April) should bring national focus to the issue of farm distress.

Unfortunately, politicians will demand solutions that will at best tackle the symptoms, not the underlying disease. They will demand farm debt waivers, more compensation for crops destroyed by unseasonal rain or hailstorm, higher minimum support prices for farm produce, and lower fertiliser prices, among other things.

All these have been tried repeatedly but farmer suicides continue to happen by the thousand. The Economic Times today (23 April) puts the number of farmer suicides in 2013 at 11,772. Even though the figures relate to "accidental deaths and suicides in India" and may not all be real farmer suicides that relate only to farm debt issues, no one can is serious enough to warrant attention.

The truth is Indian farming is broke. It is simply unviable for most of the people who are forced make a living from it. If Rs 2,00,000 crore of food and fertiliser subsidies, and possibly other Rs 1,00,000 crore of other subsidies (in power, fuel, seeds, etc) every year cannot make farming worthwhile we are clearly throwing money in the wrong direction.

One simple number should explain why this is so: more than 50 percent of the population generates barely 15 percent of GDP. This is unsustainable. The remedy is to get as many people off the farm as quickly as possible, not offer them more money to stay on it. As long as so many people are stuck to the farm, neither their incomes nor farm productivity will rise to viable levels.

That's where the government's money should go.

More telling is this statistic: India's total land under cultivation has remained fixed at 140-150 million hectares for over 40 years, but the number of farmers trying to make a living from farming has doubled. We are adding one crore additional farmers every five years - a demographic curse rather than a dividend. The average size of an Indian farm holding has fallen from two hectares to 1.15 between 1976 and now, and it is falling further.

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As Prakash Bakshi, former chairman of the National Bank for Agriculture and Rural Development (Nabard) told The Economic Times some time back:

"Indian agriculture is undergoing heavy stress as average land holdings are decreasing day by day. Our acreage has remained at 140 million hectares since 40 years but the number of farmers has increased from seven crore to 14 crore. With smaller land at (their) disposal, there is a decrease in farmers' capacity to invest in land. With average land holding halved, the cost of getting inputs and time consumed has doubled. If these are not tackled now, it will be difficult to maintain agriculture as a feasible profession."

It may be politically convenient for the opposition to link the Modi government's Land Acquisition Bill to rural distress, but there is actually no connection between the two. The bill is about buying farm land (or non-farm land) for infrastructure or industrial development (which is the need of the hour); farm distress is about people not being able to make ends meet from tiny parcels of land that cannot be viable without large dollops of productivity boosting investment. If implemented with care, the land bill could actually be a partial solution to the problem of farm distress.

The solutions politicians offer - throwing more money in the direction of farmers - are self-serving and hypocritical. The truth is we have poured endless amounts of money every year into farms but the problem just refuses to go away. So, isn't it time to throw money in a different direction?

Just consider the amount of money spent on subsidising agriculture every year. No sector gets as many kinds of subsidies as agriculture.

* The food subsidy - payment of higher than market prices to farmers - will take up nearly Rs 1,25,000 crore this year.
* The fertiliser subsidy - selling urea at below market prices to farmers - is around Rs 72,000-75,000 crore annually.
* Then there are power subsidies. Agriculture consumes a quarter of all power output, but accounts for only 5 percent of state discom revenues. State Electricity Boards are unviable largely because our farmers are being heavily subsidised.
* Then there is irrigation subsidy, where water is given at rates below the cost of delivering it to farms.
* There is interest subsidy. Crop loans to small farmers are given at around 7 percent, about half the rate charged to small businesses.

And, to top it all, agricultural income attracts no income tax at all. While this does not benefit farmers in distress, it gives big farmers an unfair advantage over small farmers. They become more competitive, and have the political and financial clout to take over small farmers' lands at low prices. They - apart from moneylenders - are the ones most likely to be driving small farmers to sell land at low rates. Even the opposition to the Land Bill is driven by big landlords shooting from the shoulders of small farmers.

And we are not counting the money spent on compensating farmers for flood or drought losses, or other freebies given by state governments. Or the intermittent loans waivers, by centre or states.

If we take all these subsidies and benefits together, it is highly likely that Indian agriculture receives benefits in excess of Rs 3,00,000 crore every year between centre and states and bankers.

The question to ask is: if Rs 3 lakh crore every year is not good enough to make farming viable for the bulk of India's farmers, the remedy cannot be to subsidise them even more in the same way.

If we do so, we will be neither doing the farmers nor the country any favour.

Crutches cannot make an industry healthy. If farming can survive only on handouts and subsidies, it is living on borrowed time.

Barring payments for short-term disasters and distress, the money spent on agriculture needs to be redirected elsewhere: to irrigation, to research in better seeds and pesticides, to rural roads, to cold storages, etc.

Ashok Gulati, former Chairman of the Commission on Agricultural Costs and Prices, notes, money is not the problem. Where it is currently spent is. He writes in The Indian Express: "The overall public resources going to the agri-food space are not paltry. If one adds the allocations of the five concerned ministries (agriculture, chemical and fertilisers, consumer affairs, food and public distribution, food processing industries, and water resources) for FY16, it is roughly Rs 2.3 lakh crore.

The problem, however, is that more than 85 percent of this budgeted allocation is directed towards food and fertiliser subsidies. This percentage would be much higher if one counted food subsidy (about Rs 50,000 crore) and fertiliser subsidy (about Rs 40,000 crore) arrears, which are not shown in the Union budget. This is the biggest tragedy of Indian policymaking - putting the cart before the horse! It is well known that the return from investment is five to 10 times higher than through subsidies."

Farmer suicides are an emotive issue, but spending money on more farm subsidies is economic suicide. An unviable farm economy cannot be kept afloat through giveaways. The centre's money to rescue agriculture needs to go into investment, not consumption.

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