Getting it Wrong on India’s level of Agricultural Support

Context: The Organisation for Economic Co-operation and Development (OECD) estimate (2019) suggests that India provided negative price support to its farmers during 2000-2019. This has been questioned on many grounds, including faults in its methodology.

The OECD estimates 2019:

• It calculates support to farmers in Producer Support Estimates (PSE), which mainly comprises - market price support and budgetary payments.
  • Market price support of a commodity: is calculated by multiplying its total production with the gap between domestic and international prices in a relevant year.
  • Budgetary payments: includes expenditure on the Pradhan Mantri Kisan Samman Nidhi, the National Food Security Mission, crop insurance, input subsidies such as fertilizer and electricity,
• Concept of Negative Price Support: It is a support which is articulated a net tax on the Indian farmers due to the domestic price of the agricultural product being less than its international price.
• Estimates: Indian farmers received negative support to the extent of minus ?2.36-lakh crore and minus ?1.62-lakh crore in 2010 and 2019, respectively.

Limitations:

• It excludes expenditure related to the operation of minimum support price and general services.
• It assumes a convergence of domestic and international prices (in case there is no market intervention): However, even if the government does not implement any programme, the gap can still arise due to domestic and international factors.
  • E.g. COVID-19 pandemic led supply and demand shock, weather conditions and depressed international price due to subsidies given by other countries
• Unpredictability of the data: the total support can move from huge negative to huge positive.
  • E.g. Market price support for cotton turned positive in 2019 from negative in 2018, mainly due to an increase in domestic prices against international prices.

Associated concerns for India: It could create a perception in the future that India is providing one of the world’s largest support to its farmers; Developed countries may aggressively question India’s support measures.

Conclusion: Farmers, policymakers, and other stakeholders should understand pitfalls and limitations in OECD numbers. This will help in providing a correct perception of the level of support to agriculture in India.