The Double Bind Principle

By M H Ahssan

Despite a dramatic increase in agricultural and food subsidies, farmers across India continue to be in severe distress.

Subsidies on food and agriculture have scaled dizzying heights this year, with the Food Corporation of India (fci) raising a bill of Rs 48, 454 crore and the Ministry of Fertilisers a demand of Rs 1,00,600 crore. This is in addition to central subsidies disbursed under the National Food Security Mission and crop insurance and state subsidies on agricultural inputs like power, seeds, saplings, diesel, pumpsets, irrigation systems, tractors, soil amendments and animal husbandry.

Against this backdrop, the minimum support price (msp) of wheat was hiked another eight percent last week. The increase was preceded by a grim struggle in the Union Cabinet. Agriculture Minister Sharad Pawar pushed hard for it, over protests that the msp has increased by 70 percent and the food subsidy bill more than doubled during the upa years. But with General Elections imminent, Pawar had his way.

And so the northward trend in subsidies continues. The fertiliser subsidy alone on each hectare of cultivable land this year was Rs 5,500 and on each hectare of net sown area was Rs 7,200. However, in real terms, the per hectare subsidy is double that figure, since more than 40 percent of farmers benefit from it. Ironically, despite increasing subsidies, the majority of Indian farmers continue to be in acute distress: 16,600 suicides reported in 2007. Some agricultural economists link the crisis in the farm sector in the last decade to the post-liberalisation withdrawal of key agricultural subsidies and limiting of output price support. Dependence of farmers on the private sector for inputs like seeds and agro-chemicals has ballooned input costs, even as the subsidies have inflated. Political pressure on the government to increase procurement for Rabi 2009 will push the food subsidy Bill still higher, due to the increased economic cost of commodities and the static central issue price (cip). For example, the economic cost per kg of wheat in 2007-8 was Rs 13 per kg, but the cip for apl consumers was Rs 6.10 per kg — a net subsidy of nearly Rs 7! For bpl consumers, it is much higher. The current year's subsidy varies from 58 to 86 percent for wheat.

At the same time, due to population pressure, the government is keen on pushing production even higher than the current level of 78 million tonnes of wheat and 96 million tonnes of rice. This means more subsidy on agricultural inputs. The current year's outlay may have been exceptional due to the high price of fossil fuels, but the trend is unmistakable. The fertiliser subsidy went up 300 percent between 2004 and 2007, and 2008 accounted for even more. Power subsidies by state governments have not abated, with Haryana announcing a Bill of Rs 2,000 crore and Punjab Rs 2,500 crore.

The government and the farmer are both in a Catch-22 situation. The msp is fixed by the Committee on Agricultural Costs and Prices (cacp) keeping in mind input costs, which increase every year (since seeds, farm machinery, agro-chemicals and labour cost more). But farmers remain exposed to the vagaries of weather and pest attack, so that a single crop failure can plunge them into debt. For example, 10 years ago a cumin farmer spent Rs 20,960 per hectare. He could earn up to Rs 24,000 per hectare if all went well. But if his crop failed or the cumin market crashed, he would be plunged into debt. Today, with cumin prices having gone up just 15 percent on the average and input costs having doubled, his situation is even more precarious.

The future of crops is always unpredictable. Cotton farmers in Punjab had their economics thrown out of gear last year by a mealybug attack. They had purchased bt cotton seeds at a high price on the premise that their crop would be safe from pest attack. What they did not anticipate was that the expensive seeds would protect them from one kind of pest, but not from others!

In defence of India’s subsidy regime, it is usually pointed out that it is tiny compared to direct farm subsidies in the US and the EU. The fact remains that reining in subsidies is looking more and more desirable, as we are caught in a vicious cycle of rising input costs and output support. A miniscule section of the government has been thinking out of the box to break the cycle. This is evident from a scheme floated by the National Horticulture Mission (nhm) under the Ministry of Agriculture to cut farm input costs. This makes the farmer earn more, making debt less likely, while shrinking the input subsidy. The scheme offers selected farmers a per hectare subsidy of Rs 3,300 for cutting down input costs by not using agro-chemicals.

However, resistance by the bureaucracy has ensured that this scheme is by and large a non-starter. In Rajasthan, for instance, hundreds of farmers enrolled in the programme have been denied subsidy support due to the laxity of the state Department of Horticulture. The agricultural extension has bludgeoned the farmer into using expensive seeds, fertilisers, pesticides, power and machinery for close to four decades.

Policy decisions have recently been taken to encourage farmers to use soil fertility inputs manufactured on-farm, such as farmyard manure, compost, phosphorous-rich organic manure and vermin-compost. Low-cost microbial cultures, green manuring and crop rotation have likewise got the policy-makers’ nod. Integrated pest management now advocates bio-control of pests and diseases, in tandem with application of chemicals. The cost effectiveness of sustainable agriculture, expounded by the National Commission on Farmers, appears to have been recognised, if for no other reason than the need to cut down on the use of fossil fuel based agro-chemicals. The National Food Security Mission only targets a tiny minority of farmers. It needs to be extended to agricultural and horticultural crops, but the majority of the civil servants and the bulk of the agricultural extension are still in a “green revolution” mindset. Unless that changes, the system will remain economically unsustainable, both for the individual farmer and the country as a whole.