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Statewise Estimates of Direct Income Support to Farmer Households

Farm Size and Farmers’ Income, Consumption, and Poverty in India

Using unit-level data from the 70th National Sample Survey round Situation Assessment Survey of Agricultural Households, the paper seeks to determine, for major states, the minimum size of cultivated land at which the average monthly income of farmer households from cultivation exceeds their average monthly consumption expenditure and the minimum farm size at which the average monthly income from all sources exceeds their poverty-line-equivalent income. Further, it examines the contribution of different sources towards their total income across farm-size categories and the incidence of poverty among such households. It then estimates the income support for those households that are not able to meet their average monthly consumption expenditure and which are below the poverty line.

Agricultural development has received the attention of policymakers since the First Five Year Plan as a large proportion of the workforce depends on it for their livelihood and because of its significant contribution to the gross domestic product (GDP) of India. Over the years, policymakers have prioritised the production and productivity of various crops through price and non-price measures to promote food security. While price support measures ensure a minimum price for some crops to incentivise farmers, non-price measures are implemented to boost the production and productivity of different crops and popularise the use of modern agricultural technologies like high-yield variety seeds, chemical fertilisers, augmented irrigation facilities, and other infrastructural support. The production- and productivity-centred approach yielded rich dividends as India not only became self-sufficient in foodgrain production but also became a food-exporting country.

There has also been a varying degree of increase in the production and productivity of various non-foodgrain crops. The increase in the production of foodgrains and other crops, however, did not result in a commensurate increase in farmers’ income, which is evident from their low income and the high incidence of poverty in comparison to the income and incidence of poverty among those employed in the non-farm sector. Importantly, an increase in agricultural production may not always translate to an increase in farmers’ income. This is due to factors like increases in input costs and decreases in the prices farmers receive for their crops in relation to the prices they pay for goods and services produced by other sectors.

Notwithstanding the occasional movements of terms of trade in favour of the agricultural sector, over a long period of time, the terms of trade tend to move against agriculture, as is predicted by the famous Prebisch–Singer thesis, which has been empirically validated by recent studies (Arezki et al 2013; Harvey et al 2010). In standard economic theory, this is explained in terms of the low-income elasticity of demand for primary products and Engel’s law, a lack of differentiation among commodity producers leading to highly competitive markets, productivity differentials between global North and South countries, and asymmetric market structures (Harvey et al 2010: 367). Deficiency payments (subsidies) are provided to farmers in developed countries like the United States because increased agricultural production of some crops may not guarantee a commensurate increase in income for them (Schmitz et al 2006; Whittaker and Ahearn 1993). In the Indian context, the problem of low farmer income in comparison to their counterparts in the non-farm sector is partly compounded by uncertainty caused by erratic weather conditions coupled with the rising cost of production and falling output prices.

In recent times, therefore, besides raising the production and productivity of various crops through a conventional production- and productivity-centred approach, increasing attention is being paid to raising farmers’ income following the commitment by Prime Minister Narendra Modi at the kisan rally in Bareilly on 28 February 2016 to double farmers’ income by 2022–23. Since then, scholars writing on Indian agriculture have discussed strategies to double farmers’ income and have estimated that the contributions of different sources will help achieve the goal by 2022–23 (Chand 2017a; Department of Agriculture, Cooperation and Farmers Welfare 2018). This is also the rationale for the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, under which all farmers with landholdings of up to 5 acres will receive `6,000 per annum in three equal instalments as income support. A review of the available literature shows that there is a relative dearth of studies on the income of farmer households, which can primarily be attributed to the non-availability of data on farmers’ income aside from the Situation Assessment Survey of Farmers from the National Sample Survey (NSS) 59th round in 2003, and the Situation Assessment Survey of Agricultural Households from the NSS 70th round in 2013, both of which have collected data, inter alia, on farmers’ income from different sources (MoSPI 2003, 2013). More recently, studies have provided estimates of farmers’ income at the national level between 1983–84 and 2011–12 and have estimated the statewise proportion of households below the poverty line that are self-employed in agriculture (Chand el al 2015; Chand 2017b).

