A lot is being written about the latest round of farmer protests and their demand for a legal guarantee backing MSPs. The MSPs refer to “minimum support prices” (announced by the government for several crops) and although they sound innocuous, as the repeated farmer protests underscore, they are routinely contested and have wide-ranging ramifications — from how much farmers earn to how much you pay for your food items to how much the government has to borrow in its annual budget. Here is a basic explainer of what MSPs are and the purpose behind them.
In the past few years, especially since the current Union government introduced three new farm laws in 2020 (which were repealed a year later), farmer protests have intensified. Unfortunately, although unsurprisingly, the public opinion on this matter, too, has polarised along political lines. Indeed, the protests and the protesting farmers have become a bigger talking point than the underlying issues. The government’s supporters argue that all the protests are politically motivated while forgetting that it was this very government that promised a doubling of farmers’ income by 2022. The Opposition parties are demanding (and indeed promising) a blanket legal guarantee for MSPs but there is little acknowledgement that India’s farm distress existed before 2014 as well.
Here are some facts about India’s farmers that can help put the whole issue in perspective.
1) Agriculture’s lopsided role in national economic output
At the time of Independence, around 70% of India’s total workforce was involved in agriculture. Together, this sector accounted for 54% of India’s economic output. In other words, even though India was predominantly rural and agrarian, there was a balance between the proportion of people involved in agriculture and agriculture’s contribution to India’s annual economic output (measured by GDP or gross domestic product).
But over the decades, agriculture’s contribution to the economy has fallen sharply. As things stand, its contribution has fallen from 54% to less than 18% of India’s GDP. And yet, over the same period, the proportion of India’s workforce involved in the farm sector has only declined from 70% to around 55%.
The data highlighted in yellow in TABLE 1 shows how 97.2 million of the 139.5 million workforce — that’s 69.7% — was working in the farms according to Census 1951. By 2011, this percentage had fallen to only 54.6%. It is noteworthy that this data is only up to 2011, thanks to India failing to conduct the Census 2021.
2) Rising proportion of farm labourers as against cultivators
Another key metric that shows the worsening state of affairs is the relative proportion of “cultivators” and “agricultural labourers” within those who work on farms.
For purposes of the Census, a person is classified as cultivator “if he or she is engaged in cultivation of land owned or held from government or held from private persons or institutions for payment in money, kind or share.” In other words, cultivation includes “effective super- vision or direction in cultivation”.
On the other hand, a person who works on another person’s land for wages in money or kind or share is regarded as an agricultural labourer.
As TABLE 1 above again shows, the relative proportion of cultivators (highlighted in green) has fallen from 72% ( of all farm workers) in 1951 to 45% in 2011 while the proportion of labourers has risen from 28% (of all farm workers) in 1951 to almost 55% in 2011.
This means two things. One, it shows the growing infeasibility of farming. Two, it means, with each passing decade the default notion — that a farmer is someone who owns their land — has become outdated. Indeed, by 2011, most people engaged on India’s farms were essentially wage labourers, bereft of taking a call on cultivation.
3) Small & marginal land holdings and high levels of indebtedness
Data from TABLE 2, sourced from the latest Situation Assessment Survey of Agricultural Households (Jan-Dec 2019), shows that most Indian farmers have small and marginal land holdings and, worse, almost half of them are indebted.
According to this survey, around 70% of all agricultural households have a land holding size of less than 1 hectare and around 88% have a land holding size of less than 2 hectares. For reference, the Narendra Modi Stadium in Ahmedabad, where India lost the cricket World Cup final to Australia last year, is spread over an area of 25 hectares.
TABLE 2 also highlights the proportion of farmers in each category that are indebted as well as the average outstanding loan amount.
It is noteworthy that, according to a 2015 study by Ramesh Chand, now a member of Niti Aayog, a plot smaller than 0.63 ha does not provide enough income to stay above the poverty line.
4) Low incomes and high incidence of debt across the country
The last two columns of TABLE 3 present a state-wise picture of income and indebtedness. States like Andhra Pradesh and Telangana had a very high proportion of farm households that were indebted even though average income levels were similar to India’s average. Some states such as West Bengal and Odisha were poorly placed on both parameters — they had significantly lower levels of farm incomes while having average or above-average proportion of indebted farm households.
Country-wide, as of 2019, the average monthly income per household — a household typically has five members — was Rs 10, 218 and 50% of all farm households were indebted.
5) Terms of trade against the farmers
The last column of TABLE 4 shows the Terms of Trade (ToT) between farmers and non-farmers. The Terms of Trade is the ratio between the prices paid by the farmers for their inputs and the prices received by the farmers for their output. If the ToT is less than 100, it means farmers are worse off. As TABLE 4 shows, the ToT were negative in 2004-05 but they steadily improved for the next 6-7 years to hit a high of 102.95 in 2010-11. Since then, however, the ToT have turned negative yet again and remained stagnant.
6) Worse off than their global counterparts in terms of receiving support
Often it is claimed that Indian farmers are already receiving too much financial support. But data doesn’t back this notion.
For instance, the Organisation for Economic Co-operation and Development (OECD) collates data on “producer protection”. It is defined as “the ratio between the average price received by producers (measured at the farm gate), including net payments per unit of current output, and the border price (measured at the farm gate)”. For instance, a value of 1.10 suggests that farmers, overall, received prices that were 10% above international market levels.
Look at CHART 5 which shows that India stands last (among the countries compared by OECD) on producer protection.
Similarly, the OECD calculates another variable called “Agricultural support”. It is defined as “the annual monetary value of gross transfers to agriculture from consumers and taxpayers arising from government policies that support agriculture, regardless of their objectives and economic impacts”.
CHART 6 shows where India stands on the “total support estimate” (TSE), measured as a percentage of GDP, relative to other countries and regions.
Upshot:
It would be a mistake to believe that MSP is the only issue, or even the main issue, at play. Indeed, the MSP debate is just the tip of a much deeper problem: Agriculture is grossly unremunerative for most Indian farmers.
Further, it is also important to understand that the nature of India’s farm distress is structural; in other words, it has not been triggered by a recent passing event. The factors responsible for farm distress are long-standing and merely tweaking MSPs or providing short-term promises will not provide a sustainable solution.
Moreover, relative to their global peers, Indian farmers are not as mollycoddled as they are made out to be.
So, are MSPs the solution to Indian farmer’s woes?
There are no easy answers. The fact is that there are far too many people dependent on India’s farms, which account for a small portion of economic output. Often these farms are too small to even keep a family out of poverty. There is relatively little support from the government either through direct income transfers or provisioning of facilities (such as warehouses) that may bolster farmers’ ability to bargain in the market. Not to mention the fact that the rest of the economy has not created enough jobs to pull people out of farms. For instance, the food processing industry could have been — it still can — a great way to raise incomes.
In such a scenario, raising MSPs alone may not solve the problem. For more on this, read this rather hilarious but hugely instructive anecdote about the time when US President Jimmy Carter decided to help America’s milk producers by buying milk and raising market prices.
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Until next time,
Udit