Assured Incomes for All Farm Households

12:53 pm in News by Kavitha

“Assured Incomes for all Farm Households”[1]

Revitalising the Rural – Rethinking Rural and Agricultural Policies

27th–29th Sept. 2016, IIAS, Shimla

 

In contemporary India, it appears that the Rural is not changing as fast as the policy makers would like to, nor in the direction that they want. The largest number of workers in any one sector in the country continue to be in agriculture – not that this is a blame to be apportioned somewhere, but a reality to be acknowledged in our planning. This applies more so for female workers. Meanwhile, there are also multiple forms of distress that agrarian and rural India continues to go through. Of great concern is the situation with incomes realized by agricultural households and the dismal picture that it presents. The growing income disparities between agriculture and other sectors are quite unhealthy and even unethical for a society, and this aspect needs to be addressed firmly and urgently by policy makers.

 

Unconscionable Income Disparities

 

With the Seventh Pay Commission recommendations kicking in, with salaries and allowances of government servants rising overall by at least 23.5%, the lowest paid public servants will have salaries of at least Rs. 18000/- per month, which is more than double the pay that was fixed after the 6th Pay Commission recommendations (Rs. 7000/month). This will cost the exchequer an estimated additional one lakh crore rupees annually. An earlier commitment for armed forces’ OROP proposal (One Rank One Pension) stands at Rs.70,000 crores. It is learnt that lawmakers of the country are unhappy with the 7th Pay Commission possibility that bureaucrats will end up getting paid more than the lawmakers, and their salaries are reported to be scaled up to more than 2.8 lakh rupees per month. The government is somehow finding resources for all these commitments.

 

The disparities between the highest (2.5 lakh rupees a month) and the lowest paid government servants hardly got debated. Further, there were hardly any questions asked about where the additional resources will come from. The whole hike was justified as one that will boost demand in a sluggish economy, which will in turn drive growth investments and profits. State governments will now follow suit. Needless to say, even if the remaining organized economy does not raise its salaries immediately and proportionately, it has to exercise a degree of parity to get good ‘talent’. This would then mean that employees in the organized private sector (around 1.15 crore persons in 2011) would also indirectly benefit from the market changes brought about by the Pay Commission recommendations.

 

Against this backdrop, the incomes of agricultural households, as thrown up by the NSSO 70th Round assume an alarming aspect. As per this NSSO survey (put out in December 2014), at the national level, percentage of agricultural households stands at 57.8% of the total estimated rural households of the country. About 52.8% of agricultural households had cultivation/livestock/other agricultural activity as their principal source of income.

 

The average monthly income of an agricultural household in India in the agricultural year July 2012-June 2013 was estimated at Rs. 6426/- at the all-India level. It is worth noting that this monthly income included net receipts from cultivation and farming of animals as well as non-farm business and income from wages/salaries – only about 60% of the average monthly income was from ‘farm business’ (~Rs. 3856/-). It is important to note that we are not even talking about a worker here (unlike in the case of Pay Commission beneficiaries), but a household. And this income from farm business is less than legally laid down minimum wages for unskilled workers in agriculture sector!

 

What is more worrying is that out of the 9 crore households classified as agricultural households as per this NSSO round, 6.1 crore households had negative net receipts. These are households possessing less than one hectare of land. Here, the average monthly negative net receipts stood at Rs. (-)856/-.

 

If we contrast this with the 3.5 lakh agricultural households who form the creamy layer within this sector, the disparity is striking. These households (>10 hectares of land each), have average net receipts of Rs. 26,941/month. The disparity within the agricultural sector is apparent from this.

 

What is also worth noting are some other features of farm incomes, apart from the fact that they are meager and even negative for a vast majority – that their growth is unimpressive in real terms (The 10 year compounded annual growth rate (CAGR) between 2003 and 2013 was 11.8 per cent in nominal terms and only 3.5 per cent in real terms). It is seen that income stability is also a major issue, more so for particular commodities and in disaster years.

 

Given this background, farmer organizations across the country have started asking for statutory Income Guarantee. For the first time, on February 29, 2016, India’s Finance Minister has declared in his Budget Speech in that the government should give “income security” to farmers. He declared that farmers’ incomes will double by 2022 but did not describe how it will happen. Meanwhile, a government task force has been set up to recommend measures for doubling of farm incomes by 2022.

