Farmers in entire North India are committing suicides in large numbers. Their crops have been destroyed by untimely rains and storms. They are unable to repay loans taken from banks. The real problem, however, is not of these weather events. The problem is that the farmer has no cushion to bear a crop loss in absence of adequate prices for his produce. He loses if the production is more because the prices collapse as is happening with the potato farmers these days. The farmer again loses if the production is less. In this case he has only straw to sell. As a result the farmer is unable to save money for a bad year and forced to commit suicide if a single crop fails.
Modi’s solution is to provide a “Soil Health Card” to all farmers. The card will indicate the deficiencies in the soil and help the farmer determine which fertilizers to use in what quantity. So what? The price in the market will still collapse and the farmer will still lose. Modi’s second solution is to establish modern mandis. Good. But benefits of a better mandi may accrue to the urban buyer rather than the farmer. The homemaker may pay Rs 8 for a kilo of potato instead of Rs 10 at present and the farmer would still get Rs 3. Modi’s third solution is that the farmers must use drip and sprinkler irrigation to save water. But who will pay for these systems? And, once again, if the crops are good, who will ensure that the prices do not collapse? Modi’s suggestions are good but these are cosmetic.
Modi announced in Punjab that the Government is working on a scheme to provide a pension of up to Rs 5,000 per month to farmers under a Public-Private Partnership (PPP) model. Punjab CM Parkash Singh Badal clarified that the PPP model may be like the National Pension Scheme (NPS). Participation in NPS is compulsory for government servants. They contribute 10 percent of their salaries to the NPS; and the government contributes and equal amount. The NPS is open for private individuals as well but with a critical difference. The matching government contribution is not available to private participants. They will get pension only from the income earned from the money contributed by them. A person may deposit money in a Time Deposit in a bank and get interest on the deposit after he has attained 60 years age; or he may deposit with the NPS and get the same pension. The NPS works merely as a money manager for the private subscribers. The “PPP” in NPS is restricted to government money managers getting an additional opportunity to play with the private participant’s money.
The UPA Government had initiated a Swawlamban scheme. A person would make a commitment to pay a premium of Rs 1,000 to Rs 12,000 per year for a minimum 20 years. The government would make a contribution of Rs 1,000 for the first three years in his account. A person contributing Rs 1,000 per month would contribute Rs 20,000 over the 20 years and get a government subsidy of Rs 3,000. But private persons did not find it attractive to place their hard earned Rs 20,000 in hands of bureaucrats to secure a subsidy of Rs 3,000! The scheme was a failure.
Modi has made some changes in the Swawlamban scheme. He has renamed it Atal Pension Yojana. He has removed the requirement of minimum contribution of Rs 1,000 per year but retained the minimum period of 20 years. The government contribution now would be 50% of the participant’s contribution subject to maximum Rs 1,000 per year that will now be made for five years. So a person contributing, say, Rs 500 per month for 20 years or total of Rs 10,000 will get a subsidy of Rs 250 per year for five years or Rs 1250. Better, but not enough. The government contribution is still paltry. Moreover, the loss of income in running after banks and insurance agents and bribes to be paid to get the pension cheques would still be prohibitive. These schemes are designed to create an impression that Modi cares without him having to spend much. It is like Mr Modi meeting a traveler to Mumbai at the Delhi Railway Station. Mr Modi bought him a ticket up to Faridabad and told him to buy the remaining ticket himself! Modi would take the credit for sending him to Mumbai while the poor fellow would bear most of the expenditures! I am absolutely certain that Atal Pension Scheme will follow the footsteps of Swawlamban into failure.
The total agricultural production in the country was Rs 907 thousand crores in 2013-14. A small one percent increase in the price of agricultural produce would beget the farmer an additional income of Rs 9070 crores. Consider the expenditures to be made by the Government for the farmer’s pension scheme in relation to this. The UPA Government had made a budget allocation of Rs 100 crores for Swawlamban. Modi may increase this to, say, Rs 200 crores. Instead of providing a benefit of Rs 9070 crores by securing an increase of mere one percent in the prices, Modi is pretending to be the farmer’s friend by spending a paltry Rs 200 crores. Good publicity gimmick, maybe; but certainly not a pro-farmer policy.
Modi must take three steps to help the farmer. One, he should push for a change in the World Trade Organization on the question of agricultural subsidies. At the time of signing the WTO treaty, the developed countries had promised to work towards elimination of agricultural subsidies given by them. This has not happened. As a result the developed countries are subsidizing exports of agricultural goods, the prices in the global- and Indian markets are low, and the farmer is suffering. Modi must insist that the developed countries remove all agricultural subsidies and he should impose a hefty import duty on agricultural goods until this is done. That will lead to an increase in prices in the Indian markets and provide relief to the farmer.
Two, Modi must establish a “High Value Added Agricultural Export Corporation.” This company must help farmers produce customized fruits, vegetables and flowers and export these. That will provide a new avenue for increased incomes to our farmers. Three, Modi must start imports of straw and cow dung instead of potash and phosphate fertilizers. These chemical fertilizers are spoiling the health of the soil of the country. Availability of cheap straw and cow dung will help reduce the cost of production of the farmer and make life easier for him.
(The author was formerly Professor of Economics at IIM Bengaluru)