Aspects of the Political Economy of Crop Incomes in India

By Sarkar, Biplab; Ramachandran, V. K. et al. | World Review of Political Economy, Fall 2014 | Go to article overview

Aspects of the Political Economy of Crop Incomes in India


Sarkar, Biplab, Ramachandran, V. K., Swaminathan, Madhura, World Review of Political Economy


1. introduction

The population of India is still 70 percent rural. In most villages in the country, about 80 percent of households are associated with direct crop production-as owners and operators of land, as hired workers, or as providers of inputs and other services. Policies to ensure steady, sustainable and adequate incomes to farmers must thus be central to agricultural and rural development policy in the country. Such policies have, historically, taken the form of interventions with respect to the costs of inputs and the prices of outputs. the preferred policy mechanism, therefore, has been to regulate the market by means of administered prices, rather than through direct cash transfers as agricultural income incentives.

The distribution of household agricultural incomes in India is marked by sharp inequality (Swaminathan and rawal 2011). Indeed, real income inequality in India, whether calculated in terms of the distribution of income across income classes or the distribution of income across socio-economic classes, can be counted to be among the highest in the world (Swaminathan and rawal 2011). In order to ensure a measure of distributional equality with regard to income, price policy in India must, we contend, take account of this inequality.

The declared objective of price policy with regard to agricultural produce in India is to ensure remunerative prices to growers for their produce with a view to encouraging higher investment and production as well as safeguarding the interests of consumers by making cereal supplies available at reasonable prices. In each season, the Government of India announces minimum support prices (mSPs) for agricultural commodities; it is further supposed to organize purchase operations, wherever required, through public, cooperative, and other designated agencies to ensure that prices do not fall below the mSP for each commodity. It decides on the support prices for agricultural commodities taking into account the recommendations of the commission for Agricultural costs and Prices (cAcP) on costs of production as well as certain other factors.1

This article uses detailed data on agricultural outputs, incomes, and the costs of cultivation for rice and wheat in five villages of three states of India to, first, estimate actual costs of cultivation and the extent to which mSP as declared by the Government of India cover these costs. Second, this article examines costs of cultivation across socio-economic classes of cultivators. Official statistics deal only with averages across states and all classes, thus ignoring the sharp socio-economic differentiation and inequality prevalent in the Indian countryside.

2. calculating agricultural costs in india: the official methodology

The initial determinants of mSPs for agricultural commodities in India are the crop-wise surveys carried out by the department of Economics and Statistics (dES), ministry of Agriculture, Government of India. Since 1970-1971, the dES has conducted crop surveys under a scheme known as the "comprehensive Scheme for Studying cost of cultivation/Production of Principal crops."2 this comprehensive scheme involves collecting data on 24 crops (annual and seasonal) in a year.3 At present, these surveys are conducted in 19 states of the Indian Union; in almost all cases, the actual surveys are conducted by local agricultural universities (table A1 in Appendix). On receipt of field data from agricultural universities, the dES calculates the cost of cultivation and gives the same to the cAcP.

In particular, the cAcP uses the following cost concepts in determining crop incomes from the 24 crops that are tracked by the surveys:

Three-tiered system of calculation of production costs for crops:

In 2000, the Government of India appointed a High level committee (Hlc) on long-term Grain Policy. the committee recognized that mSP policy "was critical in India's achievement of food grains self-sufficiency" and suggested certain modifications to the existing system. …

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