Union Budget 2018: Agriculture

Food is a source of wealth, but food production is a source of misery – this has been largely true especially for small farmers, bulk of which constitute the farming community in India, more so in the last 25-30 years. This year’s Union Budget has been applauded by the mainstream media as one that is focused on agriculture and directed towards doubling farm incomes by 2022. The significant measures include setting kharif crop prices at 1.5 times of cost of production, full implementation of online agricultural marketplace, 21% increased allocation towards crop insurance, allocation of agricultural institutional credit to Rs 11,000 crores, liberalization of agri exports, 100% tax deduction on profits to farm producing companies with net revenue of less than Rs 100 crores and easing of rules for trading of agricultural derivatives.

At the outset it must be borne in mind that approximately 64% Indians are dependent on agriculture; also, around 1/3rd of the food crop produced is purchased by the government at the minimum support price (MSP) which is sold through the public distribution system. To arrive at the new MSP, it is important to know the cost of production. For the sake of simplicity let us assume that A=cost of raw material such as seeds, fertilizers, etc., B= imputed cost of family labor, C= the total cost of agricultural production, D=imputed cost of land rent, and E=interest on owned land and capital. The Swaminathan Commission had recommended that C=A+B+C+D. Another popular way of calculating is C=A+B. However, it is not clear from the Finance Minister’s (FM’s) Budget speech as to which formula is to be taken. As a matter of fact, at current rates, A+B is significantly lower than A+B+C+D. So, if the FM’s calculation is based on the former definition, this move is not going to help farmers even theoretically. The MSP, as of now is already above the figure that can be arrived at by that formula, which has not benefitted our farmers. The small farmer has to depend on the large landowner of the village, to transport his/her produce to the selling point. This brings added exploitation to the marginalized Indian farmer.

The system of determination of prices of crops, especially, food crops is unethical and inhuman to the core. An article as fundamental for human existence as food, when converted into a commodity, serving the interests of parties hankering for profits, is a recipe for gradual disaster bringing huge volatility in the prices. Unfortunately, we are going in that direction. Complete dependence on an online marketplace would exactly do that. This would be exacerbated by greater participation of derivative commodity traders who have no connection with the production process whatsoever. (In principle derivative contracts are upside or downside bets on the expected price of a certain quantity of that commodity at a future date.) The money being circulated in the derivative markets are basically speculative in nature and have a huge role to play in controlling the price of agricultural produce. The derivative trader, sitting in his cushy office decides the money value of the labor that is put in by the toiling farmer.

Governments have been continuously pushing for crop insurance to supposedly provide relief to farmers facing crop failure. However, quite naturally, the beneficiaries have primarily been insurance companies rather than poor farmers. This has already been exposed by a scathing report in 2017 by the Comptroller and Auditor General (CAG) of India. Incidentally one of the biggest investors in the stock markets is insurance companies. Quite naturally, the premiums paid for crop insurance also end up as an easy source of capital for big companies listed in the stock exchanges. In this process the farmer who is distressed due to a crop failure gets hardly any direct support from the government; they find it extremely difficult to access the claim due to their lack of knowledge about the subject and the treatment that is in general meted out by the privileged to the poor. However, corporate interests are satisfied.

The myth of agricultural credit benefitting Indian small farmers is far from truth in most cases. The NABARD, which is the apex financial institution for agricultural credit, is supposed to play a vital role in this arena. In the 2016-2017 credit plan of NABARD for Maharashtra, 53% of the outlay was allocated for the city of Mumbai and its suburbs which hardly have any agricultural lands. Where the credit is being diverted is anybody’s guess – to agribusiness companies. Between 2005 and 2013, the loan composition of less than Rs 25000 almost collapsed which basically includes the loans taken by marginal and small farmers. What increased was the percentage of loans above Rs 1 crore. It is of no wonder that the share prices of agri-business companies skyrocketed in the stock markets after the announcements of the FM.

The Union Budget, 2018 is hardly surprising, as far as agriculture is concerned. Like every other government, this one has also taken every step to asphyxiate the small Indian famer to satisfy the powers who control the society. This budget is just an extension of the same liberalization, privatization, globalization policies that is unmasking it’s true self every subsequent moment.

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