Agriculture Policy Briefing

Parties Promise Loan Waivers But Punjab Farmers Need Sensible Policies Not Write-offs

All major political parties in Punjab have promised to waive off farm loans if elected, but that will not alleviate farm distress in the long run, say agricultural economist Ashok Gulati and his research associate Ranjana Roy in an article in the Financial Express. They cite the previous union government’s 2007-08 loan waiver of Rs 52,517 cr to the country’s farmers. It did provide temporary relief but if parties in Punjab are back to that promise, it means the underlying issues have not been addressed.

The authors locate the root cause of Punjab’s farm distress in its focus on cereals. Rice and wheat, they say, occupy 80 percent of the state’s gross cropped area (GCA), with almost the highest productivity in India. But the profitability of these crops has declined. The support price which farmers get is lower than that given to farmers in other countries. For instance, in 2014-15, the support price of wheat in India was $225 a tonne against $325 in Pakistan, and $385 in China. This was the case with rice too.

The ban on exports of wheat and rice during 2007-11, limits on stocks that private traders can hold and mandi taxes as high as 14.5 percent have worked to the detriment of Punjab’s farmers. High mandi taxes discourage food processors from locating in the state. Most of the roller flour mills in Punjab buy wheat from Uttar Pradesh, they say.

While the state has built good marketing infrastructure for wheat and rice, it has failed to do so for fruits and vegetables (F&V). Only 3.4 percent of the state’s GCA is under F&V compared to 8.3 percent at the all India level. Without moving to high value horticulture, Punjab’s distress will not go away.

Similarly, even though Punjab has the highest milk productivity, only 10 percent of its milk production is processed by the organised sector compared to Gujarat’s 53 percent.

Depleting ground water, caused by dependence on rice and aided by the policies of free power and assured procurement of rice is making cultivation of the cereal both economically less profitable and environmentally unsustainable.

All this is reflected in agricultural GDP growth. During the first four years of the Green Revolution (1966-67 to 1969-70), Punjab registered an annual growth rate of 10 percent. It was just 1.5 percent a year between 2007-08 and 2014-15. This is less than the national average and much lower than that of Madhya Pradesh, the best performing state.

More than freebies, Punjab’s farmers need sensible policies for profitable agriculture. This will prevent them from falling into the debt hole in the first place.

(Top photo: Kinoos in Punjab’s Abohar taluk. There are very few plants to process the fruit. By Vivian Fernandes)

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