 

The question around these developments is: are policy makers seriously concerned about these growing disparities, both inter-sectoral and intra-sectoral? Do they realize that the dismal farm income levels will impinge on their own plans for growth? Do they realize that millions are here to stay in agriculture (given that other sectors have a jobless growth if at all) and we cannot make life unbearable for them? That in fact, infusing profitability into farming is the fastest way to achieve other development goals?

 

Why is there a need to focus on farm incomes?

 

Just like workers in organized and unorganized sectors have a right to Minimum Wages, the farmers who work hard to feed the nation should have a right to Minimum Incomes. Otherwise, it is to be seen as a violation of their Right to Life, which includes right to livelihood. This is especially so in a context where decades of planned development interventions did not create commensurate opportunities for farmers whereas agriculture sector certainly was the building block upon which other sectors were built and strengthened. Food production also has an element of sovereignty of the nation towards which our farmers are strenuously contributing despite all the challenges that they face.

 

While farmers are being forced to leave agriculture in large numbers, the other sectors are unable to provide employment. Even in the economic boom years of 2004-2009, only 27 lakh net new employment was created in the economy, whereas the working population increased by 5.5 crores. If people are to leave agriculture, there is an imperative on the planners to make sure that it is so because opportunities are opening up elsewhere, not due to distress in the farming sector. If such opportunities do not exist, then such large displacement of farmers can only create social unrest and further economic distress. It does not take a genius to correlate the recent agitations for reservations and other affirmative action by the Jats (Haryana), Patels (Gujarat) and Kapus (Andhra Pradesh), all landowning cultivating castes, to this increasing disparity and undignifying existence.

 

Moreover, India took a fundamental and decisive policy shift when it adopted the National Policy for Farmers in 2007 – this was the first time that independent India created a policy for farmers, in fact. The policy explicitly mandates that productivity and production cannot be the only parameters of assessment or accountability for the agricultural machinery or establishment in the country, and that well-being of farm households is equally important. The shift then requires a perspective change, from viewing agriculture as a technical issue to one of livelihoods. However, the Results Framework Documents of Agriculture Departments still reflect an old paradigm, where yields, seed replacement rates, mechanization etc., are all made into performance assessment parameters – however, accountability of interventions towards delivering higher incomes is missing.

 

It is seen that the economic crisis in farming is caused by various factors like increasing costs of cultivation, increasing riskiness due to natural disasters/extreme weather events as well as unsustainable techno-models of agriculture, low and even decreasing government support/investments, unremunerative prices and unfavourable markets, increasing costs of living and increased cost of basic entitlements like health and education etc.

 

There is a maze of economic policies which impact the farmers, like prices, credit, insurance, disaster compensation, trade, market regulation and subsidies. Most struggles of farm movements and others are focused on getting one or two favourable measures from the government, while the other measures are still against the farmers. Governments are also taking piecemeal actions – for example, a revised crop insurance scheme is announced, but the Minimum Support Prices are kept low, and farm-unfriendly trade pacts are entered into. To give another illustration, MSPs might be hiked but the crop doesn’t have any effective market intervention like procurement.

 

At present, each individual farmer is left to balance between all these factors, and there is no responsibility that the government takes at a policy level to balance these factors so that a minimum positive income is realized by the farmer. This does not help the farmers’ situation. The government should make itself accountable for ensuring that farmers get dignified incomes, not for implementing one or two schemes.

 

It is not out of place to point out that when farm crisis reaches a peak, governments are forced to resort to desperate measures like loan waivers, or special relief packages (these have their share of scams and corruption of course, with genuine farmers’ share getting fleeced here too) which place an additional fiscal burden. The real question is how to prevent farmers from being debt-ridden, and being pulled into deeper distress.

 

It is also not out of place to point out that world over, governments have adopted different systems of income security for farmers to ensure parity between agriculture sector and other sectors, and to ensure food production and self-sufficiency. If India doesn’t ensure income security now and forces its small farmers to quit agriculture, we could end up giving similar subsidies to big corporates later – as it is happening in the U.S. and European Union.

 

Finally, just the 7th Pay Commission recommendations’ implementation is justified as giving a fillip to a sluggish economy, when farmers are able to realize minimum living incomes, the overall growth targets can expect to receive a significant boost when the largest number of rural households earn more and invest more. Even agricultural growth targets can be met in the medium and long term only by increase in net investments on productive assets being made by farmers, which stands at Rs.513/month on average at all-India level.

 

A focus on delivering minimum living farm incomes will also provide some hope to rural youth whose numbers are burgeoning with demographic shifts, but who find agriculture undignifying and unattractive.

