Ind. Jn. of Agri. Econ.

Vol.72, No.1, Jan.-March 2017

Farm Income in India: Myths and Realities

A. Narayanamoorthy*
ABSTRACT

India’s agricultural sector is one of the largest in the world today in terms of production of foodgrains
and other agricultural commodities. With over 60 million tonnes of buffer stock, India is not only a self
sufficient country now but also an exporter of foodgrains to many countries. Although farmers have
played decisive role in changing the farm sector to greater heights, their socio-economic conditions are
reportedly in shambles today. Owing to poor income from crop cultivation that resulted in increased
indebtedness, widespread suicides of farmers have been reported in different parts of the country. This has
forced the researchers and policy makers to study the issue of farm income in an in-depth manner which
has not received adequate attention till the early part of 2000s. Absence of reliable data on farm income
has never deterred researchers from carrying out studies on farm income. Many researchers have come out
with contested findings on farm income by making use of different sets of data. However, besides the
issues pertaining to the estimate, many myths on farm income have not been adequately addressed with
reliable data. In this paper, while making effort to unravel the myths surrounding the issue of farm income
and its estimates, an attempt is made to bring out the real situation in farm income in India. After
analysing the data on Cost of Cultivation Survey from 1971-72 to 2013-14 and also the Situation
Assessment of Survey of Farmers for the period 2002-03 and 2012-13, the study concludes that the farm
income is not only very low but the year-on-year fluctuation is also very high. Mere increase of minimum
support price(MSP) for crops alone would not guarantee better income for farmers unless procurement
infrastructures are sufficiently strengthened. Therefore, along with remunerative MSP for different crops,
if procurement arrangements and other non-price (technology, credit and irrigation) incentives are
packaged and sequenced appropriately, farm income can be increased in a sustainable manner.
Keywords: Cost of cultivation, Cost concepts, Farm productivity, Farm income, Farm profitability
in India
JEL: Q12, Q13, Q15, Q18

INTRODUCTION

The main purpose of this paper is to bring out the state of farm income in India and
also to unravel some of the myths associated with it. The focus of Indian agriculture has
been changing ever since the introduction of planning era (see, Deshpande et al., 2004).
Because of severe shortage of foodgrains production, an increased attention was given for
augmenting productivity and production of foodgrains starting from late sixties till the
eighties. Sustaining the growth of farm sector from the impact of WTO regime was the

*
Professor and Head, Department of Economics and Rural Development, Alagappa University, Karaikudi-630
003 (Tamil Nadu).
Keynote paper presented at the 76th Annual Conference of the Indian Society of Agricultural Economics held at
Assam Agricultural University, Jorhat (Assam), during November 21-23, 2016.
The author is thankful to R.S. Deshpande and N. Chandrasekhara Rao for offering comments on the earlier
version of the paper and R. Suresh and P. Alli for their research assistance. However, the author alone is responsible
for any errors remaining in the paper.
50 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

main focus during the nineties. As a result of production centered approach, the gross
production of foodgrains and other agricultural commodities has increased significantly
over the years; foodgrains production increased from just 51 million tonnes (mt) in 1950-
51 to about 264 mt in 2014-15. Similar trend is noticed in many non-foodgrain crops as
well (see, Government of India, 2016). Today, India is not only a self sufficient country
in foodgrains but also an exporter of foodgrains to many countries (see, Bhattacharya,
2004; Deshpande et al., 2004).
Although over two-third of population are relying on the agricultural sector for their
livelihood, farm income related issues have somehow not received adequate attention in
the policy circle till late nineties (see, Deshpande et al., 2004; Sen and Bhatia, 2004).
Farmers were treated as mere agents of agricultural production over the years. Their
economic well-being did not receive due attention until late nineties, when farmer
suicides and indebtedness became a widespread phenomenon. The scholars and policy
makers began to take a serious note of this agrarian catastrophe only when the distress
resurfaced again in the recent years in the farm heartlands of the country (see, Sainath,
2010). Serious deliberations on the issue of farm income and crop profitability have
occupied the centre stage in the recent policy debates on agricultural sector especially
from early 2000s. Experts across various quarters keep questioning on whether or not the
income of the Indian farmers increased or are the farmers getting any profits from crops
cultivation. As a major step towards understanding and studying the nature and causes of
widespread farm suicides and to find out whether reduced income is the major reason for
increased indebtedness among farm households, the Union Government appointed the
Expert Group on Agricultural Indebtedness under the Chairmanship of Prof. R.
Radhakrishna (Government of India, 2007). Following this, many researchers also
conducted detailed field level studies in this direction and have reported that decline in
productivity, supply constraints in institutional credit, market irregularities, etc., are the
major reasons for the sudden spurt in farm suicides and indebtedness (see, Deshpande,
2002; Deshpande and Prabhu, 2005; Reddy and Galab, 2006; Vaidyanathan, 2006;
Narayanamoorthy 2006: 2007).
Comprehensive studies directly focusing on farm income at macro level in India were
not available till the publication of Situation Assessment Survey (SAS) data (NSSO,
2005a, b). Because of the absence of data on farm income, most studies have used data
from terms of trade computations between agriculture and other sectors to judge the
performance of the sector (see, Kahlon and Tyagi, 1980; Gulati and Rao, 1994; Misra and
Hazell, 1996; Misra, 1998). While some studies showed positive terms of trade, others
found the same against the farm sector. The cost of cultivation survey (CCS) published
by the Commission for Agricultural Costs and Prices (CACP) is another data source that
was used by many scholars to understand the trends in farm income (Bhatia and Sen,
2004). CCS data in many ways are different from SAS data. While CCS data provides
crop-wise cost and income details per hectare, SAS provided annual income from crop
cultivation per household. A large number of scholars have studied the trends in farm
income using CCS data over the years. For instance, with the help of CCS data from
1981-82 to 1999-2000, Sen and Bhatia (2004) concluded that the farm business income
 FARM INCOME IN INDIA: MYTHS AND REALITIES 51

