India’s agriculture industry has been broken for decades without any sustained reforms being undertaken to improve lives of farmers and consumers. It was expected from the government of the day to undertake structural reforms, seeing as how Narendra Modi has been targeting doubling of farm incomes. However, like past governments, Modi’s men have also sought to target the symptoms rather than the root cause of the disease. The key to the destruction of the farm sector in India has been the loan waivers. Seen as a farmer-pleasing populist measure, loan waivers make little economic sense, if any. The agro industry is broken because of low productivity and disguised unemployment. Farming still employs about 50% of India’s workforce while contributes roughly 13.7% to the GDP as per 2013 estimates. Clearly India needs to transfer this idle labor elsewhere. Farming in India is still largely dependent on rains and other modes of irrigation are vastly underdeveloped.
Productivity of Indian agriculture is pathetic owing to smaller land holdings of farmers and lack of irrigation facilities. Indian farmers have not been adept at adopting technology which has led to their own downfall. The opposition to Genetically Modified (GM) crops by groups with vested interest and lack of scientific knowledge has vastly complicated the scenario. Changes are required not only at the source but also in the distribution channels which are thronged by middlemen who work neither in interest of farmers nor in interest of consumers. They serve the sole purpose of inflating prices by hoarding and depriving farmers of their rightful share.
Right from the times of “Jai Javan, Jai Kisan”, India has cultivated an unblemished and untainted image of farmers which is misplaced. Farmers must occupy the same position in the Indian economy as any other worker, professional or businessman. By granting them a noble status and not permitting market forces to have a free hand in agriculture, the governments have effectively destroyed the agriculture industry and doomed lives of farmers to the extent that farmers do not wish their wards to enter the farming industry. Farmers themselves are not beyond reproach. They have done their fair share in tarnishing their own image by destroying crops when a surplus is produced and vehemently seeking bail outs. By persisting with exempting agriculture income of farmers from income tax, they have been granted a superior status and this emotional attachment to farming must end. Are poor people in other sectors less vulnerable and important than farmers?
The reality is that farmers, constituting more than half the working age population, are far too important a vote bank. This has given them a disproportionate bargaining power. Yet, history has shown that whenever a group of people has been used as a vote bank, they are the ones to have suffered at the hands of the ruling dispensation. By empowering their vote bank, the political party allows them to think for themselves whereas by ensuring the continuation of their poor and downtrodden status, the politicians can champion themselves as their knights in shining armor and peddle votes. Take for example the Muslims, the Dalits and now the Farmers.
The vilest economic decision ever taken has been farm loan waivers. It is the worst form of dole out of taxpayers’ hard earned money. Farmers have learned how to hold the government hostage and seek waivers from them. Not only does this lead to poor credit discipline, it makes banks wary of advancing credit to farmers and thereby makes farmers easy prey for moneylenders. This is why most private sector and foreign banks shy away from lending to farmers but state run banks with their priority sector commitments must undertake this charade. If home owners with their burden of EMI on home loans start committing suicide, will the government start waiving home loans too? Governments have aggravated the issue by not pulling out workers from the agro industry and now these farmers, dependent on rain fed irrigation have no way out when the rain gods fail them. The BJP has not learnt from the mistakes of past and in order to please this massive electoral vote bank has decided to grant such temporary lotteries to farmers. If waiving loans of farmers is acceptable, why not waive other forms of loans like student loans, home loans, personal loans etc. making the list endless.
The sole savior of the farming sector would be a robust manufacturing industry wherein surplus labor from farming and allied industries can be transitioned to a manufacturing industry allowing farmers as well as farm labors a better standard of living. This, coupled with better productivity, can allow a sustained reform of the sector. It can be achieved by instituting better research institutes for this sector, promoting GM crops and building a culture of technologically advanced farms. Also required, is the image revamp of the farming sector and not projecting them as demigods but as a small part of the larger economy. The sector has long escaped free market forces because of the superior status granted to it. Reforms must be made to distribution channels by allowing farmers to sell their output directly instead of through the Agriculture Produce Market Committees, known for their corrupt and inefficient working.
An idea that has not been explored well is corporatization of farms. Allowing corporates to buy huge tracts of land and conducting agricultural activities is a sure-shot way of revamping the sector as it will ensure better productivity, formalizing farm labor and better servicing of consumers. It will expand revenue streams for the government, solve the problem of distribution of the produce, lead to employment of better and superior technology and transfer risk from individual farmers to corporations which have a greater capacity to absorb it. This will however require grand structural reforms to irrigation facilities and allowing corporates to map out their own distribution channels. It will upset several vote banks but in the long run will lead to gainful employment of labor and better productivity thereby forcing the agriculture sector to pull its own weight in the economy.
Farm loan waivers do nothing but give temporary relief to farmers until he takes a loan again from a government bank that is obliged to grant him a loan; poor rains lead to a crop failure; he defaults on his instalments; farmers join hands and demand loan waivers; governments buckle under pressure because well, farmers are superior to the rest of the populace and our money must always bail them out.