By Karthik Muralidharan
The rural economy and farm distress will be leading themes of the coming elections. Here’s a primer on the key issues with a focus on facts, economic analysis, and policy options.
Where are we today?
Policy makers and the public need to recognise four key facts about Indian agriculture. First, productivity per worker is abysmally low. India produces 300 million tons of cereals with 275 million cultivators and agricultural labourers. For comparison, the US produces 475 million tons of cereals with 8 million cultivators, agricultural labourers, and seasonal workers. Thus, per worker agricultural productivity in the US is around 50 times greater than in India, consistent with recent research estimating that agricultural output per worker in rich countries is 30 to 50 times higher than in poor countries. Reasons include very small plot sizes, inadequate public investments in research and irrigation, and limited mechanisation and technology adoption.
Second, value addition in Indian agriculture is low, especially for small farmers. Systematic analysis is limited by the lack of data, and the difficulty of measuring and valuing farmer’s labour on their own farms. However, recent estimates from an ongoing study are illustrative. Nicholas Ryan (Yale University) and Anant Sudarshan (University of Chicago) measured farmer profits and inputs used in Rajasthan in the 2017 Rabi season, and find that even with all government subsidies on electricity, fertilizer, and seeds, and valuing the cost of farmer time at zero, 17% of farmers made a loss. If the costs of inputs are calculated correctly at the economic cost (without subsidies), 35% of farmers would have made a loss. Finally, if we value farmers’ labour on their farms at the local wage, then 76% would make a loss. Thus, the effective earnings from farmers’ work on their own farms is considerably lower than the market wage.
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