In the six years before the pandemic, average farm incomes rose in India but so did farm debts

Agricultural households’ average monthly income increased by 59% to Rs 10,218 in the six years to 2018-’19, per the National Statistical Office’s Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India 2019 survey, released on September 10.

The income was calculated after factoring in paid-out costs. When imputed costs – ie, use of self-owned inputs like machinery and seed stock, owned animals and unpaid family labour – were factored in, the average monthly income of farmers’ households in 2018-’19 was Rs 8,337, per the 2019 survey.

Further, income varied significantly between farming households disaggregated by the size of land holding, ranging from Rs 7,500 to Rs 61,000. Nearly nine in 10 farmer households were landless, marginal or small, ie they owned less than 2 hectares (about 5 acres) of land. Their average monthly income in 2018-’19 was Rs 9,700. Medium-sized to large farms of over two and 10 hectares, respectively, comprising just 12% of farming households, had an average monthly income of Rs 35,000.

Income also varied greatly between states. In large states like Bihar, Uttar Pradesh, Madhya Pradesh, Telangana, West Bengal and Chhattisgarh, incomes were lower than the national average. Jharkhand and Odisha reported the lowest at Rs 4,985 and Rs 5,112 per month, respectively. Punjab and Haryana reported the highest monthly farmer incomes among large states, at Rs 26,701 and Rs 22,841, respectively.

There was a seven-percentage-point increase in farming households’ income from wages and a corresponding decrease in income from farming activities since the 2012-’13 survey. The data indicate a worsening in profitability in agriculture overall and a need to supplement farm income with income from other sources, experts told us. Children of farmers were moving out of agriculture and into better-paying professions due to inadequate incomes in the low-productivity agricultural sector, IndiaSpend had reported in July 2019.

The 2019 survey also reported that while half (50.2%) of agricultural households were in debt – slightly less than the 52% that reported indebtedness in the previous survey – the average outstanding loan had gone up by 58% to about Rs 74,000.

The agricultural year in India is measured from July to June, and thus, the survey shows the situation of India’s agricultural households six months before the first Covid-19 case was identified in India, in January 2020. Subsequent lockdowns to control the spread of the disease shrank India’s overall economy, which marked its worst performance in 40 years.

The agriculture sector remained a “bright spot” and rural demand remained stable amid the pandemic, the Reserve Bank of India noted in its monetary policy report in October 2020, as the first Covid-19 wave began receding.

This, however, was partly because agriculture was the fall-back option for millions who lost work after the nationwide Covid-19 lockdown was imposed in late March 2020, IndiaSpend had reported in December 2020. Owing to this, the rise in employment of farmers in 2020 was largely “disguised unemployment”, according to the Centre for Monitoring Indian Economy.

In its subsequent monetary policy brief in April 2021, the RBI noted that the outlook for agriculture remained bright, but also stated that a recovery in economic growth in the third and last quarters of the financial year 2020-’21 was threatened by a surge in Covid-19 infections in a few states in March.

At the time, the peak of the second Covid-19 wave, which tore through rural India, was two months away. India’s overall economic recovery was threatened by a decrease in rural demand as the second Covid-19 wave decimated the rural economy, IndiaSpend reported in June. As of August, employment across India was yet to recover to pre-second wave levels, per the Centre for Monitoring Indian Economy.

The farmers’ average monthly income grew 58%, at a compound annual growth rate of 8%, since the previous SAS survey in 2012-’13. Adjusted for inflation, incomes grew 16%, at a compound annual growth rate of 2.5%. Meanwhile, India’s annual per capita income (at 2011-’12 prices) grew from Rs 65,538 in 2012-’13 to Rs 92,241 in 2018-’19, an increase of 41%.

Nearly one in four farmers in India live below the poverty line. While the government passed new farm laws in September 2020 and promised to double farm incomes by 2022, which some have said is unrealistic, farmers’ protests demanding that these laws be repealed continue till date.

Critics of the farm laws say that by weakening the government’s price guarantee system, the laws may end up hurting small and poor farmers, IndiaSpend reported in December 2020.

The 2019 survey data point to a crisis for these farmers, given the clear positive relationship between the size of farms and profitability per acre, experts told us. The average size of landholdings has decreased by 13.5% to about 0.5 hectares since 2013. Policies need to incentivise farmers to diversify, improve access to loans, and help increase incomes, they said.