Against this background, the present paper raises and seeks answers to the following important questions using unit-level data available from the NSS 70th round Situation Assessment Survey of Agricultural Households, 2013 (MoSPI 2013): (i) Given the technical know-how, resource-use efficiency, and availability of irrigation and credit facilities, what is the minimum size of cultivated land across states at which the average monthly income from cultivation of farmer households exceeds the average monthly consumption expenditure? (ii) What is the minimum farm size at which the average monthly income from all sources exceeds the poverty-line-equivalent average monthly income? (iii) What is the contribution of different sources of income towards the total income of agricultural households in different farm-size categories across different states? (iv) What is the incidence of poverty among agricultural households in different farm-size categories? (v) What is the amount of income support that needs to be given to the farmer households in each of the major states (Andhra Pradesh [AP], Assam, Bihar, Chhattisgarh, Gujarat, Jammu and Kashmir [J&K], Karnataka, Kerala, Maharashtra, Odisha, Punjab, Tamil Nadu [TN], Uttarakhand, and Uttar Pradesh [UP]) to enable them to meet their average monthly/annual consumption expenditure and come out of poverty? The answers to these questions would help with designing state-specific, target-group-focused income support policies to augment farmers’ income; this would be more beneficial than a uniform income support policy in all states.

Data on Farmers’ Income

As mentioned earlier, data on farmers’ income are available in the Situation Assessment Survey of Farmers from the NSS 59th round in 2003 and the Situation Assessment Survey of Agricultural Households from the NSS 70th round in 2013. However, the data from the two surveys are not comparable because of changes in the concepts and definitions used in the two rounds. Thus, an analysis of changes in income and the relative contribution of different sources of income between these two rounds is not possible. In the 59th round, a farmer was defined as “a person who operates some land and is engaged in agricultural activities during the last 365 days” (MoSPI 2003: 3). Thus, a person qualified as a farmer if they (i) possessed some land (that is, land that was owned, leased, or otherwise possessed), and (ii) was engaged in some agricultural activities on that land during the past 365 days. A household with at least one member farmer was defined in the survey as a farmer household. In comparison, in the 70th round, an agricultural household was defined as one receiving produce worth more than `3,000 from agricultural activities, with at least one member self-employed in agriculture in either the principal status or the subsidiary status in the last 365 days. In addition, there were differences in the methodologies for recording agricultural expenditure between the two surveys. We have therefore only used the unit-level data available in the NSS 70th round from 2013 in our study and attempted a cross-sectional analysis of income, consumption, and poverty among farmer households in the major states. Further, to estimate the incidence of poverty among agricultural households, we have used the Tendulkar Committee’s per capita poverty lines for rural areas in different states. These poverty lines for different states have been multiplied by the average household size in each state to arrive at a monthly poverty-line-equivalent income for each major state.

Farm Size and Farmers’ Income and Consumption

Agricultural households depend primarily on the cultivation of crops for their livelihood. It is, therefore, important to determine the minimum size of cultivated land that will provide these households with sufficient income to afford their average consumption expenditure, given the aforementioned factors. The minimum size of the cultivated land that provides this income also determines the size of economically viable holdings in a particular state.

Table 1 (p 17) presents the minimum size of cultivated land, and the minimum size of land possessed across states, which yield an average monthly income from cultivation that meets the average monthly consumption expenditure of an agricultural household. As may be seen from the table, the average monthly consumption expenditure across states ranges from `4,491 in Chhattisgarh to `12,852 in Haryana. The minimum size of cultivated land at which the income from cultivation exceeds the average monthly consumption expenditure ranges from around 0.5 hectares (ha) to 1 ha in 14 major states. In seven states (Haryana, Himachal Pradesh [HP], Jharkhand, Madhya Pradesh [MP], Rajasthan, Telangana, and West Bengal), it is more than 1 ha and ranges from 1.11 ha to 1.34 ha. At the national level, the size of such cultivated land is 0.91 ha. However, since cultivated land is either equal to or less than land possessed, we also determined the minimum size of land possessed at which the average monthly income from cultivation exceeds the average monthly consumption expenditure. The size of land possessed is more than 1 ha in most states and ranges from around 1 ha in Chhattisgarh and TN to 3.24 ha in Rajasthan. In four states (AP, Assam, Punjab, and Uttarakhand), it is less than 1 ha and ranges from 0.66 to 0.94 ha. At the national level, it is 1.12 ha.

Table 2 presents the minimum size of land possessed in different states at which the average monthly income of an agricultural household from cultivation, farming of animals, wages/salary, and non-farm income exceeds the poverty-line-equivalent monthly household income. The poverty-line-equivalent monthly income across states ranges from `3,440 in AP and Telangana to `6,090 in Haryana. The table reveals that the minimum farm size at which the income from all sources exceeds the poverty-line-equivalent monthly income is less than 1 ha in almost all states and ranges from 0.01 ha in Haryana and Punjab to 1.21 ha in Telangana. At the national level, this minimum size of land possessed is 0.30 ha.

