The report titled ‘Doubling Farmers’ Income – Rationale, Strategy, Prospects and Action Plan’ (click here for Hindi version) was published by NITI Aayog in March, 2017. It was authored by Prof. Ramesh Chand, who is currently a member of NITI Aayog. The report provides a broad outline to realise Prime Minister Narendra Modi’s vision of doubling farmers’ income by 2022 as expressed during a rally in Bareilly, Uttar Pradesh in February, 2016. The report assumes that the government’s intention is to double farmers’ ‘real’ income as opposed to ‘nominal’ income. Overall, the measures outlined in the report are aimed at – ‘Doubling real income of farmers by the year 2022-23 as compared to 2015-16’.

Summary of Conclusions

The report calls for a three pronged strategy focussed on development initiatives, technology and policy reforms in agriculture, to achieve the goal of ‘Doubling Farmers’ Income’.  According to the report, the country needs to increase use of quality seed, fertiliser and power supply by 12.8, 4.4 and 7.6 per cent every year. In addition, area under irrigation and area under double cropping need to be increased by 1.78 million hectares and 1.85 million hectares each year, respectively. Further, area under fruits and vegetables would need to be increased by 5 per cent each year. The report calls for stronger extension programs by research institutions to increase adoption by farmers. It is also recommended that ICAR and SAUs should develop model farming systems suited to different local conditions. Better price realisation through marketing reforms, land lease and raising trees on private land would help in achieving the goal. Lastly, the report calls on the government to increase its outlay on development activities like irrigation.

Detailed Summary

The report begins with a description of the past trend in farmers’ income. The report makes the following observations regarding the past trend in farmers’ income :-

1. The share of different activities in agricultural household’s income are shown in the figure below. The source of the data is Situation Assessment Survey of Agricultural Households (SAS) in 2012-13. Also note that these estimates differ from CSO estimates due to different definition of a ‘farmer’.

   

2. Trend in farmers’ income from 1993-94 to 2015-16 is shown in the chart below.
   1. Between 1993-94 to 2004-05, agricultural value added increased at a rate of 2.52% per annum, but farm income per cultivator increased at the rate of 1.96%.
   2. The period 2004-05 to 2011-12 witnessed a growth rate of 7.46% in real farm income per cultivator even though agricultural value added was 4.19%.
   3. The growth in farm income has witnessed a setback since 2011-12. Between 2011-12 to 2015-16, real farm income per cultivator only increased by 0.44 per cent per annum.
   4. Note: The latest data on number of cultivators was only available until 2011-12. It was assumed that farmers would continue to withdraw from agriculture at the rate observed between 2004-05 to 2011-12.

The next section of the report lists the sources of growth in a farmer’s income. The sources are listed below :-

1. Improvement in productivity – India lags behind the global average in productivity of most crops except wheat, thus there is considerable scope of improvement in productivity.
2. Resource use efficiency – Improvement in TFP (Total Factor Productivity) contributes to reduction in input cost and thus increase in income. TFP is the portion of output not explained by increases in input. The report mentions that between 2004 and 2012, TFP in agricultural sector increased by 2.62%.
3. Increase in cropping intensity – Cropping intensity is the ratio of gross cropped area to net sown area. Multiple cropping seasons in a single year lead to a cropping intensity greater than 1. Cropping intensity in India is approximately 1.4. Surprisingly, cropping intensity in irrigated and rainfed areas is similar. According the report, this might happen due to non-availability of irrigation throughout the year. The report mentions that expansion of irrigation through new government schemes will have a favorable effect on cropping intensity.
4. Crop diversification to high value crops (HVCs) – a 1% increase in HVC are leads to 0.319% increase in the output of the crop sector. If the past trends in crop diversification continue then crop sector’s output will increase by 1% each year.
5. Shifting cultivators from farm to non-farm occupations – The productivity of non-farm sector in 2.76 times the productivity of agricultural sector in rural areas. Thus, movement of cultivators to non-farm sector will lead to an increase in income. If the decline in number of cultivators continues at the same rate as in recent years, there will be 13.4 % less farmers in 2022-23 as compared to 2015-16.
6. Improvement in prices received – There are no national level studies on impact of marketing reforms on farm income. The report quotes a study in Karnataka, according to which real prices received by farmers increased by 13% in two years after creation of new marketing platform, with even more scope of improvement

Here 1-4 are sources within the agricultural domain, whereas 5 and 6 are outside agriculture’s domain.