Income and class

Of 17.24 crore rural households, 54% (9.31 crore) were agricultural, and nearly nine in 10 of agricultural households owned small landholdings of up to 2 hectares, according to the 2019 survey.

In the previous survey for the agricultural year from July 2012 to June 2013, the average monthly income of agricultural households was Rs 6,426. By 2018-’19, the average monthly income, after factoring in the paid-out expenses, had increased by 59% to Rs 10,218.

More than two in three (70.4%) agricultural households possessed less than 1 hectare of land. Monthly average income increased based on the size of landholding and so did the contribution from cultivation and farming of animals. Marginal farming households earned up to Rs 8,571, while the large farms earned more than Rs 60,000 a month.

If the imputed cost (such as of inputs like seeds from own stock or unpaid family labour where no actual expenses were incurred by the household) was also considered along with paid-out costs, the average income of a farming household was Rs 8,337. The data on imputed costs were not collected in the previous survey.

Cultivation and farming of animals contributed 53% of household monthly income, 7 percentage points less compared to the 2012-’13 survey, with a corresponding increase in the contribution from wages, indicating that farm incomes had to be supported by additional incomes for household financial sustainability.

Unlike salaried people whose salary increases over time, farm incomes do not remain protected with the rise in inflation, and input costs and living costs continue to increase, GV Ramanjaneyulu, executive director, Centre for Sustainable Agriculture, an agriculture research-focused non-profit in Secunderabad, told IndiaSpend. “If average inflation increases 10% a year, and the crop or produce prices do not increase even 3%, farmers will experience a negative growth in incomes.”

“We have to stop romanticising small and marginal farmers. They are facing a crisis,” said Madhura Swaminathan, professor and head of the economic analysis unit at the Indian Statistical Institute and chairperson of the MS Swaminathan Research Foundation in Chennai, who pointed out that issues of productivity and profitability were startling in the report.

Keeping in mind variability across India among other factors, there seems to be a worsening in profitability in agriculture, on average. “There is a clear positive relationship between the size of the farms and profitability (including per acre return),” she added.

“Unless land increases, productivity will not increase,” said Ramanjaneyulu. “Yield can increase only to a certain point and [crop] prices are not increasing.” Many of those buying land are non-farmers who are from urban areas and may not directly cultivate land, he said.

Poor insurance uptake

Although uptake of crop insurance to protect against crop loss has increased for all but three of 14 major crops in the six years between the two surveys, it remains low, the 2019 survey shows. This is despite the fact that agricultural households reported high rates of crop loss for most of the 14 crops in the first half of the agricultural year. For instance, 38% of rice farmers reported crop loss in July 2018-December 2018, but only 8% had crop insurance.

Among the reasons for this low uptake, lack of awareness about crop insurance or the availability of the facility had increased for five of the 14 major crops. It had decreased, but only slightly, for three other crops. Nearly 60% and 70% of rice and ragi farmers, respectively, reported a lack of awareness of crop insurance.

Lack of awareness amounts to the inability of the government to reach out to farmers to take up crop insurance and is a major reason for the failure of crop insurance schemes in India, said the ICAR-NDRI study. Further, the proportion of farmers either not interested in – or self-reported to have felt no need for – crop insurance increased for 13 of 14 major crops since 2012.

Demand for crop insurance increased by 36% when farmers were educated by an insurance educator endorsed by a trusted local agent, the ICAR-NDRI study had noted. Most farmers took technical advice of any kind from other farmers or ‘any agent’, not from technical institutes or sources like Krishi Vigyan Kendras or agriculture clinician, according to Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India.

“The success of any crop insurance scheme depends on the amount and timeliness of claims payment,” said the ICAR-NDRI study. On average, 83% of insurance claims by agricultural households reporting crop loss were not received in July-December 2018, per the 2019 survey. A greater proportion of farmers reported delays in claim payments for 10 of the 14 major crops in 2018, compared to 2012.

Non-institutional credit

Over the six years, although indebted agricultural households fell to 50.2% in 2018-’19 from 52% in 2012-’13, the average outstanding loan among agricultural households increased 59% – from Rs 47,000 to Rs 74,121.

Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India data also show a relationship between the size of farm and access to institutional credit, with dependence on the non-institutional credit sources like money lenders and relatives increasing with reducing land holding, except in the case of the largest farms. Among indebted agricultural households, 82.9% were landless, marginal and small farmers.

