Attacks On The Backbone Of The Economy

This essay aims to provide a background to the causes of agrarian distress in India and consequently its effects on the farmers. It focuses on the trends of agricultural growth and policies of the state to highlight how the structural reforms of the state have affected the sector that is the backbone of the country. There is an urgent need to shed light on the crisis that the Indian farmers have been facing historically especially since the inception of the new economic reforms of the 1990s as these crises have transcended decades and are now a major cause of worry in the present times as well. The needs of the farmers have constantly been undermined under various circumstances. Whenever a policy reform has been introduced, it has been the farmers that have been the most neglected but have taken the maximum brunt of the changes. Be it the liberalization, privatization, and globalization policies of the 1990s or the current changes in the farm laws, the government has always undermined the farmers to cater to the personal vested interests of various other stakeholders and private economic players.

Introduction

Over the years, the share of agricultural workers in the total workforce has been falling at a slower rate than the share of agriculture in the GDP. Between the period of 1961 and 1999, the share of agriculture in the GDP fell by 30 percentage points, and the decline in the share of agriculture in employment was 15 percentage points.

There have been intermittent phases of growth and stagnation in the Indian agrarian economy which has been reflected in the crisis that the farmers have gone through at various times. During the growth period, due to the supply pressure, agricultural prices remained subdued, and during the period of stagnation, when prices rose, the benefits never trickled down to the farmers. The agricultural sector, overall, was stuck in this continuous loop which adversely affected the farmers by not making enough cash available to them. This further made the farmers economically vulnerable as a result of which they became prone to various economic shocks in the factor, product, and credit markets. The changes in the agricultural policies in the post-reform period in the 1990s further aggravated the complacency that farmers had to face. The states that were most affected by this are Karnataka, Andhra Pradesh, Maharashtra, and Punjab. With production and prices being stagnated, farmers had to face acute distress which pushed them to take a deadly step like suicide. Some of the other factors that had a role to play in increasing farmer’s distress are the emergence of the World Trade Organization, genetically modified varieties of seeds, and the introduction of technology without equipping the farmers with the required skill set, infrastructure, and funds to use the technologies.

Farmers hardly have any role to play in determining the market prices, be it in the factor market or the product market. They become mere observers and silently accept what they are provided with. Hence, the role that farmers play in determining market prices is minimal. However, they are the ones who face the consequences of market uncertainties the most. Along with price fluctuations in the factor and product market, they have to deal with uncertain climate conditions, natural calamities, and also lack of access to infrastructure and technologies.

New Economic Reforms And The Agrarian Crisis

The New Economic Reforms in the 1990s were destructive for the agricultural sector in the Asian countries in the sense that it constantly undermined the food security of these countries. All the trade restrictions on the agricultural sector were lifted by India with the introduction of the reforms as a result of which there was a fall in the area under food crop production by 5.4 million hectares. The economic reforms of the 1990s led to an increase in the number of near landless households as well thereby worsening the conditions of the marginal farmers and cultivators. In the period between 1970-71 and 1991-92, there was a jump in the number of near landless households from 30% to 48%. (Reddy & Mishra, 2008)

It was the gross negligence of the agricultural sector in the mid-1980s that further worsened the situation of the farmers in the post reforms period. From the mid-1980s, economic reforms in Indian agriculture accelerated the process of the brewing of public and private resource crises. In Indian agriculture, gross capital formation (GCF) has declined dramatically. In agriculture, the public sector GCF decreased to one-third in 1999-2000, from the average in 1980-1. The share of spending on agriculture and allied activities in the plan decreased from 6.1% to 4.5%. There were major gaps in the basic infrastructural facilities. On top of that, withdrawal of the state’s support in the name of economic reforms further deepened the crisis. In places where the land was dry, there was an absence of state-supported irrigation systems which forced these farmers into the loop of indebtedness. Due to the trade liberalization in the agricultural sector, the commercial or the cash crops such as cotton, pepper, and sugarcane among others suffered further because of volatility in their prices. Further, the removal of quantitative restrictions led to a reduction in the import tariff from 35% in 2001-02 to 5% in 2002-03 to facilitate international trade which was a hole that the government dug for the domestic farmers who produced this cash crops. The increasing importance of export trade-exposed farmers to high-yielding artificially engineered crops without taking into consideration the suitability of the same to the indigenous conditions. This further led to a fall in the income of the farmers as they incurred losses due to the usage of unsuitable technologies.

