(Bloomberg) -- As monsoon rains move across India -- usually a boom time for the agriculture sector -- farmers have left their land and taken to the streets amid growing anger over falling food prices and high debts.
With protests spreading around the country, the government of Prime Minister Narendra Modi is under pressure to provide more incentives. A drop in food prices spurred deadly clashes last week, while India’s food inflation fell into negative territory, dropping 1.05 percent from a 0.61 percent rise in April, data on Monday showed.
Farmers are a powerful voting bloc, and the government already faces criticism for not making significant progress towards its promise of doubling farmers’ income by 2022 and ensuring a 50 percent profit over the cost of production of crops.
“There will be tremendous pressure on the Modi government from farmers and young people looking for employment," said political scientist and pro-vice chancellor of Bengaluru’s Jain University, Sandeep Shastri. “These are the two biggest challenges the government will face in the coming years -- in both these areas very little has been done in concrete terms.”
Protests Widen
About two-thirds of the country’s agricultural debt of 9.5 trillion rupees is in states where a debt waiver has been announced or promised or in states that will go to the polls in the next two years, Nomura Holdings Inc. analysts Adarsh Parasrampuria and Amit Nanavati said in a June 13 note. "Increasing expectation of a debt waiver could possibly lead to worsening of debt servicing in states where debt waiver package has not been announced."
Finance Minister Arun Jaitley said on Monday states will have to generate their own resources for the loan waiver.
Keeping a key election promise, the newly-formed state government in Uttar Pradesh decided to waive farm loans worth 363.59 billion rupees ($5.6 billion) for more than 21.5 million farmers at its first cabinet meeting in April.
Following the Uttar Pradesh announcement, Maharashtra on Sunday decided to waive crop loans worth about 300 billion rupees taken by small and medium farmers. This may prompt other state governments to bail out loans to appease farmers throughout the country.
Farmers in Uttar Pradesh and Haryana protested while others in Madhya Pradesh continued to demand loan waivers and higher crop prices. Demonstrators last week blocked roads and vandalized property in the state ruled by Modi’s Bharatiya Janata Party after five farmers were killed when police fired on protests.
“The whole question of loan waiver and higher prices are soft measures. What is needed is a very clear, comprehensive policy which addresses the long term concerns of the viability of agriculture,” Shastri said. “States will be also under pressure to waive loans," especially in those states where elections are due in next two years.
While high levels of household debts have been recognized as a significant cause of farmers’ distress, the use of unconditional debt relief is controversial. India’s central bank governor, Urjit Patel, called for governments to reject loan bailout programs, saying in April that "waivers engender moral hazard." About 800 million of India’s 1.3 billion people count on agriculture for a living, while 52 percent of farming households are indebted.
If Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra, Rajasthan, Punjab, Maharashtra and Haryana were to waive agriculture loans, it would amount to as much as 2.1 trillion rupees or 1.3 percent of GDP, Credit Suisse analysts said in a June 14 note.
Farmers from across the country including the states of Madhya Pradesh, Uttar Pradesh, Punjab, Haryana, Rajasthan and Uttarakhand joined the protest in Delhi on Thursday to demand a federal investigation into last week’s shootings, said Rakesh Tikait, a senior leader of Bharatiya Kisan Union. They also demanded higher crop prices, loan waivers and a ban on the import of farm produce, he said.
"Whichever government comes to power they play with the sentiments of farmers and conspire to get our votes," said Mangeram Panwar, a farmer from Uttar Pradesh who attended the protest. "But after that they don’t do anything for us. It’s very difficult to live on farming."
Record Crops
Bumper harvests helped by normal rain last year after back-to-back droughts pushed down prices of some crops including oilseeds and pulses. This, combined with a lack of government-assured purchases, prompted farmers to agitate.
Small landholdings and uncertain monsoonal rain make India one of the world’s most expensive places to farm, while the country’s rural economy provides few other job opportunities. Rising costs of fertilizers and seeds, along with the lack of an assured market for farmers’ produce, add to their burden.
“They are all angry,” said P. Chengal Reddy, chief adviser to the Consortium of Indian Farmers Associations. “If the prime minister doesn’t do anything the country will go into flames. The government’s policy to control food inflation curbs incomes of farmers. This is wrong.”
In the last three years the government has increased its budget allocation for agriculture, launched a programs such as a health card to test soil quality, revamped crop-insurance with a low-cost premium and created a digital platform to connect farmers directly to customers. It’s also emphasized low-cost organic farming and taken some steps to make country self-reliant in pulses and oilseeds.
The minimum price of rice set by the government for the 2016-17 crop was 6.7 percent more than the production cost, according to the farm ministry. The government-set price of wheat was 35 percent more than its production cost. In its election manifesto the ruling Bharatiya Janata Party had promised cost plus 50 percent return.
Falling Prices
Prices of soybean, mustard and peanuts have dropped to a five-year low after output rebounded in 2016-17 on normal rains. Wholesale prices of food grains including rice, wheat and pulses fell for four straight months through March and were about 10 percent lower compared with November, according to government data.
“Loan waiver is not a solution to bailout farmers -- they need local value addition and assured market for their produce at their doorstep,” said Kishor Tiwari, head of Vidarbha Jan Aandolan Samiti, a Maharashtra-based farmers’ lobby group. “After waivers the government won’t have money to spend on other development projects. ”
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