In 11 of the 28 states, agricultural households reported borrowing more than the national average, with at least eight having an average outstanding loan of more than Rs 1 lakh. All southern states –Telangana, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu – reported more than Rs 1 lakh outstanding loans per household, on average.

Not all indebtedness is problematic, say experts. In Tamil Nadu, for instance, in Nagapattinam, agricultural credit from cooperatives is available at a 0% interest rate, and if the farmer can pay it back, indebtedness “shows farm credit is working”, said Swaminathan. But the crucial question is who the farmer borrows from and the reasons for it, as the amount of institutional credit depends on factors such as the size of the landholding.

Among the top three states with indebtedness, Andhra Pradesh (93.2%), Telangana (91.7%) and Kerala (69.9%), 47% of the loans in Andhra Pradesh, and half in Telangana were from moneylenders, according to the report, and more than half of the loan was for farming expenditure. This indebtedness seen in Andhra Pradesh and Telangana is because of the higher cost of cultivation and low incomes, said Ramanjaneyulu. “The crisis comes from access to credit,” said Ramanjaneyulu. “Often, it is non-institutional loans that come with high risk and interest rate.”

In six years to 2019-’20, 10 states had announced farm loan waivers totalling Rs 2.4 lakh crore, per a September 2019 report on agricultural credit by the RBI. Loan waivers benefit those with institutional loans like big farmers or absentee landlords, while landless and small farmers do not get access to institutional credit, said Ramanjaneyulu.

So far, there has not been a correlation between loans taken and productivity or net profits, though distress and indebtedness have been correlated, said Seema Purushothaman, professor and faculty at the School of Development in Azim Premji University.

“So most probably, the money is either not getting ploughed into agriculture or at least not in profit-generating or productivity-enhancing practices, consistently,” she said.

In Kerala, less than 10% of loans were from non-institutional sources. One in three outstanding loans in agricultural households in the state were for constructing a house.

Pandemic and procurement

While the Covid-19 pandemic drove more people back onto the farms in 2020 and increased the acreage and production under monsoon crops in 2020, this may not help increase farmers’ incomes. Due to “increased costs and a less-than-adequate increase in output prices, farm households will not reap the full benefits of increased production this kharif season. In fact, incomes may actually be less than in the previous year”, noted a 2021 analysis by researchers Tapas Singh Modak and Soham Bhattacharya, based on a survey of 164 informants from 26 villages in 13 states.

The government has announced a hike in the minimum support price or the government’s procurement price for monsoon and winter crops for 2021-’22. But farmers have been demanding implementation of the MS Swaminathan Committee’s recommendation of a “C2+50%” formula to calculate MSPs – 50% more than the weighted average cost of production, which includes the imputed cost of capital and rent for even self-owned land for cultivation.

The 2019 report found that awareness about minimum support price among agricultural households was mostly low for various crops grown. Awareness of the minimum support price for rice was usually the highest. In the January to June 2019 period, while 53% of households were aware of the paddy minimum support price, nearly 22% did not sell to a procurement agency.

“Households being unaware of minimum support price is due to state variation [in crop procurement],” said Ramanjanyelu. The subsidy provided for crops varies in states and so while announcing a hike is one thing, ensuring procurement is another matter, he added.

Swaminathan added that awareness about minimum support price is linked to procurement and governments have to commit to providing minimum support price. “If it works well for a particular crop, there seems to be higher awareness,” she said. “We cannot leave procurement and price realisation entirely to private markets.”

A February analysis by Prankur Gupta, Reetika Khera and Sudha Narayanan concluded that minimum support price and procurement must consider the “changed geography of procurement and the profile of sellers, and recognise the diversity of experiences relating to procurement across states”.

There were problems in marketing in the first Covid-19 lockdown that affected farmers who grow for distant markets needing traders and transport, but small farmers selling in local markets revived faster than others, said Purushottaman, based on her conversations with farmers in Karnataka and Madhya Pradesh.

But increased cost of cultivation, price rise due to inflation and pandemic-related economic distress will have an impact on farmers’ income. “With the pandemic, much of the income has come from cultivation and livestock, and other sources were lost,” said Ramanjaneyulu.

The government must decide on a long-term plan to deal with protesting farmers from Punjab and Haryana, and ideally, ensure that procurement is done equitably, and in a decentralised manner within states, he added.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.