Uttar Pradesh chief minister Yogi Adityanath’s announcement of farm loan waiver has given credence to similar demands from across the country. Those making these demands include political parties, protesting farmers and even the judiciary . An earlier Plainfacts column had pointed out how farm loan waivers can be counter-productive in the long run, a fact which is often overlooked while seeking temporary relief, which loan waivers bring. This larger point, however, does not undermine the need for providing relief to India’s distress-ridden rural economy.

In April 2015, Mint had developed a quarterly index of rural distress to measure the relative well-being of India’s rural economy. The index seemed to peak during drought years, which underlines the importance of monsoon for India’s farming and rural economy. Updating the index for latest available data, we find that rural distress index, which had reached its second-highest level in March 2015, has been falling since then and was less than its median value in December 2016, the latest quarter for which data is available.

Mint’s index of rural distress is based on year-on-year growth of agricultural GDP, rural wages and domestic tractor sales (due to lack of export data, sales till September 2003 include exports). The index is a simple average of normalised (on a scale of 0 to 1) values of three items in such a way that higher values signify increased distress, with 0 and 1 signifying minimum and maximum distress.

The trend is expected given normal rainfall last year after two back-to-back weak monsoon years. A look at trends in individual constituents of the index shows that a pick-up in agricultural GDP growth and improvement in tractors sales has a greater role in recovery than rural wage growth. It is to be noted that rural wages include wages in the non-farm sector as well. This is in keeping with the logic that a normal monsoon after two back-to-back rainfall deficient years has led to a rejuvenation of cultivation activity, even as non-farm rural activity is still in recovery mode, partly due to demonetisation which is expected to have led to a bigger deflationary impact on the non-farm sector, as was argued in an earlier Plainfacts column.

How does one explain this macro picture with growing demands for farm-loan waivers? Does this mean that the ongoing protest by Tamil Nadu’s farmers does not reflect the ground reality?

Here’s one statistic. India’s total rainfall from south-west monsoon and in the post-monsoon period (from 30 September 2016 to 31 December 2016) was 8.2% less than its long-period average. For Tamil Nadu, the value is 43.7% less than the long-period average value. Unlike northern and eastern states, Tamil Nadu receives majority of its rainfall in the post-monsoon period.

To be sure, rainfall is just one cause of rural distress. Farmer suicide statistics from the National Crime Records Bureau show that bankruptcy or indebtedness were bigger reasons for suicides than crop failure due to natural causes. The financial well-being of a farmer would also depend on the overall situation of the rural economy and her own financial condition. These conditions, like rainfall, can vary significantly across states.

Mint has taken year-on-year growth in monthly average of rural wages for December 2016 (latest available figures) and total income of agricultural households from the National Sample Survey Office’s (NSSO) situation assessment survey, which was carried out in 2013, to capture these two indicators.

We take NSSO figures instead of per capita agricultural GDP values due to two reasons. One, we do not have quarterly GSDP growth rate figures for states, like the all-India GDP numbers. Two, agricultural household income estimates give a better idea about the income of farmers unlike agricultural GDP, which would include the income of non-farming community engaged in agricultural and allied activities. It is unlikely that structural factors facing an agricultural household would have changed drastically in a short span of three-four years.

Putting normalised values of these three indicators (with distress increasing from 0 to 1) together shows that Tamil Nadu’s farmers might indeed be the most distress-ridden among India’s major states. The normalisation process assigns higher scores to distress and lower scores to prosperity, and hence states with relatively high agricultural household incomes and high rural wage growth have relatively lower scores, while states with higher rainfall deficit have higher scores signifying higher distress. Also, the normalisation process has been done across states and not across time (like the national rural distress index).

Instead of taking an average of the three indicators (as in the case of the national rural distress index), it may be more useful to look at the levels of each individual indicator to understand the different causes of distress in different states. For example, Bihar fares high on the sum total of the three normalised indices despite having received much better rainfall than most states due to its low agricultural household income levels. West Bengal figures among the worst on account of agricultural household incomes, but it has lower distress due to its highest growth of rural wages among all states.

The short point is, rainfall deficiency is to farm distress what stubble is to a harvested field. If our policy makers are interested in eradicating rural distress they must go to the root of the matter which lies in overall rejuvenation of the rural economy and thinking of ways to augment rural incomes.

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