Table 3 (p 18) presents the contribution of different sources of income towards the total income of agricultural households in different farm-size categories across major states. The broad patterns emerging from the table are summarised as follows: (i) Across states, in the case of households possessing up to 1 ha, wages/salary is the most important source of income; its contribution ranges from 38.11% in Assam to 70.68% in Karnataka. The most notable exception to this pattern is in Telangana, where cultivation is the most important source of income to such households. The second-most important source of income is cultivation in 13 states (Assam, Bihar, Chhattisgarh, HP, J&K, Karnataka, Kerala, MP, Maharashtra, Punjab, Uttarakhand, UP, and West Bengal) and farming of animals in seven others (AP, Gujarat, Haryana, Jharkhand, Odisha, Rajasthan, and TN). (ii) For households possessing 1 ha to 2 ha, cultivation is the most important source in all states, with the contribution ranging from 33% in Odisha to around 83% in Uttarakhand. J&K is the lone exception to this pattern, with wages and salary being the most important source of income. The second-most important source is wages and salary in 15 states (AP, Assam, Bihar, Chhattisgarh, HP, Jhar­khand, Karnataka, Kerala, MP, Maharashtra, Punjab, Rajasthan, TN, Telangana, and West Bengal) and farming of animals in five others (Gujarat, Haryana, Odisha, Uttarakhand, and UP). (iii) The relative contribution of different sources of income towards the total household income of those households possessing more than 2 ha shows that in 11 states (Assam, Bihar, Chhattisgarh, Haryana, HP, Karnataka, MP, Maharashtra, Punjab, Uttarakhand, and UP), cultivation accounts for more than 80% of the total income, followed by Gujarat, Kerala, and Odisha, where it contributes around 70%–80%, and Jharkhand, Rajasthan, Telangana, and West Bengal, where its share is 60%–70%.

In three states (AP, J&K, and TN), income from cultivation ranges from 47.33% to 55.62%. There is a mixed pattern insofar as the second important source of income is concerned; it is wages and salary in 10 states (AP, Bihar, Chhattisgarh, HP, Jharkhand, Karnataka, Rajasthan, TN, Telangana, and West Bengal), farming of animals in seven states (Assam, Gujarat, Haryana, MP, Punjab, Uttarakhand, and UP), and non-farm business in four states (J&K, Kerala, Maharashtra, and Odisha). Fourth, for all households, cultivation is the most important source of income in 13 states (Assam, Bihar, Chhattisgarh, Gujarat, Haryana, Karnataka, MP, Maharashtra, Punjab, Rajasthan, Telangana, Uttarakhand, and UP), though its contribution across these states differs widely, from around 37% in Gujarat to 67% in Telangana. In all these states, income from wages and salary is the second-most important source whose contribution ranges from around 23% in Telangana, Uttarakhand, and UP to around 37% in Bihar. In eight states (AP, HP, J&K, Jharkhand, Kerala, Odisha, TN, and West Bengal), income from wages and salary is the most important source of income, followed by income from cultivation. In these states, while the contribution of wages and salary ranges from around 35% in Odisha to 58% in J&K, income from cultivation accounts for around 24% in J&K and 34% in AP. At the national level, income from cultivation followed by wages and salary are the two most important sources of household income contributing around 80% of the total income.

Incidence of Poverty among Farmer Households

The incidence of poverty among agricultural households in different farm-size categories has been estimated based on income from cultivation and total income from all sources using the poverty-line-equivalent monthly income, as mentioned earlier. The estimates are presented in Table 4. Broad patterns emerging from the table are discussed as follows. First, the incidence of poverty based on income from cultivation among households possessing up to 1 ha is more than 90% in 15 states (AP, Bihar, Gujarat, Haryana, HP, J&K, Jharkhand, MP, Maharashtra, Odisha, Punjab, Rajasthan, Uttarakhand, UP, and West Bengal), followed by four states (Assam, Karnataka, Kerala, and TN) where it is between 80% and 90%. In the remaining two states, Chhattisgarh and Telangana, the incidence of poverty among households is around 59% and 71%, respectively. Conversely, the incidence of poverty among these households on the basis of income from all sources is also very high, though it is significantly lower than that on the basis of income from cultivation. A comparative analysis across states shows that it is more than 70% in Bihar, Jharkhand, MP, Odisha, Rajasthan, Uttarakhand, and UP, followed by 61%–67% in Assam, HP, and West Bengal. In eight states (Chhattisgarh, Gujarat, J&K, Karnataka, Maharashtra, Punjab, TN, and Telangana), the incidence of poverty among these households differs between 50% and 59%, while in the remaining three states (AP, Haryana, and Kerala), it is around 45% in the former state and around 48% in the latter two.

