Contemporary Economics in DNA

I had written a weekly column in the Daily News and Analysis before joining the service on certain contemporary economic issues of that time. I think that some of them are still relevant today while others throw light on interesting perspectives through the lens of economic analysis.

Take, for instance, how wisdom of the crowd need not always be the correct one and in some cases can turn into a madness of the masses. To a large extent, stock markets can display irrational exuberance in the short run mainly because some of the experts conform to their biases which get magnified and exacerbated with time.

On the one hand, I have written about how why robust institutions are crucial for the economic upliftment of any country, while on the other hand, I have kindled my interest in behavioural economics through a short article on Nudge.

I am jotting down the links to my articles below. To the one with the economic bent of mind, these articles might re-kindle your lost interest in the subject after years of monotonous readings from textbooks. To the uninitiated, these might open up an opportunity to explore the rather mundane subject with a fresh set of perspectives. So, here it goes!

1. Getting Corporates to Cough up Tax Money
2. Solving India’s Twin Balance Sheet problem
3. RBI’s unhealthy obsession with inflation
4. Organ donation movement remains a failure
5. Development not at the cost of nature
6. Nudging economists in right direction
7. Why robust institutions are crucial
8. The mistaken belief in market experts
9. When inequality pulls a nation down
10. India can become a knowledge economy
11. Impact of GST on formal sector
12. Nobel for sustainable economic growth
13. Solving India’s Twin Balance Sheet problem
14. Job growth depends on increasing exports
15. Rising population: Why we need to worry
16. The Amazon effects and monopsony

Doubling farmers’ income: Can it be a reality?

There is much agreement among economists and policymakers alike that India’s agriculture is in distress. The newspaper reports of farmer suicides and distress sales of vegetables point to a gloomy picture and warn about the impending obstacles to the government’s target of doubling farmers’ income by 2022. Addressing the challenges to agriculture gets even more important when the sector that employs about 49 per cent of the workforce contributes only 14 per cent to the country’s GDP.

The challenges arise primarily because agricultural is an inherently risky sector. There are five basic risks in agriculture: input, market, price, credit and weather-related risks. Input risks arise from soil quality, the effectiveness of fertilisers and pesticides and possibility of pest attacks. Thanks to the over-regulated APMC markets in states, stock limits through the Essential Commodities Act, 1955, and unpredictable export policies, farmers face various market risks. Price volatility is a common risk. During times of underproduction, prices shoot up but farmers do not have enough harvest to sell. During a glut, prices crash. Access to credit is another source of risk. Although priority sector lending (PSL) norms of commercial banks in India mandate a certain fraction of loans to be disbursed to agriculture, in reality, these loans go to large farmers as banks find them less risky borrowers. The small and marginal farmers that make up more than 70 per cent of the total pool of farmers are forced to borrow from the usurious money-lenders at extremely high rates of interest. As they get trapped in debt, many of them are left with no option but to end their lives. Finally, the weather is the dominant risk faced by farmers. With just about 44 per cent of the Net Sown Area under irrigation, a majority of the peasants in India are overwhelmingly dependent on the monsoon. The risk is getting exacerbated due to climate change, as the recent Economic Survey has highlighted.

Post Green Revolution, Indian agricultural policy has followed a two-pronged approach. First, farmer incomes are protected through the Minimum Support Prices (MSPs) announced for a variety of crops every year. Second, research, extension and introduction of high-yielding variety seeds, better fertilisers and focus on mechanization. This has been accompanied by falling public investments in agriculture. The MSPs have been effective for mainly paddy and wheat as the government has proper procurement mechanisms for these two crops. At the same time, excessive focus on MSPs has resulted in a ballooning subsidy bill coupled with rising costs of production, without any concurrent improvement in farmer remuneration. Governments have also resorted to loan waivers from time to time, putting extra pressure on the fiscal deficit.

Given the policy complexities enumerated above, there has been a change in thinking in policymaking from ensuring stable prices to ensuring stable incomes for farmers. This shift in policymaking has resulted in the introduction of various schemes, such as a nationwide electronic National Agriculture Market (e-NAM), a model law on Contract Farming, tax incentives to Farmer Producer Companies, an agricultural insurance scheme, promotion of organic farming, diversification to horticulture and so on. The recent announcement of a hike in the MSP should be a short-term step to provide immediate relief to farmers in distress. The long-term success of agricultural policy will depend on how the above schemes are implemented.