per farmer was miniscule and inadequate to pay even for the essentials (as cited by Chand
et al., 2015; Narayanamoorthy, 2015a,b; Narayanamoorthy and Suresh, 2013).
Assured prices appear to help the farmers for efficiently allocating the scarce
resources among different crops (see, Schultz, 1964; Acharya, 1997; Deshpande, 1996;
Rao, 2001). Studies have analysed the effectiveness of minimum support price (MSP) on
raising farm income using CCS data. Gulati (2012) argued that hike in MSP is necessary
to get positive returns and also to propel the agricultural gross domestic product (GDP).
But, Bhalla (2012) counter argued that increasing MSP of paddy is “dirty economics and
dirtier politics”. With the focus on the impact of MSP on farm income, Dev and Rao
(2010) have studied the profitability of paddy and wheat in detail using CCS data from
1981-82 to 2007-08 and found that the value of output has been more than the costs in
both paddy and wheat throughout the period of analysis at the all India level. Similarly,
utilising data from CCS for the period 1975-76 to 2006-07 by covering six important
crops, Narayanamoorthy (2013) found an insignificant increase in profitability of
foodgrain crops at constant prices mainly because of substantial increase in cost of
cultivation (cost C2). The National Commission on Farmers (NCF) that looked into
various aspects of farming in detail has also underlined that the returns from crop
cultivation are very poor and inadequate (NCF, 2006). After the publication of SAS data,
quite a few studies have been carried out specifically focusing on farm income. For
instance, Narayanamoorthy (2006) analysed the level of farm income using SAS data
across the major states and found that the annual average income from crop cultivation
for the country as a whole was only Rs. 11,628 per household. That is, the per day
income of the farmers’ household was just about Rs. 32 during 2002-03, which was much
lower than the average agricultural wage rate that prevailed at that time in the country.
The pitiable condition of the farm households has also been clearly narrated using SAS
data by the Expert Group on Agricultural Indebtedness under the Chairmanship of Prof.
R. Radhakrishna (Government of India, 2007).
But, Chand et al., (2015) have questioned the validity of the estimates made based on
CCS data. Their contentions are “……..the cost of cultivation data is representative of
crops or crop complexes in major growing states, but it does not cover the entire country
or the entire agriculture sector. Even the productivity of sample crops reported in COC
data show significant difference from state averages. COC data also does not cover
horticultural crops and several minor crops that constituted 38 per cent of the total value
of the crop sector in 2011-12. Further, the importance of horticultural crops has been
rising, and their productivity in India is more than four times that of other crops. Their
exclusion makes a significant difference to the level and growth in farm business income.
Also, the data on income from the livestock sector is not appropriately captured in the
cost of cultivation schedules, which do not intend to do so. Because of these reasons,
farm business income derived from the COC data is not an adequate measure of actual
farm business income in the country or a state. At best, these can be used as indicators of
income from selected crops” (p.140).
Keeping in view the limitations of the existing estimates on farm income Chand et al.,
(2015) made an entirely new attempt to estimate the level of farm income for the country
as a whole taking macro level data on National Income Accounting from 1983 to 2011-
52 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

