Narendra Modi-led government has unveiled a grand plan to double income for farmers by 2022. If attained, this could lead to numerous political and economic gains for the government.
The government’s rural spending in FY17 percent shot up by 40 percent as compared to 14 percent in FY16.
However, the task will be a difficult one for the government. A report by Elara Capital says that while it is possible to double nominal income of farmers, it will take 10-12 years to double the real income. This also if the states grow at a 5-6 percent level.
Looking at the past figures, nominal income doubled in 6.2 years whereas the real income took 17.7 years. This also led to reliance on animal farming increasing for higher income.
Elara’s analysis says that real income is likely to grow at 5-6 percent PA over next five years, higher than historical average of 2.2 percent PA. For farmers’ income to double in six years, income needs to rise by CAGR 14 percent per annum.
Due to low income from core-agriculture, farmers increased focus on allied activities like animal husbandry.
In past, factors like higher government spending, increase in minimum support price, higher exports, jump in construction jobs led to rise in wages between 2008-11.
Increasing cost too is eating into the income from cultivation. Also, the current procurement system is playing havoc.
The report states that not only does procurement have to be divided equally for products, but it also needs to be divided equally among states. Currently, it is heavily concentrated in areas like Punjab and Haryana. Improvement is needed in market infrastructure, so that farmers can sell higher produce to procurement agencies.
The government is planning to boost its rural allocation. To boost the sector, it plans to create jobs in sectors like construction and housing. The aim is to build 10 million houses during FY17-19.
The government has also increased area under irrigation by 200 percent under the PM Krishi Sinchayee Yojana. A micro-irrigation fund with corpus of Rs 50 billion has also been established.
The analyst further lists accelerators that can reduce this time lag between the real and nominal income growth. A few of them are listed below:
• Fertilizer: the sector will need a boost to improve responsiveness of yield to inputs.
• Formalization of contract farming and liberalisation of land leasing to improve production.
• Allied activities like livestock breeding need to be given a leg-up to improve non-cultivation income.
• Reducing farm waste to decrease loss to crop.
Reforms are needed across the entire value chain – from production to to products reaching consumers.