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An agriculture led revival as flawed claim

An agriculture led revival as flawed claim

Context of the news

In the midst of India’s COVID­19­induced economic slowdown, some government spokespersons and some observers are stating that agriculture will show the early green shoots and will lead India’s economic revival but the facts and figures are against this and mentioning this as a flawed claim.

ARGUMENTS IN FAVOUR OF AGRICULTURE LED ECONOMIC REVIVAL

  • Increase in food production: India witnessed an increase of 3.7 percent in food grain production in 2019-20 as compared to the 2018­19.
    • There is also an increase in procurement of rabi wheat in 2020­21. It is 12.6 percent higher than in 2019­20. It is seen as resilience in the agricultural sector.
  • Higher Food inflation: In the Q1 of 2020­21 there was 9.2 percent increase in food inflation as compared to the previous year. It is being claimed that it is due to ‘sustained demand for food’. This shows a shift of terms of trade in favour of agriculture.
  • Increase in Kharif Sowing area: The area under kharif sowing in 2020­21 was 14% higher than in 2019­20. Higher kharif sowing was accompanied by higher tractor and fertilizer sales, which bodes well for economic recovery.
  • Economic package for agriculture: The government’s economic package for agriculture such as part of the ? 20­lakh crore Atmanirbhar Bharat package boost the agriculture position as the engine of revival.

Aatmanirbhar Bharat Abhiyaan

The Rs. 20 lakh crore economic package under the Aatmanirbhar Bharat will further support the doubling the farmers' income (DFl) drive. Under this, following special provisions have been made for the poor, including migrants and farmers:

  • 25 lakh new Kisan Credit Cards sanctioned.
  • Approximately 63 lakh loans of worth Rs.86,600 crore approved.
  • Support of Rs.4,200 crore provided under Rural Infrastructure Development Fund to states.
  • Rs.3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) especially for the Micro, Small and Medium Enterprises (MSMEs).
  • Various benefits have also been given under the MUDRA scheme. Rs.1500 crore Shishu loan shall be provided along with interest discount of 2 percent for fast recipients for a period of 12 months.
  • Wage rate under MGNREGA has been increased to Rs. 202 (from Rs.182).
  • Free food grain supply (5 kg of grains per person and 1 kg Chana per family per month) to the migrants.
  • Through Pradhan Mantri Kisan Yojana, Rs.2000 has been transferred directly to the 8.7 crore farmers.
  • Vocal for Local: The locally available product will be given importance in order to promote the rural economy. Rs.10000 crore has been assigned to the unorganised food processing industries in this context.

ARGUMENTS AGAINST AGRICULTURE LED ECONOMIC REVIVAL

What ‘Rabi procurement’ claim hides:

  • Due to the lockdown, extra attention was given by the state governments to ensure that procurement did not su?er.
  • Procurement of wheat was higher for 2020-21 but as per official data, only 13.5% of paddy farmers and 16.2% of wheat farmers sell their harvest to a procurement agency at an assured Mini­ mum Support Price (MSP). The rest sell their output to private traders at prices lower than MSP.
  • It means focused should be on market arrivals and not on procurement. 15 crops have shown lower market arrival in 2020 than in 2019.
    • Only the market arrivals of paddy, lentil, tomato and banana in 2020 constituted more than 75% of market arrivals in 2019.
    • In wheat, barley, potato, cauliflower, cabbage and lady’s finger, market arrivals in 2020 were between 50% and 75% of market arrivals in 2019.
    • For gram, pigeon pea, onion, peas and mango, market arrivals in 2020 were less than half of market arrivals in 2019.
    • In wheat, the most important rabi crop, only 61.6% of the arrivals in 2019 was recorded in 2020.
  • During lockdown, farmers lost the access to market, supply chain was disrupted, mandis were closed and higher procurement was hardly alleviating.
  • There were also major losses in the milk, meat and poultry sectors. As per an industry associations estimate the total loss for the poultry industry was ? 25,000 crore.

