‘Rural distress’ became the major economic narrative to interpret the recent Assembly elections results for Gujarat, specifically the fact that rural support for the incumbent government was considerably less than the support from cities.
The woes of the rural sector could be a bigger issue this year. Of the eight States that go to the polls this year, the politically critical ones — Rajasthan, Karnataka, Madhya Pradesh and Chhattisgarh — have average percentage share of rural population (71 per cent) significantly higher than Gujarat’s figure of 57 per cent.
Thus, a status check on the conditions in the villages of these states could thus be useful and while the exercise could appear a trifle simplistic, defining gauges of ‘rural distress’ factor would certainly help.
An obvious caveat is necessary here. This is neither an attempt to predict poll results nor a comprehensive description of the problems of the rural economy.
The two inflations
One gauge that has, perhaps, not got the attention it deserves is the difference between rural and urban inflation that changes in the terms of trade.
Rural inflation in Gujarat was significantly higher that urban inflation for a sustained period in the run up to the elections although it dropped immediately before. For the period between early 2016 and August 2017, rural price rises exceeded the urban by a good 3 percentage point before elections.
It is difficult to entirely overlook the correlation which can influence voting patterns. How do the poll-going States fare on this count? All the four States that we review (Rajasthan, Chhattisgarh, Madhya Pradesh and Karnataka) have seen persistently lower rural inflation than urban inflation in 2017. Thus, unless things change radically this year, this factor does not pose a challenge for an incumbent administration in these States.
Measures of farmer profitability are another fairly obvious gauge. A number of analysts attributed the tilt in Gujarat’s voting patterns to ‘less than fair’ prices for two major crops — cotton and groundnut. In both cases, actual mandi prices were way below the minimum support price (MSP).
Media reports suggest that before the elections, groundnut traded around 39 per cent below MSP in the wholesale markets of Gujarat.
While the MSP for cotton in Gujarat was around ₹900 for a 20-kg bale, farmers were getting ₹700, roughly around 22 per cent lower than the MSP.
Price differences
While this is itself debatable, we assume that the MSP is the fair price, and measure farmer profitability as the difference between this and market prices for the key crops in our focus States. The more the MSP exceeds market prices, the greater is the dent on farmer profitability. This throws up some interesting patterns.
Farmers in Karnataka seem to be faring well and currently getting higher than the MSP for ragi and a relatively small negative margin versus the MSP for maize and jowar. These are the three most important crops for the State.
However, for Rajasthan, for the two major crops analysed (mustard and bajra), current mandi prices are considerably lower than their MSPs.
The average difference between the MSP and current mandi prices is around 13 per cent for these two crops.
For Madhya Pradesh, the three major crops are soybean, wheat and gram. For soybean, mandi prices are higher than the MSP and for wheat the farmers are able to sell the produce close to the MSP. The only source of distress in MP is gram, for which the difference between mandi prices and the MSP is in double digits.
Chhattisgarh’s three major crops are maize, gram and paddy. Market prices for paddy are closely in line with the MSP. However, for the other two crops (maize and gram), current mandi prices are around 7 per cent lower than the MSPs.
The bottom line is that while all four States have some degree of the “less than fair” price problem, Karnataka currently has the lowest risk levels. The risk of compromised farmer profitability is maximum for Rajasthan and relatively lower for MP and Chhattisgarh.
As a third gauge, we look at overall agricultural growth in the recent years. To see if headline growth is improving or deteriorating in these States, we compare the average growth in value addition in the ‘agriculture, forestry and fishing’ sector for 2015-16 and 2016-17 to the average for the three years from 2012-13 to 2014-15. Gujarat and Rajasthan incidentally have estimates only up to 2015-16.
Growth factor
We agree that a longer historical data series would have helped smooth out fluctuations that occur due to say adverse monsoons but unfortunately this is all that we have available in the new GDP series.
What do these numbers tell us? For one, there has been a noticeable decline in average growth for Karnataka, Gujarat and Rajasthan’s farm sector.
However, the decline in Chhattisgarh is minuscule and Madhya Pradesh has seen a pick up in momentum in the past two years. How do things look if we put all this together into an index? Rajasthan seems to be close to Gujarat in terms of rural stress while MP and Chhattisgarh have relatively lower ‘stress levels’. Karnataka is somewhere in between, scoring well on farmer profitability but faltering on growth.
This is the current situation and things could change as there is still some time to go before polling begins (Karnataka would be the first with elections in May).
However, the present situation might offer some clues for the future, and cues for politicians for what would get the rural ballot box to fill up in their favour.
Arora is senior economist and Barua is chief economist at HDFC Bank. The views are personal