How much does the Indian Farmers Earn ?

Are we moving in the right direction to enhance Indian Farmers Income?

I was watching the media channels and almost every one unequivocally agree that the Farmer’s income needs to be doubled and the Farm Laws introduced by the Govt of India is a step towards it.

If Farmer’s Income is going to double..

Then why are the Farmer’s Opposing..

and why are the Farmer’s from richer states like Punjab feel that they would be left behind…

In order to understand this, we need to under stand what is Farmer’s Income and see whether there are some studies carried out to document Farmer’s Income. Luckily, I got hold of one comprehensive report under the Chairmanship of Shri Ashok Dalwai, which discusses this issue in detail.

Farmer’s all over India cannot be clubbed into one basket. Few States are doing well, while the rest are badly hit.

The table clearly show that per capita income of Farmers across states varies widely with better off states like Haryana, Kerala, Punjab doing way ahead then other farmers.

In States, like Jharkhand more than 45% of the Farmer’s are below poverty line. Even in bigger states like Bihar, Uttar Pradesh, Karnataka more than 25% of the Farmer’s are below poverty line. Compare this with richer states like Punjab, Haryana where the incidence of poverty among Farmer’s is very less. This clearly shows that some states like Punjab, Haryana have done extremely well in enhancing incomes for their Farmer’s, while the rest have lagged behind and the gap is only increasing over time.

We see Bihar, UP Rural Population Migrating to all over India, since the Farm Income has plummeted like never before. The Lockdown clearly showed the magnitude of the problems and enhancing Farmer’s Income is a key strategy for India in its overall fight against poverty. These are Youths who don't want to continue Farming since it is not sustainable….

Let me show Farmer’s Sources of Income -

(1) Income derived out of Cultivation = Revenues from Cultivation — Cost of Cultivation

(2) Income derived out of Non Farm Business= Revenue from Non Farm Business — Cost of conducting Non Farm Business

(3) Income derived out of Wages and Salaries = Salary received for working with others

(4) Income derived out of Live Stock = Revenue from selling Live Stock Products — Variable Cost in maintaining the Live Stock

Table shows estimates of income from two different sources. The major difference between both the survey’s is only in terms of wages and salaries. It is very clear that the average annual income is less than Rs 1 lakh and only 40% of the income is from Cultivation and bulk of the income is from working for others. That is more than 47% of the income for Farmers is from Wages and Salaries. So the question is whether Agriculture is really lucrative and this is one reason why an exodus of population is moving away from Rural Areas

The above table clearly shows that there is wide variation in states in enhancing Farmer’s Income, Except for Punjab, Haryana and Kerala, most of the Farmer’s in India are below Poverty line. One can see that Average income from Cultivation is around Rs 1,30,163/- while in Bihar it is less than Rs 20,000/-. Can you imagine how a person can survive with just Rs 20000/- ? This is a pathetic state of condition of Indian Farmers, where the owner of the land is now forced to work for others just because he is not getting sufficient profits for the work he is doing.

Agriculture is no more Lucrative and the Gap between Agricultural and Non Agricultural Income is increasing day by day. This gap is more visible in Marginal Farmer’s where the incidence of poverty is very high mainly because of lower margins from Farm Income

The above graph clearly shows that Large Farmers derive maximum share of income from Cultivation, while Marginal and Small Farmers need to work for others since only 36.5% of that is only from Cultivation. Even in the case of Medium and Semi Medium Farmers, the proportion of their income from Cultivation is almost 70.8% showing that the Margins are better for Medium + Semi Medium Farmers.

Marginal and Small Farmers income sources are mainly from Wages and Salaries, that is working for others and it is sad that average income derived out of Cultivation is less than Rs 40000 to Rs 50000/- even after working for full year, taking all the risks and above all being the owner of the land. This is pathetic state of condition of Indian Marginal and Small Farmer’s . In States like Punjab and Haryana, the average land holding size is also higher and these states dont have the problem of marginal and small farmers which is visible in other states like Bihar, UP, Karnataka etc.

All India Income of Agricultural Households at current prices rose from Rs 25,622 in 2002–03 to Rs 77,977 in 2012–13, amount to an annual growth rate of 11.8 % at current prices and merely 3.6% at constant prices ( accounting for inflation). It is evident that the agricultural GDP growth rate is significantly lower and the marginal farmers are the worst hit with many going below the poverty line because of stagnation in Farmer’s Income. Government of India has made an estimate of income for FY 2015–16 which throws light on the above agrarian distress

Estimates for 2015–16 for various classes of Farmers

The Small and Marginal Farmers just earned Rs 29,132 in Cultivation and he earned more than Rs 31,490 by working for others.