12. They estimated the farm income by deducting the GDP of agriculture and allied
sectors from capital consumption and wage bill for hired labour employed in agriculture.
As per this estimate, the real farm income earned by Indian farmers (at 2004-05 prices)
increased from Rs. 2,11,000 crore in 1983-84 to Rs. 6, 25,536 crore in 2011-12. That is,
per cultivator income increased from Rs. 16,103 to Rs. 42,781 during this period.
Interestingly, the annual growth rate of per cultivator farm income increased at a rate of
7.29 per cent during 2004-05 to 2011-12, which is more or less equivalent to the overall
growth of the economy during this period. While these estimates appear to be systematic,
one needs to look at it carefully whether the macro-level data based estimate can reflect
the reality on farm income? This question arises due to three important reasons. First, the
transaction cost involved in farming activities is huge (my field survey experience
suggests that it will be around 20 per cent of cost A2)1, which never gets included in the
macro level cost. Second, the whole sale cost of inputs at the macro-level used in the
estimate would be much lower than the retail price of inputs. For instance, the retail price
of fertiliser sold in the district headquarter is lower than the price of fertiliser prevailing in
the retail shop located at a village or block. Third, the managerial cost (CACP considers
10 per cent of C2 cost as managerial cost) is another big cost which may not have also
been included in the macro level cost used by Chand et al. (2015). If we include these
costs in the estimate, then there is a possibility that the farm income estimated by them
would exhibit a declining trend.
Besides the issues concerning the estimates on farm income, many puzzles and myths
pertaining to the income of the farmers need to be answered to better understand its
reality. First of all, given the contesting estimates from different scholars, we must find
out what is the actual level of income that farmers get from crops cultivation? What is the
variation in the level of farm income across the states in India? Has the farm income
increased over the years? If yes, has it increased consistently in all regions and crops?
There is a myth that the income reaped by the farmers belonging to irrigated regions is
higher than its counterpart, the less irrigated regions. Is it true? Is there any difference in
profitability of crops cultivated under irrigated and less irrigated condition? There is
another myth which has emerged in the context of alleviating agrarian crisis is that the
farm income can be increased by augmenting productivity of crops. In this context the
question crops up whether the farmers of high productivity states reaping higher profits
than that of less productivity states in different crops? Is it true that farmers are unable to
reap profit consistently throughout across years? What is the role of new
technologies/methods in increasing the farm income? We seem to be having inadequate
answers to these questions in the available literature. Unless these questions are
adequately answered one may not be able to say clearly about the state of farm income in
India. In this paper, therefore, while making effort to answer these questions, an attempt
has been made to bring out the real state of farm income in India mainly using data
available from two important sources, namely, SAS and CCS.
The paper is organised in six sections. The following Section presents an analysis of
the farm income for the period 2002-03 and 2012-13 using SAS data, which has income
details by source for farmer households. The level of farm income per farm household
across the states is analysed in Section III. Utilising CCS data for different states covering
 FARM INCOME IN INDIA: MYTHS AND REALITIES 53

period from 1971-72 to 2013-14, a detailed analysis on trends in farm income by crops is
provided in Section IV. Further an analysis on the role of new technologies/methods on
productivity and farm income is presented in detail in Section V. The final section
presents a few agenda points for increasing farm income in the future.

II

HAS THE FARM INCOME INCREASED?

In the absence of comprehensive farm income related data, various scholars have
employed different methodologies/data sources to estimate the farm income. As
mentioned earlier, many have used CCS data, while some have derived the farm income
using agriculture GDP and related data. Divergent views are available from the existing
studies on farm income, which has also been underlined earlier. While estimates of the
existing studies have provided useful information, we have actual data on farm income
fairly comparable2 for two time points namely, 2002-03 and 2012-13 from SAS published
by NSSO (2005a; 2014), which can reveal the reality about the state of farm income. SAS
provides data on the annual income for farmer households by various sources namely
wages, cultivation, farming of animals and non-farm business income. Using this data,
the actual level of farm income reaped by the Indian farmers can be easily judged.
The concept of farm income has been used differently by different scholars. While
questioning the validity of the income estimated through CCS data, Chand et al., (2015)
argued that farm income should include the income from the livestock sector as well.
While their argument is probably correct in a broader context, we must recognise the
questions raised in the debate on farm income during the last decade or so. Farmers have
been questioning the income realised from crops cultivation and not about the income
from other sources. ‘Crop holiday’ in paddy in Andhra Pradesh have also been declared a
few years back citing low income from crop cultivation. Similarly, farmers in various
parts of India are demanding higher income from crops cultivation, but not from livestock
or other sectors. The National Commission on Farmers (NCF) has also primarily referred
to farm income as the income received from the crop cultivation. Therefore, in order to
understand the ground reality of farm income, it is necessary to consider the income from
crops cultivation which is an issue discussed intensively today.
It is therefore essential to look into the changes in the income from crop cultivation
vis-à-vis other sources between the two time periods mentioned above utilising SAS data
which is presented at constant value (at 1986-87 prices) in Table 1. It is clear that the
annual income per farm household from cultivation has increased from Rs. 3,645 in
2002-03 to Rs. 5,502 (at constant prices of 1986-87) in 2012-13, an increase of about
3.81 per cent per annum. But, the question which needs to be answered here is whether
the income from crop cultivation increased at a faster rate as compared to other sources of
income of farmer household. The answer is very clear; the increase in income from crop
cultivation was not very significant as compared to the income realised through farming
of animals. This means that the farmers who are relying purely on cultivation income not
only earn less income but their growth of income is also very less in India during the last
one decade or so.
54 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
 FARM INCOME IN INDIA: MYTHS AND REALITIES 55

