Ignoring an agricultural sector in distress Premium

The revival of agricultural growth from its long-term slump requires imaginative policy shifts and decisive fiscal measures, but the Budget provides no indications of such a plan or even intent

The report released by the Finance Ministry and the vote-on-account presented by the Finance Minister are concerned more about portraying a glowing image of the government than about the financing plans for 2024-25. For the same reason, one is constrained to confine the discussion on the Budget to one question: was the distress in agriculture over the past decade alleviated by policy, or has it been exacerbated?

All official data appear to indicate the latter. First, there was a strong downward pull on agricultural prices leading to a squeeze on farmers’ incomes. The sectoral deflator in agriculture and allied sectors — estimated as the difference in the growth rates of gross value added in current and constant prices — declined from 9.4 in 2013-14 to 5.0 in 2019-20 and 3.7 in 2023-24.

Second, the stagnation or fall of agricultural prices in the market was not ameliorated by any rise in minimum support prices (MSP). For major foodgrain crops, the MSPs rose by an average of 8-9% per annum between 2003-04 and 2012-13, but only by about 5% between 2013-14 and 2023-24. The refusal to adequately raise MSPs affected the government’s ability to intervene effectively in the market to control prices — on the farmers’ side as well as on the retail side.

Third, a promise was made that real incomes of farmers would be doubled between 2015 and 2022. But the issue appears to have disappeared from policy and media discourse in recent years. In fact, real incomes of agricultural households from cultivation fell by about 1.4% between 2012-13 and 2018-19. The fall of incomes from cultivation was not only owing to the stagnation or fall of agricultural prices, but also due to a sharp rise in the costs of inputs in agriculture, particularly fertilizers.

Fourth, rural unemployment rose between 2011-12 and 2018-19. For rural men, the rise was from 1.7% to 5.6%. For rural women, the rise was from 1.7% to 3.5%. Rural unemployment rates fell after 2018-19 but their levels remained higher than in 2011-12 in 2022-23: at 2.8% for men and 1.8% for women. More importantly, the fall of rural unemployment was accompanied by a rise in the share of self-employed women among all women workers. And most of this rise in the rural areas was in agriculture. In short, there was a crowding of the agricultural sector by unemployed workers from the non-agricultural sectors at a time when agricultural prices were not rising and agricultural incomes were falling.

Fifth, real wages in rural India have never risen after 2016-17 and have even fallen after 2020-21 – particularly in the context of the crowding of the agricultural labour market. These trends have been true for agricultural wages and non-agricultural wages in the rural areas. All rises in nominal wages were wiped out by inflation.

Finally, public investment in agriculture, in general as well as in specific fields like agricultural research and extension, were stubbornly stagnant, and occasionally even fell, over the past decade. Consequently, capital investment in agricultural and allied sectors did not rise. Most of the long-term bank credit supplied to agriculture was also diverted away as short-term loans to corporates and agri-business firms.