Average Monthly Income from Farming= Rs 29,132/12 = Rs 2427 per month. I think the maids in Cities get more salary than this. This is the single most reasons for migration from Rural Areas since it is humanely impossible to survive on this meagre amounts. Now with this Rs 2427/-, the Farmer needs to be provide education, medical facility and what not….This is disgusting …I feel bad to say that the Farmer is not able to earn even Rs 2500/- per month. Now the government is telling Doubling Farmer’s Income…Now that would be only Rs 5000/- per month….Is this also sufficient?

Now in this article, I will just focus on the Marginal Farmers, since policy interventions are really needed to pull majority of this population out of Poverty. Now let us assume that we need to double the Farmer’s income especially at Marginal Farmers by 2022–23, so what is needed is tabulated below

For Making Farmers Earn Rs 13250/- per month by 2022–23, the above doubling is required in their income. The above analysis is only for Marginal Farmers.

Some key observations from this

(1) Is it possible to double the Income from Cultivation and also whether the Market Economy will have any impact on the cultivation income. From the trends which are visible, doubling income from cultivation depends on variety of factors, including changes in Farm Laws, logistics, better storage, better MSP’s, better prices for the farmers and a plethora of other factors which cannot be controlled by government per se nor there are historical data to prove that these factors will help in doubling of income. Instead there is a equal probability that the real rise in Income from Cultivation may be marginal. The enhancement in Income from Cultivation is dependent on huge investment of Rs 300000 crore as per government records which is enclosed below. In times of corona and slowing down of revenue base of the government, such massive coordinated investment to achieve a doubling income effect is very unlikely.

Huge Coordinated investment is required across various states to the tune of Rs 308000 crores by 2022–23. I beileve that these investments will have a positive impact on medium and large farmers whose income will further rise because of greater profits from cultivation and also overall Agricultural GDP may go up. However this investments will not have substantial rise in the income of marginal farmers whose holding is very low and cannot easily diversify to other crops which has higher profit margins. So what may be required is a more targeted approach for the Marginal farmers to pull them out of the clutches of poverty.

Now let us assume that the government’s Farm Law, storages facilities, infrastructure all are created. Whether it is still sufficient enough for the farmers to Survive. His average income would have just doubled to Rs 5000/- per month by just focusing on enhancement in Income from Cultivation. So although it is a welcome step to increase Farm Income, but reliance on only this may be detrimental in the future.

(2) Now if we have to pull a large number of people out of poverty line, many people may advocate non farm business. The Marginal Farmers has no education, no skill set that he can earn a living out of Non Farm Business. This is also evident from the fact that just Rs 7431 is the average income for a Farmer from Non Farm Business. With no Capital Support, Training or Experience, can we expect the Farmers to be successful in Business Activities. So the idea that we can enhance Farmer’s income through Non Farm Business appears to be bleak and skill enhancement is a distant dream here since the necessary infrastructure for the same is not there.

However traditional village and cottage industries in various areas like handicrafts, toys, cracker making, agarbathi manufacturing which have now become capital intensive should be made labour intensive. Encouraging Labor Intensive Industries can help in enhancing the Farmer’s Income Substantially.

(3) One Promising area is Livestock. On an average, it is estimated that roughly Rs 5000/- per month can be earned from selling cow’s milk. There are variety of areas where additional income can be made.

Fixed Rural Capital Expenditure is second highest in Live Stock after Farm Machinery and transport. So it is clear that the Rural Households are finding substantial benefit in Live Stock Investment and this trend is expected to be a positive one. However the Fixed Capital Expenditure made by Marginal Farmers is less than 10% where as 90% of the Fixed Capital Expenditure is made by Large and Medium Farmers. So to expect Private investment to work for Marginal Farmers is a distant dream and a separate strategy exclusively for Marginal Farmers is the need of the hour.

The success of Dairy Development in India has created increments in rural income for millions of people in India. In this background, this is promising area, however again the increase in this needed to offset the stagnation in other income is too high. Although this can be one of the primary strategy, but again this cannot be the sole strategy.

(4) The More promising area to me is the Wages and Salaries. It is very evident that most of the Marginal Farmers are earning out of this. This is were Government can step in and regulate in both public and private space. Some key ideas include

(a) Preferential treatment for Farmers in low end jobs of Government where farmers can be given jobs of office boys, drivers, cleaners and variety of unskilled jobs. Most of the rural youth would be happy if they are paid Rs 12000/- to Rs 15000/- per month. There can be no permanent employment, instead a short term contract employment which will enhance the rural income. For example government should start regulating contract employees in government offices and labors employed by government contractors. Mandatory filings should be made by every government department and government contractors on how many farmers families have benefitted from the above exercise. A initial push should be given to the rural youth so that they can kick start their career. After some time, they will realize that Rs 12000/- to Rs 15000/- is not sufficient enough and they will jump to new avenues. It is easy to talk about entrepreneurship at village level, but for the rural youth to embrace this, they need to really settle down first. Government can also come up with a scheme like a Three years contract employment + Rs 1 lakh exit incentive which can be used to set up new enterprises.