The next section (Section 4) lists various strategies for increasing farmers’ income. The strategies are divided into four categories :-

1. Development Initiatives
2. Technology
3. Policies
4. Institutional Mechanisms

Genome editing, marketing reforms, FPOs (Farmer Producer Organisations) are some of the items mentioned in the sections. It is also recommended that government’s investment in agriculture be raised to 4% of agricultural GDP (compared to 2.76% currently) in accordance with recommendations of several High Powered Committees.

Section 6 presents a roadmap and action plan for doubling farmers’ income. If the same level of growth (in accordance with the recent achievements) is maintained farmers’ income will increase by 75% in 7 years. Table 6.1 shows the growth rate in different categories in the recent years and the required growth rate for doubling farmers’ income.

To achieve the growth rates listed in the above table, action in the following three categories is needed.

1. Development initiatives
2. Technology generation and dissemination
3. Policies and reforms

The development initiatives recommended are shown in in table 6.2. The report recommends several strategies and policies which can adopted to achieving the goal of doubled farmer income. The strategies include enacting land lease law (based on NITI Aayog’s model land lease law), allowing forestry on private land, promoting value chains, promoting producer alliances and so on.

Critique

The report makes several important recommendations which might lead to higher incomes for farmers in the country. However, what is questionable is whether the steps mentioned would lead to a ‘doubling’ of farmers income. There are several questionable issues which arise in the report which will be addressed in this section.

The report raises a very import point regarding lack of data regarding farmers’ income. If the government wants to devise a data driven policy, there is a need to collect these data effectively. A related point to be noted here is that, in absence of the data on farmers’ income, the report uses the data from a study by Prof Ramesh Chand, who is also the author of the this report.

A very important issue to be raised here is that the report assumes (based on CSO estimates) that livestock accounts for 30% of the total income from agricultural sector (Page 9). However, according to SAS, 2013, this number was approximately 20% (Page 5).  In fact, the report itself notes this discrepancy on Page 5. Still, the report continues with the assumption of 30% (the actual number is 28.6 %), when laying down a roadmap for doubling farmers’ income. One can’t help but conclude that this was done since the scope of improvement in livestock sector (4.5%) is more than crops (3.1%). If this assumption was turns out to be incorrect, then the goal would not be achieved.

This brings us to another data related issue, the estimate of impact of marketing reforms is based on a study in Karnataka. The author has extrapolated the results from this to study to entire country. This is problematic on two counts, first, expecting same results in other parts of the country is erroneous and, second, the Karnataka study did not include major crops like wheat, rice and sugarcane. The point to be made here is that the assumptions made in this study might not hold for the entire country for all crops.

Another assumption made by the report is that farmers will continue to move to non-farm occupations at the same rate as observed during 2004-05 to 2011-12. Perhaps, a better assumption would be using the rate from more recent years. However, the author might have used the number from the said period as a goal which we should aspire to. But here a contradiction might arise, if the real income of farmers start increasing one might expect that the rate of movement of farmers to non-farm occupations might not remain the same and in fact decrease. The assumed rate of movement to other occupations would hold only if there is a rapid increase in other occupations where the farmers can find employment.

Perhaps the most important issue is the omission of input costs from the analysis. Everything which the author has mentioned would work only if the ‘real’ input costs do not rise. These input costs will include labour costs and it is hoped that Prime Minister wants to increase their real income too and not just farmers’. Thus, for the real input costs to remain the same even with (hopefully) increasing income of labourers, other input costs would have to decrease. If this will happen is unknown and the author offers no strategy or roadmap to do this.

Not only does the report make extremely optimistic assumptions of the rate of growth in different areas, it then claims that a 33% increase in all these assumptions (see table 6.2 above) is needed to achieve the goal of doubled real income for farmers. Another factor which will definitely impact growth in agriculture is climate change. Economic Survey, 2017 – 2018, notes in Chapter 6, that “projected long-term weather patterns implies that climate change could reduce annual agricultural incomes in the range of 15 percent to 18 percent on average, and up to 20 percent to 25 percent for unirrigated areas”. Thus, achievement of such high growth rates in different sectors of Indian agriculture seems improbable.

The report also makes no mention of the role of panchayati raj institutions (PRIs) in the rural economy. None of the strategies presented in the roadmap mention any role of these institutions in creating and executing this grand vision. It is hoped that NITI aayog would incorporate the spirit of decentralization in its strategy.

This brings us to the final point, the very vision of doubling farmers’ income. Would realization of this vision eliminate distress in the farming community? Would it help the poorest, most destitute members of the rural economy? Note that the vision calls for an increase in the average income of farmers. There is no assurance that lives of the people at the bottom would improve in any significant manner unless of course, one is a firm believer in the magic of trickle-down economics.