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Issue No.: 576 | June 2015

Agrarian Crisis – Rural Distress – and All That

Sunil S. Bhandare

The best way is to move towards more strategic buffer stock operations and not judge national food security policy of the government on the basis of how much quantity of foodgrains is being procured and at what price.

In the course of last couple of months, the narrative of political economy’s discourse has shifted swiftly towards gruelling challenges of agrarian crisis or rural distress. This is not surprising given 

[a] the growing incidence of farmers suicides in the wake of sharp setback to the agricultural sector in 2014-15 – indeed, untimely rains and hailstorm in certain parts of the country during the last rabi season has aggravated the problems; 

[b] rising rural indebtedness; and 

[c] the opposition parties desperately seeking to anchor all their criticism of government’s policies on alleged [or perceived] neglect of this sector. It is being fervently argued that negligible increases in minimum support prices [MSP] for agricultural produce by the NDA government during 2014-15, soft-pedalling of procurement operations, reduced allocations for MNREGA, lack of adequate credit [or even absence of loan waiver policy] and inadequate and untimely relief measures have been the main causes of rural distress.

There surely is some element of truth in some of the above squabbles. Unfortunately, the real issues of long-term structural fault-lines of the agricultural sector – the perennial fragmentation of land holdings; vulnerability and lack of economic viability of farming operations; the failure to bring about the next agricultural revolution, including more extensive and effective system of crop insurance; and so on – have been left in lurch. No meaningful dialogue or strategic policy formulations on the future of India’s agriculture can be expected in such surcharged political ambiance. As a consequence, rhetoric rather than rational policy debate on real challenges confronting the rural economy has been dominating the show.

It is imperative in this context to reflect more objectively on some of the key issues raised by the opposition leaders and politically motivated pundits relating to "perceived” causative factors of rural distress. In this article, we would prefer to reflect mainly on the MSP issue to illustratively bring out the falsehood in their sanctimonious sermons. How does raising MSP help in mitigating the rural distress? Let us put some facts straight: during the UPA government’s tenure from 2004-05 to 201314, increases in MSP applicable to various crops were unprecedented. The proclaimed objective was to incentivise farmers to increase their productivity and offer them larger income support. The average annual increase in MSP during the reference period was more than the double digit rate – over 11% for rice and wheat; between 11 to 15% in case of jowar, bajra and various pulses. In the case of cash crops like cotton, groundnut and sugarcane too, the increases in MSP were of similar magnitude.

How much production/ productivity gains were secured during this period? Witness that annual growth rate of wheat production was about 2.9% [from 72 mn tonnes in 2003-04 to 96 mn. tonnes in 2013-14], less than 2% in case of rice [88.5 mn tonnes to 106.5 mn. tonnes] and meagre 1.4% in case of coarse grains [37.6 mn. tonnes to 43 mn. tonnes]. The story with respect to major cash crops is not much different although there has been superlative performance in case of cotton, wherein growth in production has been at double digit rate during this decade. But this has much to do with the Cotton Mission program, and effective absorption of Bt Cotton technology by farmers, which enhanced farm yields significantly.

Who have then gained from the generous increases in MSP for the agricultural produce? Obviously the medium and large farmers – that is those who have maximum capacity to generate marketable [potential] surplus and convert them into actual marketed quantities. No one would certainly grudge the accrual of such gains to this farming community – they certainly deserve! But, in India, as several studies and reports over the years indicate that a predominant majority of farming population – 75 to 80% have very small size of land holdings i.e. less than two hectares. They have to perforce use their foodgrains output [especially, rice, wheat, jowar, bajra, etc] almost entirely for self-consumption. There is hardly any marketable surplus left with them. As a matter fact, most of them often have to buy sizeable quantity from the market for their balanced annual consumption needs. Thus, MSP increases do not help such marginal and small farmers, except where they produce sizeable quantities of such crops as maize, pulses [tur, gram, moong, etc] and/or cash crops like cotton, sugarcane or groundnuts.

