Low prices and farm crises

The past two years have been the worst for the farmer, unlike the urban middle class. Though the low food prices have prevented a serious dent in urban class budgets, it has been the worst year for farm incomes since 2001. And since farmer votes will be decisive in 2019, as the setbacks to the BJP in the three recent Assembly elections have shown, several palliatives are reportedly in the works. These include direct income support to farmers in the form of a fixed sum per acre, interest-free loans and base-rate insurance premium. The bounty for the farmers would mean a setback of between Rs 2 and 3 lakh crore to the Central Exchequer. It also explains why the government has been leaning on the Reserve Bank to part with its surplus.

The trajectory did not take a sudden turn for the worse. The straws had been visible since mid-2017 when the inflation rate remained stubbornly low. But for the past six months, the sub-component for primary food articles in the wholesale price index (WPI) has shown negative growth. This means farmers are getting low prices for their produce. To make the situation worse, the non-farm sector is not as badly singed as the farm sector. So while the farmer is paying more for inputs, he is getting paid less at the farm gate.

The government’s response to this double whammy is likely to be the opening of purse strings. The effect will be ephemeral and the subsequent credit indiscipline will trouble the next government just like the UPA’s 2008 loan waiver contributed majorly to the non-performing asset (NPA) mess. The markets are already wary. The government’s numerous fiddles with the GST slabs and norms are already leading to massive shortfalls in the tax collection. The situation may become unmanageable if there are upside risks such as a poor monsoon. The farm sector is yearning for structural changes, from liberating the farmers from the stranglehold of traders to leveraging technology. Band aids may worsen the malaise.