Farm incomes, rural wages and other things in between
Prosenjit Datta May 3, 2018
Prime Minister Narendra Modi is a great orator. He also makes grand announcements about ambitious targets, leaving hapless officials and others to work out the details. And sometimes, exactly what he meant while making that announcement is not very clear to the people tasked with working out strategies and policies to achieve that target.
One example is his speech during the Kisan Rally in Bareilly, UP, on 28th February 2016 where he first announced his dream of seeing farmers double their income by 2022.
Did he mean income only for farmers, which would leave out vast numbers of other rural workers who are working on farms or following other occupations, but do not own farming themselves? Or did he mean income from farming, which is an even narrower definition, and often does not constitute the total income of even those who are primarily engaged in farming? Or is it the agricultural GDP, which would not necessarily double the income of farmers?
To a large extent, both the Ministry of Agriculture and Farmer's Welfare as well as Ramesh Chand of NITI Aayog have focused on doubling the income of farmers from farming, in real terms. In doing so, they exclude non-farmers living in rural areas as well as agricultural labourers among others.
The problem with that definition is that strategies focused specifically on doubling farming incomes from farming will not necessarily benefit many others. And it might not even help everyone who is now engaged in farming, and eking out a living below the poverty line. (Ramesh Chand of NITI Aayog points out that farmers' income from farming can also go up if the number of cultivators reduce, which would mean people giving up farming to move to other professions.)
Why is the definition important? Because of two reasons primarily. One, a big chunk of India's population resides in rural areas - rounghly 83.3 crore of the 121 crore Indians, according to the 2011 Census - and many are not farmers in the sense the government means. And two, because as a study by Sujata Kundu, Research Officer in the Department of Economic and Policy Research (DEPR) of the Reserve Bank of India (RBI) says in a recent paper, after rising rapidly between 2007/08 and 2012/13, rural wage growth (not farming income) has sharply decelerated in recent years. And given inflation, real rural wages have even slipped into negative territory.
The paper is quite interesting because of several insights it provides. One is that, following two years of bad monsoons, there were better rains in 2016/17, but that did not provide much of a boost to farming wages. One reason for that could be the distress in construction that year. There is a significant relationship between construction wages (non-farming wages) and farming wages, therefore any distress in the construction sector has its own effects on farming wages. Equally, the paper found that MNREGS, which had a major effect in earlier years, had started losing steam in terms of its ability to push rural wages in recent years.
But the most interesting finding was that rural wages tend to be sticky - that is, changes in agriculture prices upwards will not lead to an immediate effect in higher rural wages. In other words, even if farmer incomes from farming double, because of targeted policies, it would not lead to an immediate rise in wages of the agricultural labourers. There would be a significant lag.
That is why the government needs to look at the whole question holistically and figure out exactly what the Prime Minister meant when he talked of doubling the income of farmers. Of course, some of the steps announced in the recent budget - which includes a major boost for rural housing and construction - will have an effect on rural wages of workers both in farming and non farming occupations in rural India, but more needs to be done.