By the year 2000, agricultural commodities were placed under the general tariff system[1] after removing them from the quantitative restrictions[2]. Virtually, all sorts of trade restrictions were also removed and agricultural products were brought under Open General Licensing[3]. When the Green Revolution started in the 1960s, the majority of the support in the form of High Yielding Variety (HYV) of seeds, infrastructural facilities, etc. came from the state. However, with the new economic reforms in place, the state-led support was consequently reduced. All forms of trade restrictions were removed on seed trade. Fertilizer subsidy was also reduced from 3.2% of the GDP in 1990-91 to 2.5% in 1997-98 and further to 0.69% of the GDP by 2003-04 (Reddy & Mishra, 2008). Another aspect of the infrastructure that was affected due to the reforms was electricity or the power sector. Earlier, electricity was provided at subsidized rates for the agricultural sector through state budgets. However, with liberalization and privatization, since 1997, power sector reforms were introduced which led to an increase in the power tariffs. Similar changes came in the case of irrigation supplies as well as the state eventually withdrew support.

In the financial reforms of 1992, the Narasimhan committee made recommendations to do away with priority sector lending which included lending by the commercial banks to the agricultural sector as well which proved to be disastrous for the sector. The regional rural banks which were specifically set up to lend on a priority basis to the marginal farmers, cultivators, and other weaker sections, were also opened up for lending on a commercial basis which practically broke the spine of the section of the poor farmers and cultivators as they practically lost their financial spine. This further forced them to resort to private and informal modes of lending such as local moneylenders who not only charged exorbitant interest rates but also had stringent obligations attached which proved to be detrimental for the farmers. In 1990, the number of rural banks stood at 34,867 which came down to 32, 386 in 2003. Hence, there was a decline in the number of rural banks as well which again created adverse consequences for the farmers. In the period between 1993 and 2001, the share of credit borrowings by the small marginal farmers fell from 21.9% in 1992 to 7% in 2001.

According to the 59th NSS report, at least 50% of the agrarian households were drowning in debts with Maharashtra being the highest at 83% followed by Andhra Pradesh at 77%, and Karnataka at 73%. However, most of the sources of credit in these states constituted private, informal sources rather than institutional credit. For instance, only 30% of the total credit in Andhra Pradesh came from constitutional credit and the rest from other sources like moneylenders, friends, relatives, etc. During the post reforms period, the farming costs in the form of input prices such as fertilizer costs, water supply expenses, etc. rose steeply. For instance, during the period between 1990-91 and 1998-99, the fertilizer price index increased from 99 to 228 at 11% compound annual growth rate.

Overall, the new economic reforms of the 1990s proved to be a deadly affair for the farmers across the country where they not only had to lose their incomes but also their lives. It was the result of increasing privatization and opening up domestic trade in agriculture to the global economy. When the state’s policies are the reasons for someone’s death, can we call it suicide?

Theoretical Aspects Of Farmer’s Distress And Suicides

Deshpande analyses that suicides occur mainly due to the amalgamation of four main factors which include events, stressors, actors, and triggers. These factors are mainly a mirror of what the farmers go through and what ultimately pushes them to suicide. Events include crop loss, failure of borewell, price crash, market failures, family problems, daughter’s marriage, and property disputes among others. When any of these events occur, it becomes a reason for stress for farmers. Further, there are catalysts or triggers which when combined with these events make it deadly for a farmer. The catalysts include moneylenders, bankers, etc. There are a lot of interconnected issues which make policy interventions difficult to work. The underlying issues need to be resolved first to reduce the spate of farmer suicides. (Deshpande, 2002)

In the post reforms period, the states of Karnataka, Andhra Pradesh, Punjab, and Maharashtra were experiencing stagnating prices and production fluctuations in the agricultural sector which led to a fall in the gross income flow of the farmers. The cost of cultivation was also increasing as a result of which these states were experiencing a significant decline in the net incomes of the farmers. This forced them to borrow from banks and moneylenders which kept them burdening with debts. On one hand, there was a fall in income, and on the other, the debts kept on mounting which pushed them into a debt trap that they found almost impossible to come out of. It was the erosion of incomes rather than the surmounting debts that pushed them into distress which forced the majority of them to take their own lives. Since 1997 in the cotton-growing region of Vidarbha in Maharashtra, the farmers faced steeply declining profitability as the trade liberalization led to the dumping of cotton at cheaper prices in the global market by the USA. There was a decline in import tariffs, withdrawal of state support in providing fertilizer subsidies, etc. which again proved to be fatal for these cotton growing farmers. Even the plantation-based farmers of Kerala met with the same fate as the cotton-growing farmers of Vidarbha. (Maertens & Basu, 2010) Therefore, according to the official data by NCRB, there was an increasingly high rate of farmer suicides across the country during the post reforms period. There were more than 35,000 suicides alone in the four states of Maharashtra, Andhra Pradesh, Kerala, and Karnataka and there were more than 70,000 suicides all across the country during the period between 2001 and 2004.