Second, the incidence of poverty among households possessing 1 to 2 ha is significantly lower than their counterparts in lower farm-size categories. Across states, the proportion of agricultural households who are poor based on income from cultivation is more than 80% in HP, J&K, Jharkhand, and Maharashtra and between 60% and 80% in AP, Bihar, Gujarat, Karnataka, MP, Odisha, Rajasthan, TN, and West Bengal. The incidence of poverty among the households in the remaining states is between 50% and 60% in Chhattisgarh, Telangana, Uttarakhand, and UP, followed by about 48% in Haryana, 43% in Kerala, 37% in Assam, and 21% in Punjab. The incidence of poverty among these households based on income from all sources is highest in Jharkhand at about 66%, while in 11 states (AP, Bihar, Chhattisgarh, HP, J&K, Karnataka, MP, Maharashtra, Rajasthan, TN, and West Bengal), it ranges between 50% and 60%. Among the remaining states, it is around 48% in Odisha and about 40% in Gujarat, Telangana, Uttarakhand, and UP. Further, among all states, the incidence of poverty among such households is comparatively lower about 12% in Punjab, 17% in Haryana, 24% in Assam, and 25% in Kerala.

Third, the incidence of poverty among households possessing more than 2 ha on the basis of income from cultivation among states is more than 60% in six states (AP, HP, Jharkhand, Rajasthan, TN, and West Bengal) followed by five others (Gujarat, Karnataka, Maharashtra, Odisha, and Telangana) where it ranges from around 50% to 60% and four states (Bihar, Chhattisgarh, J&K, and Uttarakhand), where it is around 44% to 47%. In the remaining states, the incidence of poverty among these households is around 36% in MP, 30% each in Kerala and UP, 29% in Assam, 24% in Haryana, and about 8% in Punjab. In comparison, the incidence of poverty among households possessing more than 2 ha based on income from all sources is significantly lower. A state-by-state analysis shows that in five states (AP, Jharkhand, Maharashtra, Rajasthan, and TN), it ranges from 40% to 44%, and in seven states (Bihar, Chhattisgarh, Gujarat, HP, Karnataka, Telangana, and West Bengal), it is between 33% and 38%. In seven states (Assam, J&K, Kerala, MP, Odisha, Uttarakhand, and UP), the proportion of poor among such households ranges between 20% and 30%. In all states, the incidence of poverty among these households is lowest, that is, about 4% in Punjab and 19% in Haryana. At the national level, it is about 32%.

Fourth, considering households of all size categories and their income from cultivation, the incidence of poverty is more than 80% in 14 states (AP, Bihar, Gujarat, HP, J&K, Jharkhand, Maharashtra, Odisha, Rajasthan, TN, Telangana, Uttarakhand, UP, and West Bengal) followed by six other states (Assam, Chhattisgarh, Haryana, Karnataka, Kerala, and MP) where it is between 70% and 80%. Among all states, the incidence of poverty considering income from cultivation is the lowest in Punjab, that is, about 8%. Further, taking income from all sources, the incidence of poverty ranges from 60% to around 71% in nine states (Chhattisgarh, HP, Jharkhand, Odisha, Rajasthan, Telangana, Uttarakhand, and UP) followed by six others (Assam, J&K, MP, Maharashtra, TN, and West Bengal) where it is bet­ween 50% and 60%. In the remaining states, the incidence of poverty is around 48% in Karnataka, 45% each in AP and Gujarat, 44% in Kerala, and 35% in Haryana. It is the lowest in Punjab, that is, about 4%. At the national level, the incidence of poverty among agricultural households is around 57%.

