As always, trying to bring to light some of the more…arcane aspects of the Indian economy. Today I will briefly attempt to make sense very briefly albeit of our Agricultural sector and link it to why the LAB bill is important for us as a nation.
Our landholding size has more or less remained static from 1970 onwards. It is around 140 Million HA. However our population has grown by close to 140% since then. We have gone from 70 lakh farmers to 140 lakh farmers in this same period. The per HA size has dropped from 2.28 HA in 1970 to 1.16 HA in 2011.
- 67% of these farmers are marginal farmers with less than 0.40 HA per holding. These farmers usually depend on wages and labour to make their earning.
Basic math – land remains the same, number of farmers has gone up means excessive parceling. This means smaller landholdings which means lesser income and consequently capital to mechanise our farmlands.
- India has about 90.2 Mn households (average household size in India is 4.5) or about 405 Mn Indians directly depend on agriculture for a living. You have another 40Mn living in rural areas who don’t depend on agriculture (small scale manufacturing, services etc). In totality you have about 130 Mn households in India directly OR indirectly dependant on agriculture. Or in number terms, 585 Mn people (around 50% of the population)
- *An agricultural household was defined in the survey as a household receiving value of produce of more than Rs.3,000 from agriculture with at least one member self-employed in farming.
- Agriculture contributes only about 15% to the GDP – so you have a scenario where around 50% of the population (31% directly) contributing to about 15% of the GDP.
- UP has the highest number of households involved in agriculture (no brainer really, given it is also our most populous state). UP alone has 81 Mn people directly dependent on farming. UP’s average landholding size is an abysmal 0.75 HA on average.
- 45% of the farmers are from OBC communities while another 29% are from SC / ST communities. As per the Sachar report, SC / ST are amongst our poorest subsets and a large number of them are in agriculture.
- The majority of the farmers had a landholding size of 0.40 HA.
To put things into perspective, the average farm size in
* USA is 174 HA
* Latin America is 111.7 HA
* Sub Saharan Africa is 2.4 HA
Our average landholding size is 60% of Sub Saharan Africa’s.
Some more numbers
- 52% of all farmer households are indebted. Interestingly, states like AP (92%) and TN 82.5%) had the highest levels of debt, but some (like TN) don’t report high levels of suicide
- Crop insurance was and is almost unheard of.
- Average monthly income per agricultural household was Rs.6,426. This translates into an annual income of Rs 77,112 for a family of 4.5. Or in other words, each family member gets Rs 1,428 per month to account for ALL their needs (food, clothing, medicine, education) Just read this again to truly understand how desperately poor we are as a nation and how worse off our Farmers are.
- Farm business accounted for 60% of the average monthly income per agricultural household,Income from wages and salary accounted for nearly 32% of the average monthly income. This is again a scary data point. The average farmer is able to generate only Rs 3,855 a month from farming and need to supplement these wages with daily wages (thank you MNREGA – a good scheme if any, just needs better implementation).
The effect of all this is in how the number of cultivators to labourers ratio has changed drastically in India.
In 1961, India had 52.8 of its farmers as cultivators and 16.7% as labourers. Thanks to land fragmentation and falling productivity (see above for numbers), in 2011, cultivators are only 24.6% while labourers are 30%
India has in the last decade also seen a historic shift. The number of jobs added in agriculture fell by about 2.5 crore jobs, these jobs saw an increase in the manufacturing (mostly construction) sector. So clearly, migration to cities has begun enmasse and will only pick up pace.
All these structural problems are manifest in our per HA productivity – India’s per HA cereal productivity is below the global average at 2,962 in 2013. To put things into perspective, Cambodia is at 3,110. Ivory Coast (ravaged by civil war till a decade ago) is at 3,125. Brazil is at 4,800. China is at near double – 5,800.
Why is farm productivity important?
- A 10 percent increase in crop yields leads to a reduction of between 6 percent and 10 percent of people living on less than US$ 1 a day.
