Farm crisis calls for more than waivers

Images of the police using water canons on a large march of farmers trying to march into the national capital has once again brought to fore the issue of rural distress. The issue is as much political as it is economic. A systemic crisis in farming goes back to probably the entire post-reform period. However farmers’ organisations upping the ante against the government with less than a year to go for the general elections is also a political move. Here are three charts which can help us understand why the rural economy is on the boil, and why a solution to the problem might lie beyond the issues being discussed.

Opinion polls suggest that the National Democratic Alliance (NDA) government has been slowly losing support among the framers. Three rounds of Mood of the Nation (MOTN) surveys conducted by the Delhi-based Centre for Study of Developing Societies-Lokniti show that 42% of farmers had a positive assessment of the NDA government on its ability to address farmers’ woes in May 2017, immediately after the Bharatiya Janata Party’s stellar victory in the Uttar Pradesh assembly elections. This went down by one percentage point in January 2018, and then fell to 30% by May 2018. In the third round of the MOTN survey, discontent among farmers seems to be the biggest problem for the current government. (Chart 1)

Is the narrative of rural distress real or driven by subjective factors? Statistics on growth in rural wages support the rural distress story. Rural wage growth started decelerating sharply in the middle of last year and latest data shows that they are yet to show a credible recovery. (Chart 2) 

An earlier piece by this author had also highlighted the fact that agricultural prices have been rising at a slower rate than non-agricultural prices, which is bound to increase the squeeze on the farm sector.

However, it is also true that some of the demands being made by farmers’ organisations are unlikely to help in resolving the present crisis. Farm loan waivers are a central demand of almost all farmers’ protests. Any such policy will only benefit farmers who have access to formal credit as the government has absolutely no way of credibly finding out the extent of indebtedness from informal credit sources.

The Reserve Bank of India gives quarterly statistics on number of accounts and outstanding credit in the agriculture sector. HT has used these figures to calculate the outstanding credit per account, which can be a rough proxy for per farmer credit. To be sure, these figures will not capture the entire amount as they only include credit from scheduled commercial banks. To adjust these values for inflation, we have divided them by the ratio between gross value added in agriculture at current prices and constant prices for each quarter. The results are surprising. Real agricultural credit per worker has actually been going down under the present government. (Chart 3)  

Caution should be observed in using these statistics to infer that rural distress has actually gone down in the recent period. We have no idea of ascertaining the amount of outstanding farm credit from informal sources. However, what these statistics do tell us is that the ability of a farm loan waiver to provide relief to crisis-ridden farmers might be coming down. Having said that it is unfair to blame the farmers for demanding farm-loan waivers when political parties themselves make such promises on the eve of elections.