The Modi Government's critics have long been saying that India's farmers are in trouble. Now, its own data shows that the critics were right all this time. GDP numbers for the second quarter of this fiscal, released last week, reveal how badly Indian agriculture is doing.
On the face of it, Agriculture, Forestry & Fishing grew by a decent 3.8% in Q2. But the fine print in the official press release shows that more than half this growth came from livestock products, fishing and forestry. A little bit of number-crunching shows that agriculture proper grew just 2.5%. In fact, the government's press release also says that food-grain output increased by just over half-a-percent. So agricultural output growth has been pretty poor in Q2. This wouldn't really matter if farmers made more money compared to last year. After all, businesses often earn more by producing less but selling at much higher prices. But the exact opposite is happening in India's agriculture sector.
To understand this, we need to understand how GDP data is compiled. It is collected from various mandis, from quarterly corporate results, and from taxes paid at prevailing prices. This is GDP at 'current' prices - what we also call 'nominal GDP'. This data is then 'deflated', using the various inflation rates in each sector, to arrive at GDP at 'constant' prices. This is 'real' GDP growth, nowadays given in 2011-12 prices. While GDP in constant prices tells us what real output growth has been, GDP at current prices tells us how much people are actually earning right now.
And here's where the true picture of farmer distress comes through. Growth in agriculture, fishing and forestry in 'current' prices was just 2.8%, even though 'real' growth in value-added was 3.8%. That's mostly because of the drop in prices of food items by 2.1%, the deflator used to calculate actual farm output by our official statisticians. Real output growth in agriculture - excluding livestock products, fishing and forestry - was just 2.5%. Keeping in mind that food prices dropped this year, the farmer's 'nominal' or money income would have grown by less than 2%.
On the other hand, the prices of things that rural India buys went up by an average of 3.6% between July to September. This means the 'real income' of farmers - adjusted for inflation - dropped by 1.6% in Q2 of this fiscal. This is worse than what happened in the previous quarter. Nominal farm income increased by 7% in Q1, and rural consumer price inflation was 4.8% in that quarter that meant, farmers had a real income growth of just 2.2%. In the first half of this fiscal, farmers earned 5% more in money terms compared to last year, but they faced an average of 4.2% consumer price inflation. So 'real' income growth for India's farmers was just 0.8% in the first six months of this fiscal.
At that rate of real income growth, it will take 87 years to double what farmers earn today. That means farm incomes - in real terms - will double in the year 2105, not 2022. No wonder they are out on the streets, in tens of thousands, demanding higher support prices, guaranteed procurement and loan waivers.
But these macro figures only partly reveal how bad the situation is because they club together the earnings data of all types of farmers - rich and poor. NABARD's financial inclusion survey, done between January and June 2017, gives us more details. It tells us that about 87% of India's farming households hold less than 2 hectares of land. Last year, these families earned less than Rs 2,500 from agriculture. In fact, on an average, farming accounted for just 31% of the Rs 8,000 that 9 out of 10 farming households earned per month. And this was in a good year with a record harvest.
The survey also says that on an average, in early 2017, these families of small and marginal farmers spent just Rs 6,750 per month on their daily expenses. 70% of rural families spent just Rs 31 per person on food. More than half of them spent just Rs 24 per person. And, one in three spent just Rs 18 per person. So even after spending as little as possible, small and marginal farmers were able to set aside less just about Rs 1,000 per month for contingencies in a relatively good year. In most other years, small and marginal farmers would have spent more than they earned.
That is why any major expense - a marriage in the family, a sudden illness, admission into a local 'English-medium' school - can land these farmers at the door of the local moneylender. This is over and above the regular loans they have to take to buy fertilizers, seeds and other inputs. NABARD's data shows that 52% of farming families are indebted, and they have an average outstanding loan of over Rs 1 lakh.
In an election year, the Modi government has very little option but to spend more on procuring crops from farmers at higher prices. It must also seriously consider writing off a part of the loans farmers face. The problem is that higher MSPs don't always help poor farmers who buy more foodgrain than they sell. If higher MSPs push up food prices, poor farmers could lose out, unless the government also gives them more food through ration shops. Whatever it does, it seems certain that PM Modi may have to bid farewell to fiscal discipline if he wants to win the rural vote in 2019.
(Aunindyo Chakravarty was Senior Managing Editor of NDTV's Hindi and Business news channels. He now anchors Simple Samachar on NDTV India.)
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