Understanding the causes of India’s farm distress

Agrarian distress in India is not a new phenomenon. The last decade was characterised by nearly stagnant farm sector growth and falling income of the farmers. On an average 10,000 to 12,000 farmers have been committing suicide every year. In the recent months, the rural distress has led to widespread protests in certain states, in some states taking even very violent turn.

With the Indian economy striving hard to accelerate its momentum, the continuing slow pace of growth in the crucial agriculture sector is increasingly becoming a matter of concern. The agriculture sector and farmers in general are facing unprecedented distress.

Agrarian distress is also manifest from a large number of farmers living below the poverty line and unfortunate incidents of suicides. A study carried out in 2013 identified the economic distress as the foremost cause behind farmers’ suicides.

In May 2017, the Centre informed the Supreme Court that despite a multi-pronged approach to improve income and social security of farmers, over 12,000 suicides were reported in the agricultural sector every year since 2013.

Twenty lakh hectares of cultivable land are understood to have been acquired for non-agricultural purposes. Further, 42 per cent of farmers are ready to quit agriculture, even as 70 crore of our population is dependent on agriculture.

Below we are discussing the major causes of India’s farm distress.

  1. Poor growth and falling farm incomes: The average annual growth rate of agriculture and allied sectors during the last decade remained at a low of 1.5 per cent or below. This is way below the growth rate of the GDP. As a result, farm income has grown much slower than the rate of inflation. The standards of living have fallen drastically for small and marginal farmers. Agricultural labourers and marginal farmers have largely been pushed below the officially recognised poverty line.
  2. Climate change impacting the monsoon: The years 2014-15 and 2015-16 were drought years due to deficient monsoon. The year 2016-17 was relatively better. Experts say that climate change (exacerbated by phenomena like El-nino) has begun to impact the monsoon. With much of the Indian agriculture still dependent on rains, there has lately been great uncertainty of output.
  3. Flawed targets: The target of 4 per cent growth is being seen by the Government as important for ensuring food and nutritional security, inclusive growth and bridging the rural-urban divide. But considering India’s continuing rise in population, rapid shift in food consumption pattern with rising demand for more nutritious food with higher protein content, the mindset to keep the agro growth rate at low rate of 4 per cent is perplexing.
  4. Problematic policies: India continues to adopt stereotyped policies without factoring in rapidly changing domestic and global factors. A study conducted by the National Council of Applied Economic Research (NCAER) has alarmingly projected that agriculture’s share in the aggregate GDP may decline to less than 10 per cent by 2019-20.
  5. Farm size: One of the major challenges in the Indian agro sector is the phenomenon of decline in farm holding size. As a study by the NCAER shows, average farm holding size is declining, at 1.6 hectares in 2010-11 compared to 1.23 ha in 2005-06 and 2.26 ha in 1970-71. The number of marginal and small holdings (2 ha and less) shows a continuous increase, whereas medium and large holdings (4 ha and above) show a steady downtrend. The total number of farm holdings has almost doubled as compared to 1970-71. If this trend continues, farm holdings in 2020-21 would number around 154 million with the small and marginal holdings accounting for almost 85 per cent of the total holdings and average holding size projected to decline to just one ha. Although the increasing number of small and marginal holdings does not directly imply a negative impact on agricultural productivity, it will have significant implications on the economy. For instance, farm population per hectare of operated area will increase and per capita farm income will decline.
  6. Rampant urbanisation: The decline in land available for agriculture and its diversion for non-agricultural use is primarily due to mindless urbanisation, the setting up of large industries and promotion of Special Economic Zones (SEZs). Since the mid 90s, Indian and foreign companies, governments, trusts, and others have been rapidly building businesses — colleges, factories, flats, offices, plants — on land purchased primarily from poor farmers. Consequently, farm land in India is vanishing at an alarming rate.
  7. Limted land area: The other major challenge facing the Indian agro sector is agricultural production being constrained by limited land area that can be brought under cultivation. The net sown area under crops is now almost stagnant or declining as other demands for land are rising. As the latest official data show, the net sown area in 2000-01 was 141.3 million ha. It was 141.9 million ha in 2008-09 and down again to 140 million ha in 2014-15.
  8. Input costs: Another challenge facing Indian agro sector is the fast changing policy environment. While prices of inputs such as fertiliser, diesel, electricity and pesticides rose at relatively moderate rates in the last 5-6 years, with the reduction in input subsides on fuel and fertilisers, input prices are likely to increase at higher rates.
  9. Higher wage rates: Wage rates increased at double digit rates per year in the last five years. Diversification of the economy is giving new opportunities for labour. The only way to offset the adverse impact of rise in wage rates is by intensely enhancing productivity by taking the benefits of mechanisation.
  10. Sub-optimal utilisation of Minimum Support Price (MSP): Optimum utilisation of Minimum Support Price (MSP) mechanism to boost productivity as well as addressing the core issue of food security is a major challenge. The MSP and procurement of grains by the government has provided incentives for raising production of rice and wheat. However, the government has not been able to provide similar benefits to other crops.
  11. Crashing prices: Food prices have been showing a sharp decline. The overall food inflation, based on consumer price index (CPI), has come down from 6% in December 2015 to 2% in November 2016. The corresponding decline in case of pulses is from a high of 46% to 0.2%—reflecting a much faster decline in the price of pulses. Due to this sharp downward movement in food prices, the farmers have been getting very poor return on their harvests.
  12. Demonetisation: Demonetisation announced by the Central Government in November 2016 had drastic impact on farm inputs and also the prices of agriculture produce in the Mandis. The rural economy, being largely cash driven, suffered and farm input during the Rabi season of 2016 declined due to demonetisation. Later, farmers also witnessed the crashing prices when they took their harvest to the Mandis.
  13. Farm imports: The Government of India had permitted duty free import of certain food crops such as pulses, in order to combat food inflation. Due to this, the Indian farmers have not been getting good returns on their crops in the domestic markets.
  14. Poor implementation of ongoing schemes: Central and state schemes look good on paper but when it comes to actual implementation many things are still riddled with inefficiency and corruption.
Road ahead
  • Given that India has the largest number of poor and malnourished people in the world, increasing food supply is paramount to achieving inclusive growth.
  • The increase in crop area can be achieved by increasing cropping intensity. The cropping intensity of gross cropped area to net sown area has increased from 1.31 in 2001-01 to 1.37 in 2009-10. The increase in cropping intensity has been possible because of expansion in irrigation, availability of suitable crop varieties and mechanisation. However, further increase in intensity is constrained by the extent to which irrigated area can be increased.
  • Since agriculture forms the resource base for a number of agro-based industries and agro-services, agriculture should not be viewed only as farming activity but part of a wider value chain, which includes farming, wholesaling, warehousing including logistics, processing and retailing.
  • The key to offset the disadvantages of declining farm size would be higher productivity per hectare of crop area operated by the farms.
  • Diversion of farmland for non-farming purposes must be stopped. Exceptions should be made only in case of larger national interest.
  • The government also needs to take care that the various schemes for the agriculture and rural sectors get properly implemented.
  • Farm input costs need to be rationalised. The government needs to adopt the recommendations of the MS Swaminathan committee.
  • Farmers need to be incentivised to carry out certain types of cropping. Better returns can be ensured through integration with the food processing industry and Agro product exports.
  • Farm insurance scheme needs to be better implemented. In a study, farmers reported that very often the insurance money paid to them is less than the premium collected. A general belief is growing that the crop insurance scheme benefits the insurance company is more than their benefit the farmers.