It is time for India’s farmers to gain their freedom
Prime Minister Narendra Modi, heading the National Democratic Alliance (NDA) government, ‘signed’ the ‘first file’ to release a Rs 2,000 instalment to 95 million farmers under the PMKISAN scheme, introduced by his government in the Interim Budget 2019-2020 to provide cash transfer of Rs 6,000 a year to all farm families.
Earlier, in 2014, he had vowed to double farmers’ income by 2022.
The government had also announced, in Budget 2018-2019, an extension of the minimum support price (MSP) to all field crops with a guaranteed minimum of 50 per cent profit over the cost of cultivation.
The results, however, have been quite disappointing. Farmers’ incomes increased by only about one-third between 2014 and 2022. The farming households still constitute the bulk of India’s poor.
Why is the farmers’ lot not improving? What needs to be done?
Liberate agriculture
Farming is a business. The farmers, like other businessmen, need to have full liberty to take or give land on lease or undertake production on contract. They also need to make investments in acquiring additional land and in land improvement. They also need to have the full freedom to sell their produce through all market channels.
Unfortunately, the farmer is a prisoner of many laws. Tenancy laws prohibit farmers from leasing lands. Contract production is hobbled by numerous excruciating conditions and procedures. Land ceiling laws do not allow farmers to buy land to build farms of a viable size.
Farmers need to be liberated from this yoke. All restrictions on land leasing must be removed. Contract production must be made flexible and efficient at the will of farmers. Land ceiling laws being anachronistic should be abolished. It is time for the restrictive mandi laws to be repealed as well.
We should stop fooling farmers by deifying them as ‘annadatas’. Liberation from the stranglehold will transform farmers into good businessmen and raise their incomes manifold.
Degovernmentalise foodgrains agriculture
At Independence, farmers did not produce enough food. Famines were quite frequent. India was embarrassingly dependent on American PL 480 imports to stave off acute hunger from year to year.
The Green Revolution in the 1960s, with the government’s active encouragement, introduced better varieties of wheat and rice seeds, and encouraged farmers to use chemical fertilisers, irrigation, and better agronomic practices. It worked. India became a food surplus country, and a major exporter.
Yet, Indian farmers remain steeped in poverty as these very programmes resulted in the governmentalisation of foodgrains agriculture.
The inputs — seeds, fertilisers, water, power, loans, machinery, etc. — were heavily subsidised resulting in almost total public sector and government-controlled production. This governmentalisation discouraged private sector research and investment in foodgrains agriculture, unlike milk, fruits, and vegetables. Free fertilisers, water, and power encouraged farmers to over-use them spoiling the soil and reducing productivity.
The government’s procurement of a big chunk of wheat and rice production at higher than global/market prices kept farmers hooked on producing excessive quantities resulting in the sequestering of millions of tonnes in FCI godowns. The government spends thousands of crores in hauling procured foodgrains to the FCI stores and back to villages for distribution through ration shops without benefiting farmers.
The Government of India has got deeply entrenched in the lives of wheat and rice farmers at every stage of the cropping cycle — from sowing to procurement — by spending an average of about Rs 5 lakh-crore a year in subsidies and support. Yet, the value (and profits) of the foodgrains produced is smaller than the value of milk, which, along with fruits and vegetables, hardly receives any support from the government.
A complete de-governmentalisation of cereals production will nudge the farmers to cultivate crops which suit them the best, without being influenced by government subsidies and interventions.
Income support for transition
Rough calculations suggest that Union and state governments spend about Rs 10 lakh-crore in agriculture subsidies. As Indian farmers cultivate approximately 125 million hectares a year, the government spends approximately Rs 80,000 per hectare in subsidies.
In contrast, hardly any Indian farmer earns a profit of Rs 80,000 per hectare a year.
The perfect policy reform is, therefore, for the governments to transfer Rs 80,000 per hectare to India’s 100 million farm-families by eliminating all input subsidies and MSP procurement. Farmers’ income poverty would vanish, and, in addition, farmers would be free to raise crops which deliver the best profits to them through the market.
This transformation would require to be phased for a smooth transition.
First, explicit cash subsidies such as food and fertiliser should be converted into cash transfers over the next 3-5 years. The indirect subsidies — electricity, water, etc. — can be reformed into cash support over the next decade.
The government must, for the best transition, maintain the cash support at a 100 per cent level for 10-15 years and, thereafter, abolish it gradually by 2050 to make the farmers independent when the Indian Republic completes 100 years.
India gained its political freedom in 1947. The industry got substantial economic freedom in 1991. It is time for India’s farmers to gain their freedom.
(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘We Also Make Policy’.)
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.