Farm Subsidy Is Misdirected. Large Farmers Extract Most

The Agri-system continues to be vulnerable as well as fragile. 

Our policymakers and most other experts glorify the five lakh crores agricultural subsidies and tariffs. It’s misplaced. Ninety per cent of all farm holdings reside in the books of the richest five per cent. They usurp over two-thirds of the subsidies. A tenth is frittered away.  The small ones are left with the crumbs.

*Subsidy & Waivers Keep Marginal Farmers Alive. Gasping Nevertheless

And yet, it’s unlikely that a marginal farmer can survive without subsidies and support. The government’s subsidy programmes fund survival. Not growth. The large farmers neither need an incentive, nor do they deserve the subsidy. Agriculture is a gamble on the monsoons and the market. The small always lose.

Misdirected and non-merit subsidies and handout to Agri intermediaries has been on for decades and has progressively come to dominate government’s agri expenditures. Power, fertilisers, and irrigation subsidies now ‘crowd’ other priorities and are five times the agri-investment, research, and long-term asset creation.

It has proved to be a social and financial failure.

Non-merit subsidies have other costs too. Some visible, but most go under the radar. When the state apparatus ‘intervenes’ to “pay” the ‘minimum’ support price (MSP), it manipulates and distorts the markets and imbalances the price. It burdens consumers, with higher food prices, particularly the middle income (the lower income avail of subsided grains). It bleeds marginal farmers (who are net buyer of food grains). 

A Crux study highlights that only 25 per cent of farmers are aware of, and less than six per cent ‘market’ at MSP ‒ predominantly paddy and wheat. The MSP benefits only endowed farmers. They lobby hard. 

The agri sector’s importance in India’s social fabric is overwhelming; Agri-economic fabric is lacerated, even ripped. While the sector provides livelihood opportunities to over half the population, it contributes less than a seventh to the GDP. Members earn a fifth compared to others, grow at a third. No economy however robust, however large, can support 50 per cent of the population, that contributes only a seventh to the GDP. This is the hard number. 

*Most Fertilisers & Power Subsidy ‘Misdirected’

Farm subsidies account for about two per cent of India's GDP. Ironically the taxpayers not only fund the subsidies, they also fund the ‘programmes’ that buy the grains from the rich farmers. The total input subsidy forms a fourth, price support subsidy about a sixth of the farmer’s income. Subsidies are equally a corporate ‘welfare’ programme, (about Rs 1.2 lakh crores to fertiliser  producers and power providers). 

Additionally, there are ‘invisible’ negatives around ‘free’ and subsidised power. Rice, wheat, and sugarcane are ‘thirsty’ crops, invariably procured at MSP. It has encouraged the extensive usage of groundwater depleting the water-table, causing extensive damage to the soil. This has catastrophic climatic consequences. 

The Crux study articulates several determinants but highlights a few that need immediate attention. 

*Governments talk tall, policies neither purposive nor Agri-centric

India has double the farmers it needs. This is known, but hardly   acknowledged and less admitted. 

We need a framework that both incentivises and skills marginal farmers and other surplus workers to ‘migrate’ to the manufacturing and construction sector (low hanging). It will reduce the dependency on agriculture and equally improve the productivity of the sector. 

‘Carpet and umbrella’ policies subtract value. The policymaking needs to address the intertwined challenges of abysmal low yield, decreasing income and shrinking farm size. The marginal farmers lose half their farm every eight   years due to ‘emergency’ spending, family split and inheritance to the next generation. The tiny farm sizes make it impossible to adopt innovative technologies and practices, resulting in lower yield. Ninety per cent of the farmers have no role in the marketing or pricing of their own product, and do not realise fair prices. This deviously designed system delivers less to farmers and more to the others in the supply chain. 

A Crux insight highlights that under the present Agri- ecosystem it will take twenty years for the farmers to match the income of lowly paid and expansively exploited migrant labour. 

*Solutions to the Farming Crisis is Simple. Yet not Easy. 

India lacks institutional capacity to support agri investment, technological innovations. The ministry needs to design a robust risk adaptation measure, create value chains, and lubricate the fragmented agri-supply chain. This will ‘encourage’ diversification to value-adds. 

Political parties of all hues plough, sow, reap, and harvest power at the cost of the farmer’s distress. The opaque, half-hearted ‘waivers’ and populist ‘support’ (while needed in the absence of the enabling ecosystem) has aggravated the farmer’s plight. 

*Agri reforms is an economic multiplier 

Reforms must focus on farm value-adds on expanding the market, enhancing the yield and ensuring better prices for marginal farmers. Equally the government must nudge and incentivise the marginal farmers to collaborate, pool in resources, effort, and expertise. Collaboration gives the small farmers strength and courage to diversify into high-value crops; Size gives them muscle to mitigate risk; assuage vagaries of nature. Farmers attain, even seize both the marketing & procurement power to manage  ‘demand & supply’ uncertainties. They acquire a say in the Agri value cycle.

Today they have none.

Agri-reforms require courage of conviction. The PM will need to invest his copious political capital to coax, persuade every stakeholder especially the opposition. However, it won’t be easy to ‘side-line’ elite beneficiaries. 

Agi solution: Economics & politics braided

Reforms must be cored and concentrated around farmers’ income. Indian farmers deserve growth-oriented policies and holistic investment across the value chain. A robust technology pivoted framework, enabling linkages, effective design, impactful implementation will attract much needed investment. Linkages will trigger productivity, reduce procurement & transaction costs. Access to data will help plan better, ‘crop’ relevant, resulting in better yield. 

The Agri ecosystem will leverage opportunities and attract modern Agri-tech companies, start-ups and proliferate Agri-entrepreneurs. It can, and prompt a virtuous growth cycle, catalysing rural development.

The author is an economist and columnist