Polls and After: Challenges that the New Government Will Confront – Part 2

Parliament House, New Delhi, India

Polls and After: Challenges that the New Government Will Confront – Part 1

In the first part of this series, we looked at employment generation as the top priority for the political leader who will take over as Prime Minister post the upcoming General Elections. Given that jobs are in short supply in the cities, the probability of a favourable situation in the rural areas of India is very low. Which means that agriculture needs to be given a push too.

Despite the post-liberalisation focus on manufacturing and services, the fact remains that India continues to be an agrarian economy; the rural distress caused by the downturn in this sector remains the biggest challenge. Even a small growth in the FMCG sector requires higher spending across rural India.

This is the reality.

The latest official data around economic growth released in February reveals that post demonetisation in 2016, farm sector has shifted to the slow lane, while the rest of the economy is moving at a much faster pace. A major reason for the overall slowdown in growth over the third quarter can be attributed to the indifferent Rabi season or winter farming.

Output growth at constant prices in agriculture, forestry and fishing almost halved in the said quarter compared to a year ago. Add prices to the equation and things appear bleak. Nominal farm output, which combines production and inflation, has grown at a measly 2%, driven southwards by the lower farm gate prices this Rabi season.

Experts believe this is the slowest ever pace of income growth in agriculture for more than 15 years.

The challenge exacerbates for the rural population which is facing a decline in wholesale food prices while costs of other commodities are rising. While rural economy is no more totally dependent on farming, the fact remains that most new jobs in the hinterland continue to have a strong connection with agriculture. Half of India’s labour force are dependent on it.

Agriculture employs over half of the country’s workforce, but its contribution to the domestic economy has fallen from 56.5% in 1950-51 to just about 18% now. In other words, even as agriculture’s share in the Indian economy is coming down every year, the number of people dependent on the sector isn’t reducing at the same pace – a case of sharing the pie by the same number of people even as the pie shrinks year after year.

The Prime Minister Narendra Modi detailed ambitious plans to double farmer incomes by 2022. But barring some token gestures like the Rs. 6000 a year for small and marginal farmers, there hasn’t been any policy-level shifts as yet. In fact, things appear to have taken a turn for the worse in five years, with farmers marching to the National Capital demanding better farm gate prices, quick steps to provide relief in case of drought, and loan waivers.

The Congress played the farmer card in the Hindi heartland during last year’s assembly polls, that brought them victories in Madhya Pradesh, Rajasthan and Chhattisgarh. Party president Rahul Gandhi has already promised farm loan waivers, following the centre’s offer of Rs. 6000 to each farmer with less than five acres of holdings.

The first instalment of Rs 2000 from this dole-out was credited to the accounts of farmers recently. But as of now, this represents only a level of tokenism given that government payout accounts for a mere Rs. 500 a month, which is hardly enough to sustain an individual’s food requirement, let alone a farmer’s family needs.

So, what could be some of the things that the new government, irrespective of party affiliations, need to focus on?

Farm sector growth has slipped to 2.51% over the past five years, down from 3.16% during the 10 years of UPA rule. The first step towards giving farm sector a push would be to kickstart the investment cycle in the rural economy.

Providing jobs to the unskilled workers in the villages along with allocation of additional funds for the agriculture sector would be the prescription for bringing the farmers back into the national mainstream. Crop insurance for weather-led harvest failures, and easy loans that keeps the illiterate farmers away from the clutch of land sharks are some monetary steps that can be taken.

However, the most important initiative that would enhance agriculture output and provide remunerative rates to the farmer would be to isolate them from middlemen. This can be achieved only through a concerted focus on providing better storage and transportation facilities for farm produce. Estimates suggest that Indian farmers incur annual losses of Rs.90,000 crore each year post-harvest as a result of inadequate storage and transportation facilities.

There is also a structural problem in terms of income stagnation in the rural sector alongside rapid growth in the rest of the economy. The terms of trade between the rural and urban economy will continue to be a challenge- possibly the single largest impact point in the weeks and months ahead.

(To be continued)

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