Agrarian distress: market versus the state

We ought to have been celebrating the golden anniversary of the Green Revolution. It had been achieved through the state-induced action of providing improved seeds, increased availability of low cost ‘fertiliser and water’ backed by state procurement of produce at pre-announced ‘minimum support’ prices.

Mandatory bank lending targets had also been imposed to support the state effort. The immediate impact had been strongly positive. It enabled elimination of the spectre of food shortages which for long had bedevilled the economy. The country is now a large exporter (one of the world’s largest) of farm produce.

However, despite these achievements, if you look back over the long sweep of time, from the perspective of rural wellbeing, the results are more mixed. Agrarian distress manifested by frequent farmer suicides and loan defaults, is commonly and almost annually reported across several states. Blaming attribution for this distress is natural. On a default basis, three factors are commonly perceived, either individually or in combination to be causative – insufficiency of water, credit support and procurement support.

Energetic state action is thus deemed to occur if focussed energy is shown by the political party in power on these fronts. These actions have repeatedly been witnessed. Analyst and popular perception gets satisfied and the topic gets closed.

Frequent re-emergence of distress has not altered this reflexive thought processes even though distress intensity seems to have increased. Maybe a re-look is warranted?

A Google check indicates that the average procurements was 20-24 million tonnes of foodgrain (rice, wheat etc) on a production level of about 200 mt in the mid-1990s with some annual fluctuations. This has since more than doubled to over 50-55 mt though absolute production has grown more slowly to about 260 mt. The procurement prices are at MSP which is computed on a cost-plus basis. So, inadequacies in procurement could not be causing an increase in distress levels.

As regards bank credit, in 1996-97, India had an aggregate agricultural production of 615 mt (cereals plus fruit and vegetables, sugarcane, floriculture etc). It had climbed to about 880 mt by 2012-13 giving an annual average growth rate of about 2.2% (fruits and vegetables/floriculture had grown much more rapidly while cereals/sugarcane grew less rapidly). Bank credit however grew from Rs 31,400 crore to Rs 5,89,900 crore in the same period representing an annual average growth of over 20%.

While credit inadequacy could still be existing in certain unbanked areas, the shortages ought to have decreased over time given this rapidly dissimilar growth even allowing for cost inflation. Incidentally, India is somewhat unique in having its mainline commercial banks also engaging in direct agriculture financing. The credit pricing is significantly subvented.

We therefore need to ask whether agrarian distress issues have been properly analysed. It could be asked whether the timing is appropriate to discuss such issues given that several states are facing drought-like conditions following the failure of the winter rains.

It could be kept in mind that 2016 was forecast to a good monsoon year but the current year forecasts are not as rosy. Also, climate change in myriad forms is getting experienced across the world creating doubts whether the monsoon deficiency could now become the ‘new normal’.

So, we come to water. The Food and Agriculture Organisation databases indicate that Indian agriculture has the world’s highest irrigation coverage and consumes double the water used by Chinese agricultural system (and thrice that by the US system) despite significantly lower aggregate production. Also, water usage in India is still increasing on a year to year basis while absolute reductions, despite agri-production increases, are occurring in these countries.

A corollary to this could be a question whether our authorities are aware of the ‘water usage’ of each crop variety and extent it varies from international best practices. It could be useful to mention here that crop productivity benchmarking could also assist in elucidating the factors responsible for agrarian distress.

In the case of rice, for example, not only is Indian average productivity below the US and China, it is also below that reported by our south Asian neighbours, none of whom can boast of effective state support for agricultural activities.

Admittedly, the state machinery may experience problems in rapidly disseminating/collecting such information given the large vacancies that have inadvertently been created over the years in state extension services due to fiscal problems of the state governments. At the last count, the vacancies were nearing one lakh employees across the states.

‘Contract cultivation’
Other emerging market economies often attempt to tackle such problems by promoting/incentivising ‘contract cultivation’ organised by private sector buyers. However, all success stories come from economies having small geographies, not subcontinental-sized systems. This may thus not be entirely possible in India given the wide heterogeneity of our state infrastructures and ‘ease of doing business’ conditions (which incidentally also include strength of the regulatory framework).
Also within states, large local variations in productivity per acre, productivity per tonne of fertiliser used, productivity/water used - going up, in individual cases, to peak international standards, exist. So, what should be the way forward is the question we need to deliberate.

This would require that we re-visit our starting assumptions. The basic assumption behind a ‘Big (well intentioned) State’ is that an individual, a farmer, is a hapless individual who, left to himself, mechanically does what he has been socially been programmed to do over the vast millenniums of our historical past.

But maybe, he is not? May be, he is an ‘economic agent’ not only alert but responding to whatever economic signals he gets. Maybe the widespread agrarian distress is due to the irrational price signals sent out by the state?

So, does differential loan pricing for farm credit-lower rates for micro irrigation but higher for crop loans (especially water- heavy crops) and even higher for water boring systems, though irksome in the short-run, could over time create an efficiency-oriented crop system?

(The writer is former chairman, Exim Bank of India)

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