7 PM Editorial |An Agriculture-led Revival as Flawed Claim| 11th September 2020

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An Agriculture-led Revival as Flawed Claim

Overview – The claims of Agriculture leading economic recovery is flawed.

Introduction:

There have been claims made by the government and some observers that Agriculture will lead the economic revival.

Basis of the claims:

1. India’s food grain productionin 2019-20 was 7% higher than in 2018-19. The procurement of rabi wheat in 2020-21 was 12.6% higher than in 2019-20. These indicate, it is argued, resilience in the agricultural sector.
2. The food inflationin the Q1 of 2020-21, at 2%, was higher than in the previous year due to “sustained demand for food”.
3. The area under kharif sowingin 2020-21 was 14% higher than in 2019-20. Higher kharif sowing was accompanied by higher tractor and fertilizer sales, which bodes well for economic recovery.
4. The government’s economic package for agriculture — as part of the ₹20-lakh crore Atmanirbhar Bharatpackage — will further position agriculture as the engine of revival.

Assessment of the claims:

1. Rabi procurement:
   State Governments put in considerable efforts to ensure that procurements did not suffer. As a result, procurement of rabi wheat was higher in 2020-21. However, the fact is that only 13.5% of paddy farmers and 16.2% of wheat farmers in India sell their harvest to a procurement agency at an assured Minimum Support Price (MSP). More so, the market arrivals of 15 major crops in India between March 15 and June 30 in 2019 and 2020 has shown that it was much lower in 2020 than 2019.

Thus, the most important problem faced by farmers because of lockdown was loss of markets, the disruption in supply chains, closure of mandis and a fall in consumer food demand. There were major losses in the milk, meat and poultry sectors; industry associations estimate the total loss for the poultry industry at ₹25,000 crore.

2. Inflation and prices:

Inflation was largely due to disruptions in supply chains and rise in trader margins and not accurately representative of prices for farmers. The examination of the wholesale market prices for 15 agricultural commodities between March 15 and June 30, 2020 led to a conclusion that prices of most crops declined. For example,

A moderate uptick in prices was visible in a few vegetables, but not before June 2020.

Small and marginal farmers who are net buyers of food had to face the brunt of higher food prices. There is also strong evidence from small sample surveys that rural households reduced food purchases during the lockdown. Thus, the claims that higher rural inflation benefited farmers, and that it was due to higher food demand, are misplaced.

3. Higher kharif sowing:

SInce the rabi incomes fell during the lockdown, many rural households may have returned to farming or intensified farming for food- and income-security. Lakhs of migrant workers returned to their villages from urban areas. They may have taken up agriculture in previously fallow or uncultivated lands. Data on monthly employment released by the Centre for Monitoring Indian Economy (CMIE) show that the number of persons employed as “farmers” in June and July 2019 were 11.2 crore and 11.4 crore, respectively. But in June and July 2020, these numbers rose to 13 crore and 12.6 crore, respectively.

4. The package:

Agriculture contributes only about 15% to India’s Gross Value Added (GVA). Thus, even if agriculture grows by 4%, it is likely to contribute only 0.6 percentage points to GVA growth. To contribute a full one percentage point to GVA growth, agriculture will have to grow by 6%, which is unlikely in 2020-21. This is not to deny a potential rise in demand from higher rabi procurement, higher kharif sowing and flow of cheap credit, which together appear to have resulted in higher purchase of tractors and fertilizers. But the counteracting tendencies in rural areas — i.e., lower crop prices, lower market arrivals and higher unemployment — would overwhelm these “green shoots”.

What are the issues with the package?

1. Total fresh spending for agriculture in the package is less than ₹5,000 crore.
2. Most of the schemes are already included in the budgetand some have loan components routed through banks.
3. The financial outlay on PM-Kisan was only front loaded. No change in the outlay was done.

What could the government have done?

1. Instead of raising the minimum support price for kharif paddy by ₹53 per quintal of cotton by ₹260 per quintal, the government should have set all MSPs at 150% of the C2 cost(comprehensive cost) of production.
2. Instead of a moratorium on loan repayments, the government should have waived the interest on loanstaken by farmers in 2019 and 2020.
3. Instead of vague loan-based schemes in animal husbandry, the government should have announced a package of direct assistancefor the crisis-ridden poultry and meat sectors amounting to at least ₹20,000 crore.
4. Instead of loan-based schemes to support private investment in dairy, the government should have arranged direct financial assistanceto small milk producers, for whom milk prices have literally plummeted.

Conclusion:

The package for Agriculture donot sound convincing. Rural incomes will remain depressed, and push the economy further into a vicious cycle of poor demand, low prices and low growth. A good financial push is required as a part of decisive rural intervention.

Source: The Hindu

Mains Question:

1. How far do you think was agriculture affected due to the COVID-19 induced lockdown? Will the Atmanirbhar package be enough to redress the issues faced? Discuss.