Farm prices subdued in Q4, rose just 0.4%, shows GDP data

Deflators, which are used to get inflation-adjusted gross domestic product (GDP) data, give a clue to why farmers are protesting in various parts of the country.

Deflators are used in the national accounts data to convert current prices into constant prices.

According to the figures released by the Central Statistics Office on Thursday and past series, the inflation rate in agriculture and allied activities was just 0.4 per cent in the fourth quarter of 2017-18 against 3.6 per cent in the third quarter as well as the year-ago period.

The numbers show that farm prices, which had started firming up in the third quarter from deflation (fall in prices) in the first quarter and just a 1.6 per cent rise in the second quarter, again remained subdued in the fourth quarter, moving up by only 0.4 per cent.

The inflation rate in industry and services also came down to 3.1 per cent and 3.9 per cent in the fourth quarter from 3.4 per cent and 4.4 per cent, respectively, in the third quarter. However, the inflation rates in these two dominating sectors of the economy were much greater than that of the farm and allied sector. This meant the rate of increase in prices of farm produce was lower, but farmers paid more for industrial products and services. 

Ashok Gulati, former chairman of the Commission for Agriculture Costs and Prices and Infosys Chair Professor for Agriculture at the Indian Council for Research International Economic Relations, said: “Even if there is a slight upward movement in prices, this is inconsequential because on the ground there is growing resentment against the government’s policies towards farmers mainly due to consecutive years of falling prices.”

The government is saying production has been robust despite bad monsoon years but that’s one part of the problem, Gulati said. Drought in many parts in of the country in 2014 and 2015 dragged down farm and allied sector growth to (-) 0.2 per cent and 0.6 per cent, respectively, in 2014-15 and 2015-16.

“Without these, you wouldn’t have had such protests across the country. I agree there is politics involved in all these, but the reality is that farmers aren’t satisfied,” he said.

While GDP deflators don’t give inflation rates crop-wise, Gulati said milk prices had fallen, and so had prices of many vegetables for consecutive years.

Take the example of sugar. Now cane prices are ruling even below the Centre-determined fair and remunerative price (FRP), but the industry can’t be expected to bail out farmers each time on behalf of the government.

Soumya Kanti Ghosh, chief economic advisor at State Bank of India group, said some kind of compensation scheme for farmers such as the Bhavantar Bhugtan Yojana, prevailing in Madhya Pradesh, was an imperative in the current circumstances. 

Under this Yojana, the government pays the difference between the minimum support prices and market prices if the latter fall below the former.

The other problem is huge volatility in farm prices. For instance, deflators were 13.4 per cent in Q1 of 2014-15 and fell to (-)7.3 per cent in the next quarter. Similar is the case in the quarters in the current financial year, as cited above.

From most of 2014-15 to the second quarter of 2016-17, agricultural deflators were much higher than those in industry and services. The situation changed subsequently.

Devendra Pant, chief economist at India Ratings, pointed towards this volatility in farm prices. 

He said the government had to intervene to provide some kind of solution such as storage facilities for farm produce. 

Gulati said the only solution to all these lay in the market. “You have to create storages, better processing facilities and reduce bottlenecks in marketing. I feel this government has missed a golden chance to reform the agricultural markets.”