Claims on Inflation and prices

  • The Inflation rates by estimating using consumer price indices are not representative of farmer’s prices.
  • Inflation is largely due to disruptions in supply chains and rise in trader margins.
  • By examining the wholesale market prices for 15 agricultural commodities between March 15 and June 30, 2020 it has been noticed out that prices of most crops have been declined.
    • The average paddy prices were about ? 1,730 per quintal on March 23, but ? 1,691 per quintal on June 30.
    • Average wheat prices were ? 2,045 per quintal on April 1, but ? 1,865 per quintal on June 30.
  • It has been found that in rural areas small and marginal farmers are not net sellers, but net buyers of food. So, it was not just that farmer’s prices fell; most were also forced to pay more for food purchases.
  • As per evidences from small sample surveys rural households reduced food purchases during the lockdown. So, it means that the claims that higher rural inflation benefited farmers, and that it was due to higher food demand, are misplaced.

Higher Kharif Sowing

  • It is true that Kharif sowings has been increased in 2020 and it has many reasons for this.
  • When Rabi incomes fell during the lockdown, many rural households returned to farming or intensi?ed farming for food and income security, it increased the area for Kharif.
  • Lakhs of migrant workers returned to their villages from urban areas and have taken up agriculture in previously fallow or uncultivated lands. As per data on monthly employment for Monitoring Indian Economy (CMIE), the number of persons employed as ‘farmers’ in June and July 2019 were 11.2 crore and 11.4 crore, res­pectively but in June and July 2020, these numbers rose to 13 crore and 12.6 crore, respectively.
    • Such indicators cannot be termed as sign of prosperity. These are indicators of distress.
    • The rural unemployment rates also rose sharply in 2020, to 22.8% (April), 21.1% (May) and 9.5% ( June). Even in August 2020, rural unemployment rates were higher than in February 2020 or August 2019.

Analysis of package

  • Rural expectations were high with the announcement of Atmanirbhar Bharat package but the total fresh spending for agriculture in the package is a trickle. It is less than ? 5,000 crore. The rest are schemes already included in the past Budgets and announcements.
  • The package also failed to provide ?nancial support to farmers.
  • As we know agriculture contributes only about 15 percent to India’s Gross Value Added (GVA). Thus, even 4 percent of agriculture growth will contribute only 0.6 percentage points to GVA growth.
    • To contribute a full one percentage point to GVA growth, agriculture will need to grow by 6%, which is unlikely in 2020­21.

WAY FORWARD

  • Instead of frontloading the installments of PM­KI­ SAN, the government should have doubled the payments to farmers from ? 6,000 a year to ? 12,000 a year.
  • The government should have set all MSPs at 150% of the C2 cost (comprehensive cost) of production instead of raising the minimum support price (MSP) for kharif paddy and cotton.
  • Need to waive the interest on loans taken by farmers in 2019 and 2020.
  • Government should announce a package of direct assistance for the crisis ridden poultry and meat sectors amounting.
  • Arrange direct financial assistance to small milk producers, for whom milk prices have literally plummeted.

CONCLUSION

There is a potential rise in demand from higher Rabi procurement, higher kharif sowing and flow of cheap credit but the counteracting tendencies in rural areas like lower crop prices, lower market arrivals and higher unemployment are also there. Government’s strategy seems to squeeze farmers without investing in agriculture or rural employment. Such an approach would fail and rural incomes will remain depressed, and this can push the economy further into a vicious cycle of poor demand, low prices and low growth. The government should discard its role as a passive observer, and decisively intervene in rural India with a substantial fiscal stimulus.'

Facts about Agriculture sector

  • Agriculture sector contributes 265 billion dollars which is 17 percent of GDP.
  • It employs approximately 60-70 percent of the Indian population (directly or indirectly).
  • India has 1/4th of the world's farmers and contains 48 percent of the world's arable land.
  • India is the world's top producer of pulses, milk, 2nd largest producer of wheat, rice, vegetables, fruits, 3rd largest producer of food-grains.
  • lts share in the economy of India is around 17 percent.
  • For the fiscal year 2O2O-21-, the food grain production target for India is set at 298.3 million tonnes, compared to 291.95 million tonnes in 2019-20 and 285.20 million tonnes in 2018-19.

Source: The Hindu