Where is the maximum incidence of suicides? It is mostly in the case of marginal and small farmers to whom MSP increases are of virtually no consequence – in fact, it often hurts their meager family budgets. Has the incidence of farmers suicides increased due to inadequate increase in MSP in 2014-15 under the NDA regime? There is no such evidence. Unfortunately, what is evident is that farmers’ suicides is becoming an endemic phenomenon in our country. To quote from a very incisive study of P Sainath released in July 2014, as many as 2,96,438 farmers committed suicides since 1995. In this, the record of Maharashtra has been extremely worrisome with total number of 60,750 farmers taking their own lives since 1995. The study further suggests that Maharashtra’s picture has got lot worse after 2004 with average of 3,685 farmers committing suicides every year between 2004-13. Thus, the period during which MSP increases were at their peak, the incidence of suicides has been very high.

It is equally relevant to mention that between 200304 and 2013-14 [i.e. during the tenure of UPA government], the average inflation rates – both WPI and CPI – have been stubbornly high around 7% per annum in the case of former and over 9% in the case of latter. Indeed, rising MSP has created a "ratchet effect” on general inflationary conditions in recent years – in effect, it has broken the tendency for prices to soften even in the years of bumper crops and larger releases of food-stocks procured through Food Corporation of India. In substance, the strategy of indiscriminate increases in MSP not only hurts urban poor, but also the rural poor. That perhaps may have been clear economic rationale why the NDA government has sought to taper off the MSP increases in 3.5% to 4% range in case of most agricultural produce during 2014-15. Incidentally, several RBI studies/reports have also shown that "since minimum support prices are intended to be a floor for market prices, they have sometimes directly set the market price when increases have been substantial, for key crops the rate of price inflation seems to relate to the increase in MSP in recent years”.

Just as indiscriminate MSP increases could often be counter-productive, so also more aggressive food procurement operations could be! When there is bumper foodgrains production, there usually are huge pressures of procurement – as it happened in 2012, when foodgrains procurement was at its peak – over 73 mn tonnes, but since then it has fallen to 59 mn tonnes in each of the subsequent two years. Is there any point in excessively building up food stocks through procurement operations and allowing Food Corporation of India to manage these incompetently – often let them rot? The best way is to move towards more strategic buffer stock operations and not judge national food security policy of the government on the basis of how much quantity of foodgrains is being procured and at what price. Like-wise, there is nothing sacrosanct about enhancing the budgetary allocations for MNREGA or raising the target of bank credit to the agricultural sector. What is more important is how efficiently and productively such allocations/ targets are being deployed.

In summing up, in the current politically vitiated debate on agrarian crisis, the long-term real structural challenges afflicting the agricultural sector seem to have been relegated to the background. The focus ideally should have been on forcing the government to engage on crucial issues like [a] Why is the reforms process bypassing the agriculture sector? [b] What has happened to the promise of ushering so-called "second green revolution”? [c] How to reduce the pressures on rural economy not only by creating more avenues of non-farm jobs, but also to manage social tensions associated with continuous fragmentation of land holdings? [d] What needs to be done to diversify cropping pattern – say, towards pulses, oilseeds, fruits and vegetables as well as poultry, meat and fisheries – keeping in view the changing pattern of household consumption? [e] How to bring urban comforts and amenities to rural surroundings by building up rural physical and social infrastructure, promotion of food-processing industries, village and small-scale industries, rural banking, insurance, warehousing, modern storage and logistic management systems, et al? If the opposition prefers to be myopic in their critique of government, at least the NDA government should proactively push forward the recharged agricultural reforms agenda in the second year of its tenure.

SUNIL S. BHANDARE is a Consulting Economist based in Mumbai. 




Poor Kishan

There was a farmer named Bharat Kishen,

Tilling the land was his only mission;

He grew the rich grain,

A good life was his aim,

But he was forced to face

Death as his ration.

Adi F. Merchant Mumbai






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Remembering Raju

Firoze Hirjikaka

Guntur Remembers Raju


Tribute to S. V. Raju



The National Scene

NDA’s Management of the Economy – More of the Same

Ranga Kota

Agrarian Crisis – Rural Distress – and All That

Sunil S. Bhandare

Rahul Resurgent

Firoze Hirjikaka

The Year That Was ...

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The Rural Perspective

Agriculture and Rural Indebtedness - VIII

R. M. Mohan Rao

Point Counter Point : Every issue has at least two sides


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Being Salman Khan

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Farmers’ Suicides

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Foreign Relations in the 21st Century

Modi Goes to China: Development at Home and Peace on the Border

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Swastika: Whose Symbol Is It Any Way?

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