Harish Damodaran

Falling profitability of farming operations, the drying up of non-farming opportunities and the growing fragmentation of landholdings all make agriculture a losing proposition. Three-fourths of Indian farmers take home less than Rs 3,000 a month. That is roughly 60 per cent of the starting salary for a government attender!

That agriculture in India is a non-remunerative, if not losing, proposition is too well known to merit repetition. The real issue, then, is to probe its quantitative dimensions so as to gain more meaningful insights into the problem.

One approach is to examine costs of cultivation and returns on different crops.

Since these vary from region to region, the first step is to focus on States where yields are the highest. That would give an idea of how much money `better-off' farmers make and, in turn, set the standard against which to gauge returns to agriculturists in other States (obviously lower).

Thus, for paddy and wheat, the benchmark State would be Punjab, where farmers not only record the highest yields per hectare, but also receive the Government's Minimum Support Price (MSP) normally not guaranteed in other regions. Likewise, for sugarcane, cotton and rapeseed-mustard, the chosen States are Tamil Nadu, Andhra Pradesh and Gujarat, respectively.

`Reasonable ballparks'

For data on average yields and costs, one may refer to the Commission for Agricultural Costs and Prices' (CACP) latest estimates for the 2005-06 sowing season. These numbers, particularly relating to costs, tend to be on the lower side and, to that extent, exaggerate the actual returns accruing to farmers. But they still help provide reasonable ballparks.

As per the CACP data, the total `C-2' cultivation costs of paddy in Punjab — covering all actual production expenses in cash and kind incurred by the owner plus rent paid for leased-in land plus imputed value of family labour plus rental value of owned land plus interest on value of other owned capital assets (conservatively estimated) — worked out to Rs 480.53 a quintal in 2005-06. On an MSP of Rs 600 a quintal and a yield of 58.55 quintals to a hectare, the net return from growing wheat in Punjab comes to Rs 6,994.97 a hectare.

Similar computations can be made for other crops. It can be seen that if a farmer were to cultivate two crops — paddy in kharif and wheat in the rabi season — he would annually net less than Rs 12,700 for each hectare. The return is higher (Rs 23,600) for sugarcane, which is, however, a full 12-month crop, unlike 120-150 days each for paddy, wheat, cotton and mustard.

What clearly emerges from the exercise is that under the best irrigated conditions — making it feasible to take out two seasonal crops or one full crop of sugarcane — a farmer owning one hectare of land will not earn a profit of more than Rs 2,000 per month.

Profit per hectare

Even after factoring in net income from milk and sale of by-products such as straw (say, Rs 1,000), the maximum that farmers in the country's well endowed areas can earn would be around Rs 3,000 a month. And here, one is assuming no crop losses due to hailstorms, floods or pest attacks.

Now, consider the macro picture. According to the 1995-96 Agricultural Census, there were 115.58 million farming families or operational holdings in India.

Of these, 71.18 million were `marginal' holdings of less than one hectare, with an average size of 0.40 hectare. Another 21.64 million constituted `small' holdings of 1-2 hectares, with an average size of 1.42 hectares.

Thus, over 80 per cent of the country's farming families own less than two hectares. And since, only 30 per cent of marginal and small holdings are `wholly irrigated' — the rest being either `partly irrigated' or `wholly un-irrigated' — it can be safely surmised that three-fourths of Indian farmers take home less than Rs 3,000 a month. That is roughly 60 per cent of the starting salary for a government attender!

Big harvesters

At the other end, there are 1.4 million `large' landholdings exceeding 10 hectares (nearly 25 acres), with an average size of 17.33 hectares. But again, only around 11 per cent of these are `wholly irrigated', which means 1.5 lakh-odd families. Most of them are concentrated in Punjab and Haryana, where large holdings number 80,000 and 40,000, respectively.

Prof. H. S. Shergill of the Department of Economics at Punjab University, Chandigarh, believes that there are some 10,000 farmers in Punjab, whose holdings exceed 100 acres, that is, 40 hectares.

If one projects the Rs 3,000 per hectare maximum monthly profit figure on to this, it follows that a `rich' farmer owing 100 acres would make about Rs 1.2 lakh, equivalent to what a well-heeled corporate executive today draws. And there are probably 25,000 such families in the entire country.

The question that arises is: how do the majority of rural families survive on such meagre incomes? One explanation is that living costs are lower in the rural areas; since they do not have to pay rent or spend on travel to workplace, farmers can manage on Rs 2,000-3,000 better than slum-dwellers in cities and towns.

But, more important, families usually have one or two members employed outside agriculture. The most common avenue till recently used to be the army — a fact that found expression in the evocative slogan, `Jai Jawan, Jai Kisan', coined by Lal Bahadur Shastri. The farmer was looked upon as somebody who not only tilled the land, but also supplied the manpower to safeguard the country's borders.

Few non-farm jobs

The present crisis in Indian agriculture is linked not simply to stagnating yields and rising costs of cultivation, but also the drying up of non-farming employment opportunities.

With government jobs hard to come by and the private sector not taking up the slack either, India has not witnessed the sort of demographic transition characterising advanced Western economies.

While agriculture's direct contribution to Gross Domestic Product has fallen since Independence from almost 60 per cent to below 20 per cent, the rural population's share has correspondingly reduced only marginally from 83 per cent to 72 per cent and within that, the proportion of cultivators from 72 per cent to 54 per cent.

Contrast this to the US, where, in 1930, there were 30.4 million people living and working on 6.3 million farms, and constituting a quarter of its population. Now, there are barely three million people engaged in farming and making up one per cent of the population.

The number of farms in the US has also shrunk to 2.1 million, compared to the 166 million in India! The opening up of gainful employment avenues outside agriculture has enabled consolidation of holdings, with the average farm size rising from 151 acres to 441 acres (178 hectares) between 1930 and 2002.

In India, the trend has been the reverse: of growing fragmentation of landholdings rendering farming increasingly unviable.

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