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Bharat vs Krishi: Is ‘Rural’ roaring even as ‘Agriculture’ remains in crisis mode?

It is facile to draw a conclusion based on a not-too-convincing revival in sales of tractors, two-wheelers and FMCG

Sale of two-wheelers has grown 15.6 per cent in the last fiscal. Archive Sale of two-wheelers has grown 15.6 per cent in the last fiscal. (Express Archive)

Buoyant rural consumption reflected in industry and corporate sales data, amidst a persistent agrarian crisis and farmer unrest, is a conundrum facing most market analysts and policy watchers today. National income data shows that nominal gross value added from agriculture grew by 4.5 per cent in 2017-18, the lowest since the 3.8 per cent for 2004-05. The terms of trade for agriculture — a ratio of the average realised prices for crops to that of commodities purchased by farmers — has declined by 8.2 per cent between 2010-11 and 2017-18. Our calculations reveal that over 30 per cent of this has happened post the demonetisation shock. Weak price realisations for the recent period might also explain the 9.3 per cent dip in kharif season plantings so far relative to last year, despite a normal monsoon.

But it isn’t data alone. Agrarian vulnerability is also manifested in nationwide farmer protests and the resultant political response. Several states — including Andhra Pradesh and Telangana in 2014, Maharashtra and Uttar Pradesh in 2017, and, more recently, Karnataka — have announced farm loan waivers, which, based on media reports and our own assessment, aggregate roughly Rs 300,000 crore. Ignoring the distress in “Bharat” was a major contributor to the previous NDA government’s “India Shining” campaign failing in the 2004 national elections.

The current NDA dispensation under Narendra Modi, however, appears to have learnt the lessons from that debacle.

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The decision to raise minimum support prices (MSP) in this kharif season — the weighted average hike for 13 crops is 14.5 per cent, the highest since 2012-13 — represents an intervention, even if lagged, to ameliorate agrarian distress from declining realisations, especially after demonetisation. The dislocations suffered by the informal sector from demonetisation and GST (goods and services tax) — rural wage growth has plunged to 3-3.5 per cent, from the 6-6.5 per cent year-on-year increase prior to the two events — may also account for the spurt in demand for MGNREGA employment. Central releases for the programme have risen from Rs 32,139.1 crore in 2014-15 to Rs 55,658.2 crore in 2017-18; we expect funding to go up to Rs 65,000-70,000 crore this fiscal, more than the budgeted Rs 55,000 crore.

But the above narrative of farm and rural distress is at odds with the apparent strength emanating from industry-related data. Tractor sales, for instance, have registered around 20 per cent growth both in 2016-17 and 2017-18, while sustaining that momentum even in the April-June 2018 quarter. Sales of two-wheelers grew 15.6 per cent in the last fiscal. Consumer goods companies, too, point at the rural markets bouncing back after three years, recording double-digit sales growth and outpacing urban spending. There is also renewed enthusiasm to extend their rural reach and accelerate new product launches.

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It needs highlighting, though, that the high back-to-back tractor sales growth followed contraction during 2014-15 and 2015-16, which were both drought years. The compound annual growth rate over a longer period from 2013-14 is a modest 3 per cent, implying that the volumes in 2017-18 were only marginally higher than four years ago. Also, the recent sales rebound has come mainly from eastern and southern India, with the average annual growth in western and northern states since 2013-14 at minus 0.1 per cent and 0.2 per cent, respectively.

In two-wheelers and FMCG, the spurt in rural sales growth is a phenomenon largely of 2017-18. Average two-wheeler growth in the preceding three years was only 5.7 per cent. Companies such as Hero MotoCorp delivered subpar sales performance right from 2012-13 to 2016-17, before seeing a rebound in the last one year.

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These trends suggest no real paradox of persistent farm sector distress and the apparent robust sales performance of industries/companies with strong rural focus. Indian agriculture has been under stress and experiencing deteriorating terms of trade since 2014-15, if not longer. Till recently, there was not much attempt either on the Modi government’s part to fulfill its promises, whether relating to ensuring minimum 50 per cent returns over crop cultivation costs or doubling farm incomes in real terms by 2022. On the contrary, significant damage was done by just the November 2016 decision of scrapping high-value currency notes.

But the last one year or more has witnessed — as if to make up for the earlier indifference — disproportionate fiscal responses, by way of farm loan waivers and increased budgetary allocations for MGNREGA and a host of rural and agricultural sector schemes. There has been a conscious effort at expanding procurement of not only wheat and paddy, but also pulses, oilseeds and cotton. We expect the Centre’s food subsidy bill in 2018-18 to cross Rs 180,000 crore (beyond the budgeted Rs 169,323 crore); the latest kharif MSP hikes make it all the more likely. Also, the Modi government appears to be working on a broader theme of rural incomes and asset creation, as opposed to purely farm-focused interventions. So, there is equal, if not more, fund allocation for rural housing, roads, electrification, sanitation and other infrastructure.

To summarise, the run-up to the general election and recognition of the disruptions caused to the farm sector by demonetisation have impelled considerable fiscal and policy commitment towards agriculture and the broader rural economy. This should support rural consumption demand in the near term, given the multiplier effects of government spending. But they are neither sustainable nor address the core issues facing the farm and rural sector.

Sustainable prosperity in the rural countryside requires deep structural reforms, transcending short-term political considerations. These include policies that encourage value addition through agro-processing, formation of farmer producer organisations, and creation of efficient systems for marketing, storage and movement of produce. We also need a more robust farm insurance mechanism and investment in education and skills that enable diversification of rural incomes. The ongoing direct benefit transfer and financialisation initiatives are welcome, provided they are part of a long-term structural reform strategy.

First uploaded on: 26-07-2018 at 00:43 IST
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