Budget 2021 Expectations: How FM Nirmala Sitharaman can raise farmers’ income with these four measures

Ashok Vishandass, Nitisha Thakwani

Union Budget 2021-22 Expectations for Farmers: Gold is gold when it is sold. What farmers produce is no less precious than the gold, yet their income levels have not augmented commensurately. At one level, India’s strategy on the agriculture sector has been successful as the country has turned around itself from import-dependence to self-sufficiency and then to a net food exporting country, after feeding 1.35 billion people. At another level, there is a cause of concern that farmer’s income levels have not increased adequately. Clearly, something is missing in our agriculture. Farmers’ income levels can be substantially augmented if the Finance Minister incorporates the following four broad measures in the Union Budget 2021.

Firstly, Create an Enabling Policy Framework: Land is inelastic, yet activities can add income elasticity. Enable farmers to be producers of solar energy (urjadata), just as an example, and be frontrunners in the International Solar Alliance for clean energy. About 500 solar trees/acre at a height of 10’-12’ can be ‘planted’ in such a manner that even tractors can move through, while farmers can keep growing their normal two crops. At the same time, ample sunlight can penetrate for photosynthesis and it would not impact productivity. For financial viability, the states to be nudged to do the power purchase agreement (PPA) to channelize excess power thus generated. This is being done in Gujarat and needs to be scaled up and replicated in other states.

Secondly, Intensify Diversification: Land is a precious natural resource and it is highly imperative to utilize it judiciously. For instance, 12 percent of the cropped area under Fruits & Vegetables (F&V) give rise to 24 percent in value terms in contrast to 13 percent area under oilseeds giving only 6 percent in value terms. This is so because high productivity palm oil cultivation is not scaled up. Given India’s substantial deficiency in domestic production of edible oils, this low-cost oilseed with high productivity be promoted in a mission mode. At the same time, ‘One village one competitive product’ (OVOP) be designed and promoted.

Thirdly, getting the markets right, and getting the prices right: Getting only the prices right may be a necessary condition but not sufficient. Assuming farmers get the most lucrative prices of their produce but only about 55% of their produce get integrated with the market, they would still be at the sub-optimal level of their welfare. Therefore, getting both prices and markets ‘right’ is essential for ensuring the welfare of farmers. This also requires moving from ‘plate to plough’ i.e. production decisions be demand-driven rather than being independent of demand.

For this, a system of credible commodity-specific demand forecast, well before the start of the sowing season, to be put in place to enable farmers to calibrate their production in sync with demand. In addition, perishable rail cargo centres ought to be constructed in the mission mode where farmers can store their produce and new technology be incorporated into Indian agriculture. Kisan rail service and Krishi Udaan (Agriculture flights) will enable farmers to sell their crops to other states.

Fourthly, Stable Trade Policy required: Unstable Agri-Trade policy, onion just as an example, dents India’s credibility as a reliable supplier. This drives international buyers to competitors of India and the country loses her market share. Export curbs such as the imposition of minimum export price, a quantitative limit on shipment, export duty, and an outright ban tend to negatively impact farmers’ incomes and therefore, be avoided. A steady and long-term trade policy be adopted rather than short-term/ad-hoc measures. Besides, Trade Representatives in India’s embassies/ Consulates be appointed in various countries for export promotion and market intelligence.

What Government ought not to do: Of late, a vociferous demand for fixing MSP at 50 percent above the C2 cost as against the existing 50 percent above cost A2+FL is being raised. The former cost (C2) is higher than the latter because former includes imputed interest on farmers’ own capital and also imputed rental value of farmers’ own land. These two components do not constitute ‘costs’ in any business enterprise, and get rewarded in their profits. In any case, MSP is a ‘price instrument’, not an ‘income instrument’, and therefore any attempt to achieve the objective of augmenting income through price instrument (MSP) will distort markets. Any suggestion to fix MSP at 50 percent above the C2 cost is fought with a danger of making our agri-commodities uncompetitive in international markets. Not only this, India’s domestic markets would be flooded with cheaper agri-imports and is likely to inflict avoidable injury to our agriculture sector.

When the agriculture policy framework is reoriented as above, it will lead to higher levels of income of farmers through monetisation of their high-value produce, better price realisation, and a congenial trade policy environment. With this, farmers’ welfare and their incomes will be on a higher trajectory of growth.

Ashok Vishandass is Professor (Applied Economics) at Indian Institute of Public Administration, New Delhi, and former Chairman (CACP). Nitisha Thakwani is a freelancer and an IIM-K alumnus. Views expressed are the authors’ personal.