There has been a lot of speculation about the extent of damage due to demonetisation on agriculture. Small farmers suffered most because cash in hand crunch. They were unable to pay for inputs and farm labour besides experiencing low demand for their perishable produce for some time. The latest data from government’s agricultural ministry, however, shows that demonetisation did not have an adverse impact on agricultural production. This year’s rabi crop seems to have got the highest acreage in five years. Based on the occurrence of good monsoons, the ministry and the Economic Survey 2017 has raised the projected agricultural growth for 2016-17 at 4.1 percent.
According to government sources, agriculture seems to have escaped the scars of demonetisation experienced in the other sectors. Seeds were allowed to be bought by banned Rs 500 notes and farmers were allowed to withdraw up to Rs 25000 per week to meet their expenses related to agricultural production. Also much (70 per cent) of the required seeds were already available with farmers for Rabi sowing.
The Economic Survey 2016-17 predicts a record food production at 135 million tonnes compared to 124.1 million tonnes in 2015-16 for the kharif crop. The area sown is 3.5 percent higher than last year. The area sown under rabi crop as on January 13, 2017, stood at 616.2 lakh hectares which is 5.9 per cent higher than in the previous year. But, on the whole, it is difficult to predict the size of the crop because estimates vary. The government’s advanced estimates often tend to be over optimistic than the private estimates and the real output can yet be quite different from the two. Thus reliable government statistics are needed which will give farmers an indication of the total crop production, acreage and its projected market demand. More accurate estimates can help farmers to plant their crops judiciously in order to get best returns.
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The problems of agriculture, however, cannot be wished away. The prices of vegetables fell sharply after demonetisation and tomatoes were strewn on roads because farmers were unable to sell them. Agriculture is a problem ridden sector and 50 percent of the population depends on it while the contribution of agriculture to GDP is only 14 percent. There is a constant exodus of people leaving agriculture to work in urban areas as the income of households is not enough to sustain all the family members on small pieces of land averaging 1.15 hectares. To some extent, out-migration has to be encouraged to make agricultural rural households have higher incomes. Migrants send money home and it helps in health and education of the family. Higher rural income is vital for propping up demand for manufactures.
In recent years, people have been leaving due to distressed agricultural conditions. Agriculture growth rate was 1.2 percent in 2015-16 and it shrank by 0.2 per cent in 2014-15 due to drought. This year even if a bumper crop is expected, it could spell danger for farmers. They don’t have adequate storage and holding capacity and are themselves not able to dispose their crop directly to buyers, except in the case of contract farming. They have to go through the Agricultural Marketing Committee and commission agents as in the case of Punjab and therefore price realisation is not remunerative as there are many deductions from the prices paid to them.
Agricultural marketing needs close attention and the middlemen’s grip has to be weakened. A contract farming Act along the lines of the one in Punjab is being drawn. A fresh draft of APMC Act is also being proposed by Niti Ayog in 3 months. Direct purchase from farmers by private players and direct sale by farmers to consumers is being planned. Also there will be a single trader licence as well as single point levy of taxes in mandis (market places).
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Regarding agricultural outlook, some States are facing immense problems. While monsoons may have been normal for most of India, Tamil Nadu is experiencing one of the worst droughts. Many farmers have committed suicide by consuming pesticides after witnessing their dried up crops. Irrigation is another big problem that has not been solved. Around 65 per cent of agriculture is rain-fed and not irrigated through a network of canals. Major public works and investments are needed in irrigation, especially in drought prone areas. The use of drip irrigation and sprinklers are needed more to conserve water because water is going to be a big problem in the future for agriculture and for domestic consumption.
Many State governments ( Punjab and Haryana) have tried to solve the problem of irrigation by granting free electricity which helps gensets to pump water. But as is now well known, Punjab’s water table is sinking lower and lower which is a dangerous situation.
In Tamil Nadu, small and marginal farmers are in deep distress and they are mostly heavily indebted. Farm credit to small farmers is very important, but not much progress has been made in this direction, except Kisan credit cards. Farmers mostly borrow for consumption purposes for which only money lenders are willing to lend at exorbitant interest rates.
Another trend has been farmers leaving their land to tenants to farm and going off to towns. The tenants do not have access to credit and their tenancy is problematic in most cases. There has to be a move to make credit available to tenant farmers otherwise they remain extremely vulnerable. The Niti Ayog is also trying to change the land leasing and tenancy law.
Low productivity remains another big problem and if you look at farmers elsewhere in the world, specially developed countries, productivity is much higher and it is due to not only better quality inputs like seeds and water but also mechanisation. A recent indicator that agricultural outlook has improved is reflected in a higher demand for tractors this year. Unfortunately in small and marginal farms, it is not always viable to use tractors but sharing them can help between a few farmers who can form a cooperative. Actually farming cooperatives is a very good idea which China has been practicing with great success in the past.
One surprising aspect of demonetisation on agriculture has been that rural wages rose by 7.3 percent in November due to the hike in minimum wages announced by the central government. This will push up the much needed rural demand for manufactures.
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David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW GermanyRead More +