 

How is this possible? Some proposals

 

Towards addressing the issues of viability and dignity in farm livelihoods, and to ensure accountability of all interventions in the name of Agriculture on actually delivering minimum living incomes to farm households, it is proposed that a Farm Income Commission be set up, at the Central Government level to begin with (given that many policy decisions impinging on farm profitability are today being taken by the Centre), to then be moved to state level also. This should be along the lines of the Pay Commission which looks at revising salaries upwards to keep up with changing needs and lifestyles. This should be a permanent, statutory body which includes farmer representatives.

 

Such a Farm Income Commission is expected to oversee and ensure minimum living incomes accruing to all farm households, through annual assessments and focused recommendations. The levels of minimum living incomes that have to accrue to every farm household can be arrived at, based on a rational formula that does not limit itself to farm investments alone.

 

Income Assessment of agricultural families should be done on a regular basis, tracking the incomes of farming households in terms of various regions, crops, income sources and categories of farmers (landholding can continue to be the basis).

 

The demand for Farmers’ Income Security doesn’t mean that every farmer should be directly paid a fixed amount by the government. It means that through various support systems such as MSPs, low-interest institutional credit, crop insurance, disaster compensation, subsidies, investments on farmer producer organizations, marketing systems, promotion of agro-ecological farming practices, diversification of livelihoods basket for each agricultural household etc., a minimum income level is achieved for these households.

The Commission recommends specific measures to boost farmer incomes to the assured level and monitors the implementation. In any particular year, for a particular region or section of farmers, if the minimum income level is not achieved despite these measures, only then the shortfall should be given as Direct Income Support. If the other support systems are designed and implemented well, then there would be no need for direct income support.

 

In terms of operationalization, a formal registration or enrollment of interested farmers can be taken up, and sample-based surveys be used to assess income. The government can take up DBT if and when required to the registered households.

 

A farm household can be defined along the same criteria as used in the NSSO 70th Round in this enrollment[2]. Recognition of and priority to tenant farmers or sharecroppers, women farmers and Adivasi farmers who are currently left out of support systems is a must. This could be through special camps/drives. Any support is made contingent on actual cultivation, which can take support of technological tools like GPS-specific photography etc..

 

Key Measures to assure farm incomes

 

To assure farm incomes, certain policy measures must be taken immediately within the Income Security framework. The key elements of this are:

 

Remunerative Pricing & Market Intervention Policies: What is needed here is a recasting of current price support system with correct valuation of costs incurred by farmers, reasonable margins over such costs to include living costs, with procurement made effective and expansive – therefore, remunerative prices for all crops along with timely procurement, as well as other market interventions. MSP could be fixed with a definite profit margin above real and comprehensive Cost of Cultivation for farmers of all states. Market Intervention Scheme should be recast to make it effective and attractive for state governments. Since agriculture is a state subject, every state should have a state level Agricultural Incomes and Prices Commission which takes into account real costs of cultivation and recommends Minimum Support Price to the Centre. If the MSP declared by the Centre is less, the state government should declare a bonus. A Price Compensation mechanism should be in place that pays out the difference between the actual market price realized by farmers and the MSP or remunerative price.

 

There is also the issue of international trade policies pricing out our farmers on an uneven playing field created by rigged rules in trade liberalization agreements, coupled with favoring the industry at the cost of farmers’ livelihoods in terms of domestic policies. International trade in agri-commodities should be entered into only if India makes farm livelihood security a sovereign, non-negotiable policy priority in any multilateral or bilateral trade negotiation, whether it is WTO or FTAs, that too after a debate with domestic stakeholders. To that effect, state government should assert its Constitutional authority over Agriculture and ensure that the Centre does not get into anti-farmer deals in the name of international trade.

 

Promotion of Agro-ecology, to reduce cost of cultivation: Promotion of low cost, sustainable agriculture is an urgent need, instead of high chemical, high water, high energy agriculture systems which lead to greater out of pocket expenses, high indebtedness and high risk, without any guarantees in terms of returns. The 70th Round NSSO data shows that average monthly expenditure on crop production was estimated at Rs. 2192/- at all-India level. Out of this, an estimated 24% was incurred on fertilisers and manure. 11% was on seeds, and 21% on human labour. These inputs therefore account for at least around 35% of crop production expenditure. All ways and means by which this cost of cultivation can be brought down, with productivity maintained, should be researched upon and invested upon for mainstreaming. This should include participatory water management and provision for life-saving irrigation.   

