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July 07, 2017

Hope drizzles amid dark clouds

Angry farms


‘Angsty farms’, our 2015 report, had flagged that unaddressed vulnerabilities were amplifying distress inagriculture. Since then, one major risk, of inadequate monsoon, has receded because the rain god pouredblessings in fiscal 2016, leading to a bumper crop. The progress of monsoon this year, and prospects for the restof the season, look good, too.


Yet, vulnerabilities remain and distress is mounting in the fields. So much so, it has forced the hand of four stateson farm loan waivers. And others could follow suit.


What gives?


Input costs rising faster than output prices, that’s what.


Over the past few years, farming as a profession has become less profitable because of this very reason. In thisedition of EcoView, we show that this remains the case for major crops.


The bumper crop last fiscal, in conjunction with demonetisation and a moderate rise in minimum support prices,have pushed down selling prices further and accentuated farmer woes.


Problem is, they can’t export themselves out of trouble either, because global food prices are subdued and therupee has strengthened.


The upshot is that farm economics has deteriorated. It’s hardly a surprise, therefore, that farm loans are gettingwaived.


For states, finances have been under stress due to the obligation to issue Ujwal Discom Assurance Yojana (UDAY)bonds, and the impending implementation of Pay Commission recommendations this year will put more pressureon expenditure. In fiscal 2017, and for the first time since fiscal 2005, states collectively breached the fiscal targetof 3% of GDP.


The quantum of loan waivers so far is more than what was announced in 2009, but as a percentage of GDP, it isonly 0.5% compared with 1% in 2009.


Our calculations show that if others states were to follow suit, the aggregate farm loan waiver burden would beat least Rs 2.5 lakh crore. And that Kerala, Madhya Pradesh, Uttar Pradesh, Telangana and Rajasthan, with fiscaldeficits hovering over 3% of GDP, would be the most effected.


As farm loan waivers are generally spread over 3-4 years, the fiscal burden, too, will be spaced out. The good partis, this coincides with the implementation of the Goods and Services Tax (GST).