The extent of the relationship, measured by correlation coefficients, between farm size and income from different sources, consumption expenditure, and incidence of poverty in different states is given in Table 5. The table shows that there is a positive and significant relationship between farm size and income from cultivation in most states. The relationship between farm size and income from the farming of animals is positive and statistically significant in five states and positive but statistically insignificant in seven others. In the remaining states, the correlation coefficients are negative and statistically insignificant, with the notable exception of Jharkhand, for which it is negative and significant. Further, the relationship between farm size and income from wages and salary is negative but statistically insignificant in seven states and positive and significant in Assam and UP. In all other states, the correlation coefficients are negative and insignificant. In comparison, though correlation coefficients between farm size and income from non-farm business are positive in 13 states, they are statistically insignificant except in Karnataka, Kerala, and Odisha. However, correlation coefficients between farm size and total income from all sources and between farm size and household consumption expenditure are positive and statistically significant in most states. Finally, as expected, farm size has a negative relationship with the incidence of poverty in all states, as is evident from the negative and statistically significant correlation coefficients in most states.

Statewise Estimates of Direct Income Support

We have estimated the annual income support that needs to be given to those farmer households whose income from cultivation and income from all sources is less than that required to meet their monthly consumption expenditure. We have also estimated the amount of income support that needs to be given to those households whose income from all sources is less than the poverty-line-equivalent monthly income. These estimates for each of the major states are presented in Table 6. The table shows that on the basis of income from cultivation, the annual amount of income support required for the deficient farmer households to meet their annual consumption expenditure across states ranges from `6,239 crore in HP to `89,215 crore in UP; the proportion of gross state domestic product (GSDP) ranges from about 2% in TN to about 12% in Bihar. At the national level, this amounts to `4,80,702 crore, which is about 5% of the GSDP. Similarly, the annual income required for households whose income from all sources is not sufficient to meet their consumption expenditure ranges from `2,529 crore in HP to `5,22,238 crore in UP. The GSDP ranges from about 1% in TN to about 8% in Bihar. Further, considering income from all sources, the annual amount of income support required for those farmer households that are below the poverty line ranges from `3,277 crore in HP to `76,742 crore in UP, which in terms of proportion of GSDP, ranges from around 2% in TN to around 11% in Bihar. At the national level, the annual income required to be transferred to bring all farmer households above the poverty line is `3,55,927 crore, which is around 4% of the GSDP.

Conclusions

The economically viable size of holdings in a state/region is the one that affords a reasonable level of income and employment to a farmer household to meet its basic requirements. It is determined by a host of factors such as agroclimatic conditions, the availability and use of the latest technology, and the availability of other infrastructural inputs like irrigation, credit, markets, resource use efficiency and so on. Further, it changes over time with changes in any of these factors. The size of holdings affording a reasonable level of income to a farmer household to meet its minimum consumption requirements may decrease with an increase in the availability of irrigation facilities coupled with high-yielding varieties. Identifying such a minimum size from the unit-level data implies that the farmers with that size of holding is using the land and other resources at their command most efficiently given the constraints faced by them. Further, this minimum size cannot be taken to be the same for all farmers and there may be some farmers who have larger farm sizes but are not able to generate an adequate income sufficient to meet their minimum consumption requirements and pull them out of poverty. In other words, this minimum farm size can also be considered as a benchmark for the efficient use of resources. Thus, subject to these observations and caveats, our analysis shows that the minimum size of cultivated land sufficient to generate enough income to meet the average monthly consumption expenditure of a farmer household is less than 1 ha in a majority of the major states, which roughly correspond to the average size of operational holdings at the all-India level. The study also shows that though income from cultivation is the most important source of income for agricultural households, it is grossly inadequate to escape poverty in that the incidence of poverty among them on this basis is more than 50% in most of the major states. Further, despite the emergence of wages and salary as an important source of income for agricultural households in most states, farm size has a significant positive relationship with income from cultivation and farming of animals, and the consumption expenditure of such households and a significant negative relationship with the incidence of poverty. Direct income support to agricultural households, irrespective of their farm size, whose income fall short of their consumption expenditure and poverty-line-equivalent income will go a long way in increasing and stabilising their income, promoting equity, ensuring minimum consumption expenditure and, in the ultimate analysis, pulling them out of poverty. These defici­ency payments indexed to inflation can replace untargeted subsidies for power and fertilisers and can be clubbed with all other direct payments made to farmers in different states, including PM-KISAN.

References

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Whittaker Gerald and Mary C Ahearn (1993): “The Distribution of Direct Government Payment,” Agricultural Information Bulletin, United States Department of Agriculture.

 

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Updated On : 11th Jul, 2022
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