The Roots of the Agricultural Crisis Run Deep

Context: While the reforms embedded in the three Acts are unlikely to help resolve the structural issues facing Indian agriculture, even their withdrawal is unlikely to change the ground reality which had existed even before the Acts were passed.

Structural issues in the Agriculture sector:

• Increasing cash requirement: Due to increasing mechanisation and monetisation have led to over-dependence on loans, especially from non-institutional lenders, resulting in rising cost of cultivation and an increase in loan defaults.
• Increasing costs: Rise in the fertiliser prices due to the Nutrient Based Subsidy (NBS), the withdrawal of diesel subsidy and a rise in electricity prices contributed to making agriculture unviable.
• Declining investment in agriculture: resulting in rising input costs and falling output prices.
• Demonetization and recent lockdown: have further deepened the existing vulnerabilities.
• Unpredictable and arbitrary government policy regime: with an excessive focus on inflation management and obsession with fiscal deficit leading lower support from the Government.
• Related to farms Acts: All this may provide an unfair advantage to the corporate sector, vis-à-vis Agriculture Produce Marketing Committees (APMCs) mandis, hence diluting the safeguards provided to the farmers.
• Sharp increase in price variability in recent years: due to increased dependence on markets and inadequacy of Minimum Support Price (MSP)-based procurement system.
  • MSP is provided only for rice and wheat and sporadically for pulses covering 23 crops
  • Even for wheat prices are a steady decline in year-on-year inflation based on Wholesale Price Index (WPI) since July.
  • Regional disparity: Many States of eastern India, wheat is sold at 20-40% lower prices compared to MSP and Maize is sold at 40-60% lower than the MSP in most States.

Way forward:

• Need for fiscal support and institutional structures to support the agricultural sector and protect it.
• The agricultural sector needs a comprehensive policy overhaul to recognise the new challenges of agriculture, which is diversifying and getting integrated with the non-agricultural sector.