 

Making Agri Credit Affordable and Accessible: Institutional credit as a right should be made available to all cultivators – especially small farmers, tenant farmers, women farmers, Adivasi farmers and assigned landholders. Most of these sections are at the mercy of private moneylenders (as seen in the NSSO findings), trapping them in debt and leading to suicide. A system like the statute-backed Loan Eligibility Cards for tenant farmers started by Telangana and A.P. governments should be implemented in an improved form. Doing away with the distinction between direct and indirect lending does not help, despite an apportioning of 8% of agri credit to small and marginal holders. There is a need for a Comprehensive Private Debt Rescheduling and Swapping Act under which all existing private loans of farmers should be reconciled and swapped for institutional loans. However, this has to be accompanied by measures that will not draw the farmers back into the debt trap.

 

Improvements in Disaster Relief and Mitigation, and Crop Insurance: Loss of crop and livestock due to natural disasters such as cyclones, floods and drought is a major cause for pushing farmers into debt and distress from which they take years to recover. Adequate insurance and compensation mechanisms to provide for risk-buffering and disaster relief are a must. Part of risk and disaster management should be a shift towards resilient, diversity based, organic farming systems. Compensation for crop loss should be at least Rs.10,000 per acre as recommended by the Hooda Committee. The Prime Minister Crop Insurance Scheme should be revamped to address all the shortcomings pointed out by farmer organizations. The unit of insurance should be a village or smaller than that. The system of crop loss estimation and insurance payout should be transparent and accountable to farmers. Comprehensive Disaster Mitigation plan should ensure the protection of crop and livestock before the disaster situation occurs. A comprehensive drought management plan at the state and national levels is required. A recasting of the drought declaration process, including usage of groundwater levels as criteria is necessary.

 

Investing on Farmer Producer Organizations to build collective strength: Promotion of decentralized agricultural infrastructure at rural level for Storage, Procurement, Processing and Marketing through farmer organizations and institutions is important. Concurrent with this should be a collectivization of all producers, with the infrastructure owned by them, so that they can benefit at both production and marketing ends. An autonomous Indian FPO Development Board is needed with at least Rs.10,000 crore seed capital from the government, to establish successful producer organizations across India, on the lines of dairy cooperatives established by National Dairy Development Board. Incentives like tax waiver for the first five years and accessible institutional credit should be extended to FPOs. These FPOs can also play a key role in building off-farm and non-farm livelihoods in rural areas, with small agro-based industry and allied occupations.

 

Recasting subsidies and support systems:

  1. Supporting farmers’ own resources: Subsidies on agri inputs like chemical fertilisers, improved seeds etc should be extended to farmers’ own inputs as well like composting, green manuring or use of farm-saved seeds.
  2. Payments for Ecosystem services: Adoption of practices which lead to conservation of ecosystems should be supported with direct payments.
  3. Special support for Rainfed Agriculture: Current subsidies and support systems disproportionately benefit irrigated agriculture whereas they need to be redesigned to suit rainfed agriculture which covers 60% of India’s agriculture.
  4. Labour wage support for all agricultural operations: Labour costs have become a significant component in the cost of cultivation. The government should provide input subsidy in the form of labour wages to farmers to monetize the use of family labour or to pay external labour engaged on the farm. This should be in addition to the MGNREGS program but a similar delivery mechanism may be used. This is important in the context of NSSO 70th Round data compared with 59th Round showing that rural non-farm income has actually declined from 11% in 2003 to 8% in 2013 (wages & salaries also fell from 39% to 32%).

 

Conclusion: The Farm Income Commission’s recommendations for appropriate, effective and improved interventions should cover the entire basket of measures described above, in addition to other measures such as Social security for all farm households – especially small farmers, tenant farmers and agricultural workers. Where minimum living incomes are not realized by farmers despite a basket of measures, the government should also set up a Farm Income Fund which should be in a position to pay up the shortfall as direct income support.

 

The Commission should focus on entitlements of women farmers, and of real cultivators. Further, given that animal farming is becoming an important source of farm income, it cannot be just crop cultivation that receives policy attention. Other than seasonal crops, horticulture and agro-forestry should also receive additional attention, in an integrated farming systems approach.

 

Since the proposed approach is based on a minimum income level per household (not per unit of land), it will benefit small farmers instead of disproportionately benefiting large farmers. It is believed that a focus on Income Security in the formulation and delivery of all policies and schematic interventions would have a self-corrective element, given that governments will avoid additional public financing burden. This then means that to improve net incomes, our approach to agricultural technologies will focus on sustainable, low-external-input farming; that risk reduction will be prioritized; that trade policies will make sure that our farmers are not priced out; that institutional credit outreach will improve etc. There is indeed a strong case for a Farmers Income Guarantee Act to be brought in, at least as an interim measure for around ten years.

