India's Agriculture policy and rural economy
Indian farmers want minimum support prices - a price floor for their production, a guaranteed price for their crops. Indian farm produce goes through severe price fluctuations and mainly in perishable crops (staple vegetables like Tomatoes, onions etc) which affects consumers as well as farmers. There are several causes for these price fluctuations.
1) Structural problems like lack of cold storage infrastructure, transportation systems, water security, flood control infrastructure etc - Much of the Indian farms still depend upon monsoons for growth. The water resources in many parts of India are dwindling. There are no proper projects for water conservation, irrigation system and flood control. Bad monsoons mean bad crop yields. Flash floods means destruction of crops. The farmers are increasingly exploiting ground water resources. When monsoons are good and there is good farm yields, there is lack of cold storage infrastructure to store the surplus for future. The transportation system, the roads, the highways outreach into rural India is also poor. This makes transportation of production costly and in times of floods, it makes it further difficult.
2) Lack of technical progress, low productivity of farm sector, lack of planning and skills of Indian farmers - It’s well known that India is far behind other developed & developing nations like Brazil, China etc in terms of crop yields. Much of the farm sector is either held by big independent farmers or small level peasant farmers both of which lack scientific & modern practical knowledge. There’s no sustainable practice and planning for farming.
3) Lack of depth of Agriculture markets - On top of all the structural problems and also as a consequence of it, India lacks a proper market mechanism to absorb its agriculture production. The mechanism of price discovery is also broken. The farmers sometimes have to sell their produce for pennies. The consumers sometimes have to buy staples at 2-5-10 times the normal price. Farmers complain that they’re not getting adequate profits for their production while consumers complain that they’re paying in excess. The chain of market mechanism between production to consumption is highly dysfunctional.
4) Climate change - The structural problems of Indian farm sector and lack of technological advancement is further aggravated by Climate change in recent times. Erratic monsoons, droughts, flash floods, land slides, changing temperature & climate patterns is creating disruption in agriculture. Indian central bank also recognize the impact of climate change on inflation.
5) Failed government policies, rural populism - While Indian farm sector needs meaningful policy reforms, instead the government use band aid temporary policies, kicking can down the road and continue to temporize with problems due to destructive rural populism. The vote bank politics and pandering to rural electorate has worsened the problems of agriculture sector. Frequent loan waivers, loan festivals (loan melas), farmer friendly land policies etc have not solved problems but aggravated them.
The populism in India is deeply rooted since independence which has restricted India’s modernization. Founding fathers like MK Gandhi envisioned independent India as a Democratic rural village society though Nehru had somewhat modern views. Since independence, the agriculture is holy grail of rural populism and urbanization/industrialization is frowned upon by rural reactionaries as well as opportunistic politicians. (Industrial capitalism was seen as colonial legacy of Britishers).
Today, many Indian politicians (mostly rural populist and leftist opportunistic type) demand policies to boost India’s rural growth and farmer household security. But the world is moving towards hi-tech industry - Biotechnology, automation, AI, semiconductors, sophisticated machinery, renewable energy, green transition etc for sustainable economic growth. These technologies are also applied in agriculture sector to minimize human labor and maximize farm production. This is something which India should also be doing but failed to adopt in last many decades. India’s national thinking is still trapped in era of 1950s and 60s.
Recently, i was reading work of Historian Eric Hobsbawm which has an interesting passage. The nations which have the largest workforce employed in farm sector are ironically also the ones which face great hunger and starvation. While the nations which have a smaller workforce in farm sector & great technological advancement are the nations which create high farm surplus. All this isn’t surprising. Take example of India which burns nearly half of its workforce in agriculture sector but still its far behind in human development index, malnutrition, hunger etc. More than half of population is dependent on government free food ration.
A passage from book ‘On History’ by Eric Hobsbawm
What should be reforms in Farm sector? I am not a firm believer in sacrosanct forces of supply and demand, and market equilibrium. But still, there needs a market mechanism for discovery of prices and of course regulated by government. Thus blanket minimum support prices on farm production are a mistake. The role of government is to create a healthy market instead of implementing a price guarantee for crops. How can government create functional markets in farm sector?
Government should invest in solving structural problems. Create a national cold storage infrastructure that can store the farm surplus, especially of staple vegetables to prevent price fluctuations. Government mistakenly (& foolishly) relies on markets to make this investment which won’t happen so here government needs to take a lead on this. Government should build a national flood control infrastructure, irrigation system, reservoirs, replenishment of water bodies on a large scale. Govt should solve supply chain disruptions, build strong connectivity of roads and highway network, freight corridors for reliable transport system.
Bitter pills also needs to be forced on farmers by ditching rural populism. End unsustainable agriculture subsidies loans & loan waivers, create land reforms for swift re-purposing of land. End destructive agriculture practices like excessive ground water exploitation. Give meaningful subsidies to nurture agriculture modernization (recycling stubble, modern machinery etc) while also letting unsustainable farms to go bankrupt. Allow a certain degree of market forces to make corrections in farm sector.
On broader level, we also have to understand that we cannot solve the crisis of farm sector in isolation. Farm sector which employs half of our workforce is only one element of our national economy which is also pretty sick. Curing illness of farm sector requires a whole set of macroeconomic policies to restructure Indian economy by moving it away from agriculture wasteful inefficient economy to a more modernized industrial and high wage economy. This also involves a green transition to minimize carbon emissions and reducing pollution to address the root problems of global warming. While we move away from rural agriculture based economy, we have to create other avenues of employment and production to absorb our labor force which is currently getting wasted in rural informal agriculture dependent economy.
Taking the corrective measures while government making sensible regulations and major investment to solve structural problems will automatically create a fertile ground for a ‘market mechanism’ guided by government which on long term will be both beneficial to farmers as well as consumers. The farmers will be able to sell their produce at reasonable prices. The surplus produce will be taken care of by national cold storage. The price fluctuations due to supply chain disruptions will be minimized. The consumer will be able to buy farm goods at stable and reasonable prices. The farm sector will also be sustainable as well as improved in productivity.
Throwing endless financial resources on MSPs, loan waivers and unsustainable farm credit is a futile and fatal exercise. It will only create a huge burden on government while giving very little material benefits in long term. Indian politicians as well as Indian leftists continue to chant - ‘kisan bachao, kheti badao’ slogans. The politicians make policies purely for short term electoral motives to win rural voters. At the same time, politicians & pundits on the right have too much fetish for Neoliberal thinking that laissez-faire markets alone can fix the problems of farm sector. This is also futile thinking. The government intervention, both financially and policy assertive is necessary but of the right kind.