Farm income and wages fell in demonetisation year, reveals new data

Despite being a bumper monsoon year, farm output grew slower than input costs in FY17, reveals new data

A new set of official data has confirmed that both farmers’ incomes from crop cultivation as well as wages of farm labourers have contracted in 2016-17, the year when demonetisation took place. 

This is unusual, especially since the year had witnessed above-normal monsoon, which was distributed well across regions. Earlier, data had shown wage stagnation in that year.

On the positive side in agriculture as a whole, output from fishing and livestock grew the fastest in 2016-17. The growth was nearly 10 per cent over the previous year. 

The value of meat from livestock, milk and milk products, and fish grew considerably faster than the overall value of agricultural output.

The ministry of statistics and programme implementation (MoSPI) released the data on sector-wise gross value of output of agriculture for the year 2016-17.  More than livestock, forestry and fishing, data on the crop sector – which contributes 57 per cent of the overall value added in agriculture – gives two crucial insights.

Firstly, input costs in the crop sector grew faster than the output in that year. 

While gross value of crop output grew by 5 per cent, value of farm inputs grew 8.4 per cent in real terms (at 2011-12 prices). This essentially indicates a negative impact on farmers’ incomes, said experts.

Secondly, crop input costs grew slower in nominal terms (7.5 per cent) than in real terms (8.4 per cent) in 2016-17. This means input prices were deflationary in that year. As wages contribute nearly half of the overall input costs of the crop sector, it indicates a contraction in farm wages.

While stagnation in wages and rise in input costs for agriculture was evident from the national accounts data for 2016-17, this is the first estimate of input costs of the crop sector for that year.

Experts said this trend is strange for a bumper crop year when the monsoon was normal.

In a similarly good monsoon year, 2013-14, while crop output had grown by 5.4 per cent, inputs had grown by 2.3 per cent.  In the same year, nominal growth in inputs was 18 per cent, showing an exactly opposite inflationary trend in a year of bumper production.

“This is a strange trend in a good crop year. It shows a negative impact on farm incomes, and stagnation of wages, as prices behaved abnormally. This also explains how rural economy, and consequently, rural demand was hit after 2016-17,” S Mahendra Dev, director and vice-chancellor at the Indira Gandhi Institute of Development Research told Business Standard.

“In a period of low supply of cash, input suppliers seem to have demanded higher prices,” Dev added.  Demonetisation was carried out in November 2016, briefly after the harvest of the kharif season entered the markets, and when the entire rabi output was yet on the fields. 

As a reference, rabi season contributes more than half (nearly 55 per cent) of the foodgrain output, experts note.

In sectors other than cropping, value of output in both livestock and fishing (and aquaculture) grew fastest since 2012-13.  But value of output of paddy and wheat, the two staples that contribute nearly a fourth of the crop sector output in India, has stagnated in the last five years. It remained nearly the same in real terms in 2012-13 and 2016-17.  

Continuing the earlier trend, livestock now occupies 30 per cent in value of output in agriculture, up from 29.3 per cent in 2015-16, gradually eating into the pie of the crop sector.

Agriculture had grown (gross value added) the fastest since 2012 in the demonetisation year due to a bumper crop.