- The average real income of small farmers in South India rose by 90 percent, and that of landless labourers by 125 percent, between 1973 and 1994 as a result of the Green Revolution.
- A 1 percent increase in agricultural GDP per capita led to a 1.61 per cent gain in the per capita incomes of the lowest fifth of the population in 35 countries.
- A 1 percent increase in labour productivity in agriculture reduced the number of people living on less than US$ 1 a day by between 0.6 and 1.2 per cent
How does one increase farm productivity and why is the MSP methodology – of just increasing MSP like the UPA did wrong.
The UPA approach and indeed the Congress approach to rural distress is simple. Subsidies, subsidies and more subsidies.
Some like MNREGA are very good schemes (with horrible execution) while others like the Loan waiver or MSP increase are just terrible.
The UPA way and the Congress legacy from before was to simply throw more money at farmers via the MSP. Rahul in his recent ‘Rahul roar’ speech used this as a boast “UPA increased MSP from 500 to 1,400“ as though it is THE only way of helping farmers and farm productivity while in reality it does nothing to help boost farm productivity.
Why is the MSP way disastrous to the farmer?
From 2004-2014, the average rate of increase for MSP was 14%. All this did (along with MNREGA and other subsidy programs) was fuel inflation which peaked in 2012-2014 (and wiped out the Congress electorally). The NDA era saw an annual increase of 4%. NDA II seems to be following in NDA’s footsteps.
It is estimated that for every 10% increase in MSP, there is a 3.3% increase in food basket inflation.
Going back to the NSSO survey, the agricultural household spends on average 50% of its income (of Rs 6,400) on food. When food costs increase by 30-40% over 2 years, it puts your household budget completely out of whack.
Link this to landholding sizes now and marginal farmers, their increased income gets near wiped out by the inflation while only those with a sizeable farm size benefit. However considering the MAJORITY are small landholders and 60% of this lot are marginal farmers (with 0.4HA and less) it means the majority of farmers are actually hurt by an MSP increase. It gets really bad for the marginal farmers who (as explained above) depend only on wages and labour to survive. They don’t get a 10% annual increment on wages but their food bills go up by ~ 5% a year.
There is another nasty side effect to the MSP driven approach. It prices out the free market and the govt becomes the largest procurer of food grains. This resulted in lakhs of tons of food grains rotting in FCI godowns necessitating an SC Order to release these food grains.
You have a situation where food prices are going up, supply is drying up leading to a further price rise leading to the MSP going up. This circle is what truly destroyed the UPA electorally as by 2014 and 8 cycles of this meant that our truly poor were being priced out of the food market.
The reason why MSP is not the way should be clear by now. There is another reason and it is basic economics. When your landholdings are static, and your output is more or less static (it can only go down and not up), increasing MSP is only going to increase farmer income marginally. What is truly needed is to increase output per HA. What are some ways of doing this.
Collectivisation – This is a touchy subject, and history tells us it fails more often than not. Russia, Vietnam are all examples of how miserably this failed. Yet, China tells us this is very possible and can reap (forgive the pun) an amazing harvest (I am referring to the Post Deng reforms, not the disaster of Mao’s GLP),
Land consolidation and allowing a free hand to market forces via Land reform (not the current LAB) – Allow farmers to freely lease their land and extract rent from it. Let in private players into this sector, grant free (or lowest interest rate) credit, all actions to be taken to improve average land holding size
Improve mechanisation (or collective mechanisation)
This is where the LAB comes into play – it will allow this smaller parcels to be consolidated into larger chunks and manufacturing can absorb the already very poor at decent wages. The need of the hour is to improve our farmer productivity by encouraging the truly marginal (who anyways make no money from farming but form 60% of our total base) farmers to make the jump to planned industrialization.
As always, open to feedback – I have attempted a heavy subject and the pacing / structure might be out of whack, so ideas welcome.
gnanaozhi 