Band aid after the long march

Written by Ashok Gulati , Gayathri Mohan 

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First, let us compliment both the parties in Maharashtra’s agrarian crisis for reaching an amicable solution, at least for the time being, and averting major chaos or violence. Farmers deserve appreciation for their disciplined, committed, non-violent “Long March”, and the Devendra Fadnavis government (GoM) deserves praise for gracefully accepting most of their main demands.

Second, will the loan waiver or the MSP in line with the Swaminathan formula of cost plus 50 per cent — two of the main farmers’ demands that have been accepted — solve Maharashtra’s agriculture problems? Certainly not. The current agreement will provide only temporary relief to the state’s farmers. Much more needs to be done to ensure that they prosper in a sustainable manner.

What is the main cause of the crisis? Since the Fadnavis government assumed office in October 2014, Maharashtra has had three years of negative agri-GDP growth. Only in 2016-2017 did the state’s agriculture sector grow by 22.5 per cent. It registered (-)10 per cent in 2014-15, (-)3.2 per cent in 2015-16, and is likely to be (-)8.3 per cent this year, as per the state government’s estimates. The state’s average agri-GDP growth in the four years is zero. This is the root cause of the farm distress in the state. Except for sugarcane farmers, cultivators of most other crops have suffered badly. Cotton, for example, was struck by a pink bollworm attack that destroyed 44 per cent of the crop. Market prices of soyabean, tur, chana went way below their MSPs, and the MSP of sorghum did not cover the full cost of the crop’s production. This speaks of acute distress, almost akin to an agriculture emergency, in certain pockets of the state. The state government has tried to provide a healing touch, but that has not been enough.Sarfaraz Alam

Efforts to get agriculture back on track in Maharashtra will have to re-align cropping patterns with the state’s water resources. Only 19 per cent of Maharashtra’s cropped area is under irrigation, way below the national average of 47 per cent. So, expanding the irrigation cover should be the state’s priority. The paradox of the agriculture scenario in Maharashtra is that sugarcane, which occupies just 4 per cent of the state’s gross cropped area (GCA), takes away 65 per cent of the irrigation water, while cotton, soyabean, sorghum, maize, gram and tur, which together constitute more than 60 per cent of the GCA, get about 8 per cent of the irrigation water (see graph). Unless this imbalance is corrected, the crisis will resurface whenever Maharashtra faces a drought. Compulsory drip irrigation in sugarcane, which may cost the state government about Rs 7,000 crore, can save about half of the irrigation water, which if diverted to cotton, sorghum, maize or soyabean, can improve productivity significantly. And much of this can be done within two years at most, in a mission mode.

Maharashtra also boasts the largest number of dams and major and medium irrigation schemes. During the 10th and 11th Five Year Plans (2002-2003 to 2011-2012), the cumulative expenditure on these schemes amounted to Rs 1,18,235 crore at 2014-15 prices. It increased the irrigation potential of the state by only 8.9 lakh hectares (ha) of which only 5.9 lakh ha was utilised during that period. This amounts to a cost of around Rs 20 lakh/ha of irrigation potential utilised at 2014-15 prices. This is nothing short of a scam. Without increasing transparency and better governance, major canal irrigation schemes are an exorbitant proposition.

Solar-based drip irrigation is a better alternative and solar facilities can put surplus power back into the grid at 15 per cent premium over coal-based power supplies. Besides improving irrigation and augmenting yields, solar facilities will give farmers regular assured income and will be an insurance during droughts. Such schemes can be financed by either the private sector or through long-term loans from multilateral agencies.

The loan waiver was already agreed to last year and the current tweaking could raise the earlier estimated cost of Rs 34,000 crore to about Rs 40,000 crore. According to the Maharashtra government, only about Rs 11,000 crore of loans has been settled till December 2017. One doubts whether the remaining loan waiver can be done in the next six months.

However, the biggest gaffe is the Maharashtra government’s statement about accepting the MSP based on the Swaminathan formula. The MSP pricing is done by the Centre. And the Centre is talking of cost A2+FL (paid out costs plus imputed family labour cost) and not comprehensive cost, C2, the real bane. In any case, if Maharashtra is really giving cost C2 plus 50 per cent as MSP, it will have to raise the MSP of sorghum by more than 9 per cent, of cotton by about 60 per cent and groundnut, soyabean and maize by about 40 per cent. That will be an invitation for disaster in the markets. Even at 1.5 times the cost A2+FL, the MSP of sorghum needs to go up by more than 40 per cent and that of cotton by about 20 per cent. Can Maharashtra do it? Only time will tell.

Wisdom lies in thinking clearly before taking the plunge. No cost-based pricing, be it C2 or A2+FL, can be successful in a market economy if it does not look at the demand side. It will only lead to major distortions leading to huge efficiency losses. A more efficient, transparent and equitable option will be to give direct income support on a per hectare basis to the farmers.