 

CHANGES OVER A DECADE IN THE SITUATION OF FARM/AGRI HOUSEHOLDS IN INDIA

Parameter studied

NSSO 70th Round

(in Year 2013)

NSSO 59th Round

(in Year 2003)

Estimated Number of Rural Households

156.14 million

147.90 million

Estimated Number of Farmer/Agricultural Households

90.20 million

89.35 million

Proportion of farm/agri households in rural households

57.80%

60.40%

Farmer/Agricultural Households classified as per their Principal Source of Income

Cultivation

63.50%

57%

Farming other than Cultivation : Livestock Farming

3.70%

3%

Other Agricultural Activities

1.10%

3.90%

Wage / Salaried

22%

35%

Non Agri Enterprises

4.70%

Others (Pensions/Remittances etc.)

5.10%

Breakup of Average Monthly Income per Farm/Agri Household

Total average monthly income, all India, in Rupees

6426

2115

Cultivation

47.90%

45.82%

Livestock

11.90%

4.30%

Wages/Salary

32.20%

38.72%

Non-Farm

8%

11.16%

Picture of Monthly Expenditure, in Rupees (%age of expenditure)

Average Total Monthly Consumption Expenditure

6223.00

2770.00

Average expense on productive assets

513 (8.2%)

198 (7.2%)

Average monthly expense on Crop Prdn/Cultivation

2192 (35.2%)

733 (26.5%)

Average monthly expense on Livestock Farming

1388 (22.3%)

865 (31.2%)

Breakup of Expenses for Crop Production/Cultivation

Seeds

11%

16%

Fertilisers/Manure

24%

23%

Pesticides

8%

7%

Irrigation

3%

12%

Machinery maintenance

2%

2%

Interest

1%

1%

Lease Rent for Land

7%

5%

Labour

22%

22%

All other Expenses

21%

12%

Intebtedness in Farm/Agricultural Households

Number of Farm/Agri Households indebted

52%

49%

Average Outstanding Loan, in Rupees

47000

12585

Proportion from Institutional sources

60%

48.5%

 

Source: Compiled from NSSO Situation Assessment Surveys in 70th and 59th Round Surveys

 

References:

 

  1. Key Indicators of Situation Assessment of Agricultural Households, Report No. NSS KI 70/33, 70th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. December 2014
  2. Income, Expenditure, Productive Assets and Indebtedness of Agricultural Households in India, Report No. 576 (70/33/3), 70th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. April 2016
  3. Some Aspects of Farming in India, Report No. 573 (70/33/2), 70th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. February 2016.
  4. Some Characteristics of Agricultural Households in India, Report No. 569 (70/33/1), 70th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. November 2015
  5. Indebtedness of Farmer Households, Report No. 498 (59/33/1), 59th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. May 2005
  6. Income, Expenditure and Productive Assets of Farmer Households, 2003. Report No. 497 (59/33/5), 59th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. December 2005
  7. Some Aspects of Farming, 2003. Report No. 496 (59/33/3), 59th Round, National Sample Survey Office, Ministry of Statistics and Programme Implementation, Government of India. July 2005

 



[1] This paper is the collective output of many round tables and discussions between various members of Alliance for Sustainable and Holistic Agriculture (ASHA) and farmer union representatives in all regions of the country, with the structuring of the output done mainly by Kiran Vissa and Kavitha Kuruganti

[2] An agricultural household for this Situation Assessment Survey 2013 with a sample size of 35000 rural households was defined as a household receiving some value of produce more than Rs.3000/- from agricultural activities (e.g., cultivation of field crops, horticultural crops, fodder crops, plantation, animal husbandry, poultry, fishery, piggery, bee-keeping, vermiculture, sericulture etc.) and having at least one member self-employed in agriculture either in the principal status or in subsidiary status during last 365 days. It is worth noting that households which were entirely agricultural labour households were excluded from coverage. Further, for recording agricultural expenditure, only of out of pocket expenses were recorded. This is markedly different from SAS 2003 in NSSO 59th Round that covered 51770 households – there, possession of land was an essential criterion for being included in the definition of a ‘farm household’, with agricultural activities on any part of that land during the 365 days preceding the date of survey. Further, imputed costs were also included in agricultural expenditure in SAS 2003.