Several factors point to better times ahead for the rural economy. Its fortunes have been down in the dumps for several years now, creating acute distress and stagnancy in real rural wages. But the broader signals have to be looked at more closely as they may hide specific anomalies. The devil is really in the details.
Hope has arisen foremost because of the recent rise in food inflation. The food price inflation rate has been rising since the beginning of the current year (2019) after falling through the whole of the previous year. In fact, the overall trend in food price inflation since 2014 has been down with shorter periods of ups and downs within it.
While farmers cannot benefit unless food prices keep going up, making it a necessary condition, other factors also have to be in sync to create sufficient conditions for farmers to benefit.
Importantly, the farmer does not necessarily get what the end consumer pays, as a share goes to the players who come in between the farm gate and the consumer. What matters foremost to the farmer is the price received for the harvest at the mandi. Those markets coming under the agricultural produce marketing committees are notorious for price manipulation by big traders. Onion prices recently hit the headlines by touching Rs 80 per kg but the farmer got no more than Rs 10 for their produce.
One factor which influences mandi prices is the minimum support price (MSP) announced by the central government, as also the bonus announced by state governments. Seeing that the monsoons were somewhat late in arriving this year, the government in early July announced minimum support prices for various kharif crops which were higher than what the overall cost calculations would have signaled.
But a higher MSP does not mean all farmers will benefit. MSP is delivered through state procurement agencies and the procurement footprint is severely limited, allowing only around 10-15 per cent of farmers to actually get the declared procurement prices. Typically, what the average farmer without enough financial muscle to hang on to his harvest to get a better price (these usually fall during harvest time and pick up as the year progresses) gets is what the local representative of the big trader offers.
Now let us come to the biggest uncertainty that the farmer has to work under — the weather and in particular the monsoons, foremost being the southwest monsoon that is the lifeblood of the west coast, east, northeast, central and northwest India. (Only the eastern part of peninsular India benefits from the brief northeast monsoon.)
The southwest monsoon this year has outperformed the forecasts for the first time in over two decades. But this is an aggregate and can well include it in areas which have been hit by inadequate rainfall, creating a drought, or excess rainfall leading to floods — both being bad for cultivation.
As it has happened this year, the total rainfall has done well because the late arrival of the monsoon was made up by heavy rainfall in September. The deficit amidst plenty was powerfully brought out when the ruling party suffered during the recent assembly elections because of disgruntled farmers who had to bear the consequences of overall inadequate rainfall in Haryana and drought in regions of Maharashtra like Vidarbha.
What the adequate rainfall this year will definitely do is act as a boon for the coming winter rabi crop for which the farmer will be able to reap the benefit of high moisture content in the soil left behind by an above average late southwest monsoon.
Another uncertainty the farmer cultivator has to live with is the level of wages offered under the MGNREGA employment guarantee program. As these wages rise to at least keep pace with inflation, the farmer has to pay higher wages for the farm hands employed. Farmers who are faced with rising costs typically blame the employment program for what they believe is very high wages payable for farm labor.
Additionally, the center through its PM Kisan and various state governments like Telengana with its Rythu Bandhu and Odisha with its Kalia have come up with programs which will pay cash to small and marginally farmers to help them procure inputs like fertilizers, pesticides and better seeds needed to raise crop productivity. India’s agricultural productivity is way behind that of China, not to speak of countries with advanced agriculture like New Zealand, Australia and the US.
The cash support to farmers will inevitably raise the cost of farm inputs across the board, making it essential for agricultural produce prices to go up at least a bit so that profits are not eroded by by higher input costs.
The crux of the matter is that the massive price difference between what the farmer gets and what the consumer pays has to be reduced. Only a transformation in India’s agricultural marketing landscape can ensure this.
Additionally, Indian farmers have to improve their techniques, foremost by learning how to use less water, so as not to be rainfall dependent, by adopting drip and sprinkler irrigation. This has to go hand in hand with better water harvesting and watershed management for which wells, ponds and small local bunds have to be well maintained with the use of labor paid for by the employment guarantee program.