The State Of Farmers In The Present Times

Behind the curtain of the COVID-19 pandemic, there is a shadow pandemic of capitalism that has affected farmers way more than anything else. Amidst the worsening economic conditions, the reforms introduced by the government in the form of farm laws will only deepen the existing economic inequalities and further worsen the food and water security of the farmers. “Disaster capitalism” is a concept proposed by Naomi Klein that perfectly defines the scenario in which the government has introduced these laws. “Disaster Capitalism” is defined as a condition where the government introduces neo-liberal policies to create a free market economy in the wake of a major crisis (Hunt, 2020).

The three latest farm laws that were introduced in 2020 and passed after the President’s assent is The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act 2020, and The Essential Commodities (Amendment) Act 2020. The introduction of these laws has led to massive outrage by farmers all across the country. After the reforms of the 1990s, these three farm laws are one of the most significant changes for the agricultural sector. The major changes that these laws will bring is that upon implementation of the Farmers’ Produce Trade and Commerce Act, the crop prices will be deregulated which means that private players will have complete control over the prices of the agricultural produce thereby making farmers a mute spectator once again. Even though the government claims that the removal of the regulations aims to provide better income opportunities to farmers, the reality will be far away from this. Under the Essential Commodities Act, the limits on the period for which corporations can stock up commodities will be removed which again is believed to give significant control to private players who can indulge in the hoarding of such essential commodities like cereals, pulses, etc. through the control of the supply chain mechanism. This in turn will lead to increased prices whose benefits will only be reaped by these private corporations. Similarly, the Farmers’ Agreement of Price Assurance and Farm Services Act can again be a way for private companies to indulge in their vested interests through contract farming where farmers will produce a certain type of crop within a certain period whose inputs will be supplied by specified contractors. This law is particularly significant not only from the economic point of view but also from the ecological lens.

In Punjab and Haryana, climate activists and agronomists are particularly concerned about the ecological conditions of the cultivable lands as producing only one type of crop over a significant length of time has not only eroded the fertility of these lands but have also created concerns over the water-intensive methods that this particular type of farming uses. Hence, crop diversification is something that needs to be brought back into practice in these areas. However, the health interests of crop diversification aren’t something that necessarily aligns with the interests of the private players as ultimately the corporate will end up concentrating only on producing the crop that will yield maximum economic benefits just like it happened earlier in the case of basmati rice farming in Punjab and other adjoining areas. 

Hence, from past experiences, it is very much evident that the new farm laws too will only reduce the accountability of the state further and will allow the government to wash the hands off their responsibilities thereby allowing private players to take over the agricultural sector and undermining the economic and social well being of the farmers.

Also read: Effectiveness of online MGNREGA payment and scope of DBT (Direct Benefit transfer)

Conclusion

It is important to realize the limited role of the market and the vested interests of profit-making of the various market players now more than ever. COVID-19 has revealed the stark realities of the mismanagement on part of the government and has shown us how neoliberal policy of increasing the role of the market isn’t a sustainable practice. For us to prepare for an economically viable and sustainable life post-pandemic, coherence in the policy measures along with increasing public investment in the basic infrastructural facilities such is the need of the hour. While the Indian government has been trying to introduce various measures to strengthen the economy post COVID, the policies have been limited and somewhat in a disarray. The government instead of strengthening and increasing its support towards the economically vulnerable groups, such as marginal farmers, are introducing free-market policies and doing away with even the minimum support that they provide to the agricultural sector. Market forces do not work efficiently in such sectors because of the limited or no scope of earning profits. Hence, the government needs to stop handing over such facilities to the private sectors through tenders and contracts. Direct intervention by the government and increasing expenditures by the public sector is the only way to ensure safeguard against possible future economic crises and consequently mass suicides of farmers.

Bibliography

Deshpande, R. (2002). Suicide By Farmers in Karnataka. Economic and Political Weekly .

Hunt, P. (2020, December 09). Indian Farmers’ Hidden Enemy: Disaster Capitalism. The Diplomat .

Maertens, A., & Basu, K. (2010). The Concise Oxford Companion to Economics in India. New Delhi: Oxford University Press.

Moyo, J., Jha, P., & Yeros, P. (2014). Agrarian South: Journal of Political Economy. SAGE .

Patnaik, U., Moyo, S., & Shivji, I. (2011). The Agrarian Question in the Neoliberal Era. Pambazuka Press .

Reddy, D. N., & Mishra, S. (2008). Crisis in Agriculture and Rural Distress in Post Reform India. INDIA DEVELOPMENT REPORT , 40-49.

[1] General tariff system is the one where there is one single tariff rate applicable for all kinds of produced goods across the country. Generally, this kind of a tariff system is posed to be more harmful.

[2] Quantitative restrictions are defined as specific limits on the quantity or the value of the goods to be imported or exported.

[3] Open general licensing is a system where the government of a country issues an export license to the domestic suppliers. Generally, these kind of licenses have minimal restrictions.