The electorate has given a thumping mandate to the incumbent Bharatiya Janata Party (BJP) in the recently concluded elections for the Lok Sabha. While the BJP has increased its vote share with a near sweep in most of northern and western states, what is also remarkable is their near sweep in the states which voted against the BJP in the state legislative elections only six months ago. The elections to the state assembly in Chhattisgarh, Madhya Pradesh and Rajasthan were fought on the issue of agrarian distress and the electorate did punish the BJP in these states where it was the ruling party. The same is likely to be the case in case of Uttar Pradesh, where despite anger against stray cattle, arrears of sugar mills and a formidable political alliance, BJP has not suffered major losses.
Election results are an outcome of many factors but the results may suggest, at least to some, that the issue of agrarian distress is no longer a political issue. Such an understanding will not only be naïve but also far from the reality on the ground. While the crisis in agriculture may not have played out in political arena, the issues which caused anger among the farmers continue to remain relevant. The agrarian crisis is primarily a result of demand deflation in the domestic economy but also decline in international demand which is reflected in falling exports of agricultural commodities.
But it is the domestic demand, which has remained subdued for a prolonged period of time, that has seen food price inflation negative for parts of this year. While they may be showing signs of increasing, they are lower than the corresponding inflation for non-food commodities resulting in movement of terms of trade against farmers. This is clearly something which has now been confirmed from various sources, the most obvious of which is the deceleration of real wage rate growth which has also turned negative this year. Unfortunately, the demand deflation is so deep rooted that it will require a herculean effort at multiple fronts to revive the rural economy.
But the crisis is also partly due to policy failure. Not only did real investment during the current tenure of the government has been negative, it has failed to respond to the core issues. On the other hand, the focus of the government has been on insurance and e-markets, both of which have failed to help farmer either deal with price collapse or allow them to realize better prices for their produce. The failures are not just the design of these interventions but also the belief that these alone can take care of the crisis in agriculture. Even the much publicised PM-Kisan scheme of transferring ₹6000 to every farmer in a year is unlikely to resolve the crisis. While it may help the farmers tide over the rising cost of inputs, it is barely sufficient to cover the losses. Same is the case with the announced increase in minimum support prices which has failed to result in increase in crop prices even in those crops where it has been announced. The income transfer scheme as well as the loan waivers are unlikey to respond to the long-term issues even though their short impact may be to alleviate the suffering of farmers. But the high fiscal cost of these interventions is also at the cost of neglect of long-term structural responses.
Any solution then for the crisis has to acknowledge the changing nature of agriculture. Agriculture today is not practised as it was three decades ago. It is highly mechanised with increasing acreage of non-cereal crops. Most of these crops also suffer from high price volatility with no price support mechanism from the government. But these are also resource intensive with high input costs. With increasing mechanization and monetization of input costs, it is also squeezing the profit margin of farmers. So the farmer is doubly disadvantaged with rising input cost and uncertain price environment. With opening up of the economy, it is also no longer insulated from international price fluctuation. But our agricultural interventions are still rooted in cereal-based price support mechanisms and market infrastructure which is geared towards dealing with cereal crops rather these challenges. But even when there is an acknowledgement, the required investment is unlikely to come from millions of small and marginal farmers. But more than the financial investment and support, what is lacking is the proper understanding of the changing requirements of agricultural sector.
The new government should have as its first priority not only the mapping out of the vulnerabilities in the agricultural sector, but also finding ways of dealing with the structural issues which require urgent interventions. The interventions will not only be directed towards the needs of the agricultural sector but also the non-agricultural sector which is as crucial for revival of rural demand as agriculture. With agriculture being a state subject, it will additionally require a consensus among states and centre on investment and intervention priorities. Fortunately, the present government has the mandate which it can leverage to generate such a consensus to bring on board different states. If such a consensus can be prepared for GST, it is also possible in case of agriculture.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi