Here’s Why Farmers Matter So Much to India’s Modi
Farmers from the state of Tamil Nadu carry human skulls and bones during a march in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

Here’s Why Farmers Matter So Much to India’s Modi

(Bloomberg) -- There is no bigger group of voters in India than its farmers. About 800 million of its 1.3 billion people depend directly or indirectly on agriculture, which accounts for 16 percent of the country’s $2.6 trillion economy. It’s a group that’s been battling poverty for decades, stoked in recent times by rising debt as well as crop failures; thousands of farmers take their own lives every year. Their sheer numbers mean that, with a general election approaching probably in April, farmers’ concerns are becoming politicians’ concerns. Prime Minister Narendra Modi, who has promised to double farm incomes by 2022, announced plans in the run-up to the elections to support 120 million poor farmers with cash handouts. The opposition has its own proposals to win over the vast rural vote.

1. Why are there so many farmers?

India is the world’s biggest cotton grower and ranks second in sugar, wheat and rice -- all from a land mass one third the size of the U.S. The kind of breakneck urbanization that characterized China’s economic ascendancy mostly bypassed India, though some areas of the countryside could more accurately be described as semi-urban than rural. Come 2050, more than half of India’s population will still be rural-based, according to the government.

2. Has India’s economic transformation bypassed agriculture?

Farming has remained relatively untouched by the push to modernize the world’s fastest-growing major economy. The agricultural economy has grown at below 3 percent annually on average over the past three decades -- less than half the growth experienced in the wider economy. Too many farmers rely on the most basic of technologies and own smaller landholdings that preclude economies of scale. And the markets they sell their produce into are often disorganized at best, dysfunctional at worst.

3. Are things improving?

Apparently not. Crop prices have fallen, fertilizer costs have increased, rural unemployment is rising, irrigation programs are inadequate and insuring against crop failure is a cumbersome process mired in red tape. As a result, farmers have increasingly turned to loans, adding the pressure of meeting repayments into an already fraught mix. About a quarter of farmers live below the official poverty line, while 52 percent of farming households are indebted (in some states, more than 90 percent). There’s not much of a safety net: India spends less than 2 percent of GDP on social security, compared with 20 percent for OECD countries. The latest government figures show farmer suicides surged 42 percent to about 8,000 in 2015, when some 4,600 agricultural laborers also took their own lives.

4. What’s happened to crop prices?

They’re depressed, but mostly for a good reason: Bumper harvests have boosted supply after a third year of decent rainfall. The frustration for farmers centers around a decades-old government policy to support agricultural markets with guaranteed prices for 22 crops, including wheat, rice and cotton. In reality, the plan is only carried out for a handful of commodities in a handful of states. Modi’s government upped the ante last year by pledging to guarantee prices that provide a 50 percent profit over production costs -- a promise farmers say he’s failed to meet. Practical issues with the government buying program -- the long distances to lug produce, strict quality standards and bureaucratic hurdles -- have pushed many farmers to private buyers. That typically entails accepting prices well below government rates, particularly after the middleman has taken a cut.

5. What do the farmers want?

Tens of thousands protested in New Delhi and Mumbai last year, underlining the power of a group that tends to vote as a bloc for the party offering the most generous policies. Their demands include a nationwide waiver of farm loans; increased purchases at guaranteed prices by government agencies; wider coverage and higher payouts from crop insurance; and a halt to what they see as the unnecessary forced acquisition of farmland. Modi’s failure to make progress on his promise to double farm incomes may dent his credibility with some voters, especially with the opposition Congress party still popular in the countryside.

6. What are the political parties proposing?

Modi’s plan to support 120 million farmers, announced in the February budget, will cost 750 billion rupees ($10.6 billion) annually from April, handing those with up to 2 hectares (4.9 acres) three payments of 2,000 rupees per year. There’s also 200 billion rupees to go around in the current fiscal year. Modi’s government is considering reducing crop insurance premiums and offering coverage for more crops and to farmers who rent. Congress is promising to waive farmers’ loans on a national scale. It’s a policy that paid off in state elections in December, when Congress took three states from Modi’s Bharatiya Janata Party and promptly waived some loans. Credit Suisse Group AG analysts expect to see more debt relief in 2019, given the potential electoral payoff. Critics say that loan waivers tend to benefit wealthier land-owners rather than the landless poor. Rahul Gandhi’s opposition party is also pledging to hand cash to the poor.

7. How will the parties pay for this?

The government would probably need to make cuts elsewhere to achieve its fiscal targets, although it’s also borrowing in the local bond market and putting pressure on the central bank to contribute before the election. The opposition has yet to outline how it would fund its proposals.

8. Will anything really change?

Politicians have been wooing farmers throughout India’s seven decades of democracy. What’s different this time is that the two main parties are trying to outdo each other with ever-grand promises. That’s likely to be good news for the hundreds of millions of farmers seeking an improvement in their lot, and possibly crucial to the outcome of the election.

The Reference Shelf

©2019 Bloomberg L.P.

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