(b) Special Incentives for Corporates, Private Sector , SME’s to hire rural youth. At present they are paid marginally by all contractors. There should be regulation that a minimum wages should be paid to the labors. During Corona, many labors are paid half the salary and many of them have been fired. So special incentives should be made to hire and retain rural population. Again this can be done in unskilled jobs where preference should be given to rural population.

( c ) At present there is no data base of who is a Marginal Farmer and who is not. Aadhar based database of Marginal Farmers should be made through out India, so that the subsidies if many should be targeted towards this group rather than Medium and Large Farmers. The Subsidies in Fertilizers, Power and many other incentives should be only for Marginal Farmers. For example, there is no need for MSP for Large Farmers, since he can sell directly to private players or consumers. But MSP may be important for small farmers. These small farmers cannot diversify so easily, so the government should first get the database of all Marginal Farmers and ensure that the benefits are targeted. This will also result in substantial savings to the exchequer.

(d) Government should use the success story of Amul and other cooperatives and start building massive cooperatives to help Rural Youth Get jobs. Why can’t state government start Driver’s cooperatives, where the cooperative can get exclusive tenders of all state/central government. The cooperative can take the risk of the car purchase, while the drivers can receive a salary or a percentage of the tender. The same thing can be taught off in the man power deployed in various offices. This would at least reduce the menance of the middle men making more profits. In this cooperatives, the marginal farmer should be given preference and this would almost create a constant sustainable revenue source for the farmer to educate his family and the poverty trap is broken.

(e) In unorganized sector, there is no agreement entered between employer and employee and are exploited to the core. A mandatory clause should be introduced in the Farm laws to state that in case of wages and salaries paid to a Farmer, a mandatory legal agreement should be entered into by each and every one and a separate online filing to be done on the same to secure that the Farmers are not exploited. For example, even if there a house maid, there should be a legal agreement and should be uploaded in a website indicating the amounts paid. This will ensure social security. Many may think that this is a utopian idea, but the present mobile technology enables people upload details of their employees in simple button clicks. This is a step towards Social Justice and will reduce exploitation by employers and middle men in all the sectors. This will also ensure that rural populations are paid well and not exploited.

(5) Increasing Liquidity in Farmers Income — Many a times, we see Farmers getting into debt trap, harassed by money lenders committing suicide with no respite. My idea is simple, Govt of India should start issuing all these marginal farmers a Aadhar Based Credit Card which can be enabled in times of distress so that they don't have to go to the money lenders and get trapped by pledging their land. This is a major source of Farmer’s distress. They just require temporary liquidity of small amounts. For example, initially Rs 2000/- can be activated, in case they repay back, activate Rs 5000/- and so on so that the risk management is built with in the credit card itself. The current technology allow such configuration where availability of credit at a click of a button can be made. EMI scheme for purchase of agri equipments, agri seeds etc are the need of the hour to avoid unnecessary borrowings by the Farmers.

Small EMI schemes for Marriages etc should be made available so that they dont go to the local money lenders. Most of these money lenders charge 24% to 36% interest squeezing all the moneys that are earned. Strict regulations of money lenders should be done and legislation should make it clear that the title deed of the farmer land can never be pledge and would not be entertained in any court of law.

In this case, substantial credit is being made available to the farmers for purchase of Farm Machinery/Livestock etc. But the table below clarifies the same..

It is correct to say that the Borrowing from Formal sources has increased. But the above table clearly shows that landless, marginal and small farmers still depend a lot on informal sources exposing themselves to the exploitations of the Money Lenders. While Medium and Large Farmers borrow from Formal Sources, so a separate mechanism for protection of Small and Marginal Farmers is the need of the hour.

(6) Providing Cushion for Expenses — If the Farmer’s income rise, but the expenses dont come down, then there is no free cash flow available to the Farmer to invest or save. A cushion should be placed so as to minimize the expenses. For example, the major expenses like Food, Medicine, Education should be controlled. For example, special incentives for Farmer’s Kid to get educated in top English Schools, Kendriya Vidyalaya should be made under RTI. It is these kids who require high quality education. Enabling high quality education for Farmer’s kids would open up new arena of household income…Cluster Education where large Kendriya Vidyalaya type of schools are set up at Taluk level and education given at a cost of Rs 10000/- per child so that new avenues open for these child. These Children should be given education and we should not assume that they will again continue in Agriculture. India has a large population engaged in Agriculture which should move away to better paying jobs.

Friends, the agrarian distress is real and only if the Indian Farmer’s income rises, India can rise…The Farm Laws are a Positive Steps, but there are many other areas which need to be plugged to build a social security net for the Farmers.