Given how the BJP lost a lot of votes in rural Gujarat, the government is very likely to focus on alleviating stress in the farm sector during the run up to 2019 Lok Sabha elections. Finance Minister Arun Jaitley has said his government will "analyse" and "address" rural India's issues, even going to the extent of saying that spending on rural India and agriculture is not populism. Since the budget in February will be the last full-ledged budget of the Modi government before elections some major steps can be expected to protect the ruling party from the palpable rural discontent. While the distress is real and needs to be addressed, the government will do well not to look at solutions that are purely meant to win it votes in the 2019 Lok Sabha elections. Rather, it must address the long-term structural crisis in Indian agriculture. Growing fragmentation of land holdings, environmentally unsustainable practices in groundwater and fertiliser use, and climate change are some such factors.
Though real rural wages have been rising fairly sharply since July 2016, and rural unemployment too has been falling since then, the rise in nominal wages has been slower. This has increased the real indebtedness of land-owning farmers. However, the government needs to desist from populist measures such as loan waivers that only end up creating a moral hazard. Instead, it could look at other steps such as framing a more liberal export policy that will fetch farmers better prices. It should also refrain from bigger hikes in the MSPs, which are popular because they are visible, but benefit only a small section of farmers and distort cropping preferences in favour of a few crops.
Instead, the government must step up agricultural reforms. Speeding cash transfers for fertilisers and pricing them at market rates will ensure correct usage and benefit all farmers instead of just the rich ones as happens right now. More cash transfers for PDS and winding down the FCI will save the exchequer money and stop distorting price signals. Spending more on irrigation and crop insurance may not give immediate benefits, but will do more for farmers over even the medium term. Several reforms like contract farming or abolishing APMC require state governments to come on board, but a more stable export policy, greater use of cash transfers for fertilisers and food subsidies will ensure farmers get a higher share of retail prices. These are all within the purview of the Union government. Greater construction activities-rural roads, housing and irrigation-will also do a lot to raise rural incomes and jobs and to take the pressure off the farm sector.