The other issue which crops up in all the debates is whether the farm income of the
irrigated region is higher than that of less irrigated region. It is an established fact that the
productivity of any crop cultivated under irrigated region is higher than that of the less
irrigated or un-irrigated region (see, Vaidyanathan et al., 1994). Temporal and spatial
data on crop productivity published by the Union Ministry of Agriculture reinforces this
fact. But, unfortunately, farmers belonging to the irrigated region have also committed
suicides citing poor returns from crops cultivation in the recent years. Farmers in Andhra
Pradesh belonging to highly irrigated region have even declared ‘crop holiday’
specifically because of poor income from farming. Given these unpleasant developments,
there is a need to validate whether irrigated farmers reap higher profit than their less
irrigated counterparts.
Data available for all the major states for two time points from SAS provides
opportunity to look into this issue. Statistics provided in Table 1 show that the average
income from the cultivation for the States Having Above National Level Irrigation
(SHANLI) is not substantially different from that of the States Having Below National
Level Irrigation (SHBNLI) at both time points namely 2002-03 and 2012-13. During
2002-03, the average annual income of SHANLI was Rs. 4,636 per household, whereas
the same was Rs. 4,115 for SHBNLI category, a difference of only about Rs. 521. Similar
trend was also observed during 2012-13. Interestingly, quite a few states belonging to
SHBNLI category were able to earn higher income from cultivation than that of the states
coming under SHANLI category. This was not unexpected due to the fact that although
the gross income from the crops cultivated under irrigated condition is higher because of
higher productivity, increased cost of cultivation might have counterbalanced the net
returns from crops cultivation (see, Narayanamoorthy, 2013).
III

FARM INCOME ACROSS STATES

Although the issue of farm income has been discussed by researchers and policy
makers extensively over one decade in India, the performance of various states in terms
of farm income has not been adequately covered possibly because of data constraints.
What is happening at the country level might not be the same across different states due
to variations in cropping pattern, irrigation coverage, adoption of modern technologies,
procurement policies, market arrangements, etc. It is always believed that the states with
more area under commercial crops can generate higher farm income than the states with
larger area under foodgrain crops. But, this issue could not be answered convincingly due
to data constraints so far. Now, the data available from SAS reports for two time points
permit us to study this issue.
The annual income from cultivation per farmer household varies substantially across
the states in India, as expected. During 2002-03, it varied from Rs. 10,616 per household
in Punjab to Rs. 1,264 in Orissa at 1986-87 prices. Similarly, the same income varied
from Rs. 19,396 per household in Punjab to Rs. 1,748 in West Bengal during 2012-13.
Besides substantial variation in farm income among the states, it is found to be very low
in most states where paddy is cultivated predominantly during both time points. For
instance, during 2012-13, the average cultivation income for the country as a whole was
56 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

Rs. 5,502 per household. But, it was much lower than this in states like Andhra Pradesh,
Orissa, Bihar, Tamil Nadu, Uttar Pradesh and West Bengal where paddy has traditionally
been cultivated predominantly; these states together accounted for 53 to 56 per cent of
India’s total paddy area during 2002-03 and 2012-13 (Government of India, 2016). This
in a way supports the rising dissent of paddy farmers who have been arguing over one
decade from now that the income from its cultivation dwindled substantially. It is true
about other crops as well.
Besides low income from cultivation, its growth is also not very appreciable among
the major states between 2002-03 and 2012-13. The average growth of cultivation income
for the whole of India is estimated to be about 3.81 per cent per annum between the two
periods, but it was less than that of the India’s average growth rate in 11 out of 18 states
reported in the Table 1. In states like Chhattisgarh, Karnataka, Madhya Pradesh, Haryana,
Punjab and Uttar Pradesh, the cultivation income grew at a faster rate over the rate of
national level average. To our surprise, the growth rate of income from cultivation was
negative in states like J&K, Jharkhand, Bihar and West Bengal. This poor growth in
income from cultivation might have affected the livelihood conditions of the farmers
living in these states. On the whole, the analysis based on the data available from SAS
clearly shows that the income from cultivation per farmer household was very low and its
growth rate was also nowhere nearer to the growth rate estimated by Chand et al.,
(2015).3
IV

MYTHS ON FARM INCOME – RESULTS OF CCS DATA

Before the publication of SAS data, information on farm income was available only
from the source of CACP, which has been publishing data for different crops since 1970-
71 on operation-wise cost, productivity and income collected through a national level
scheme called Comprehensive Scheme for Studying Cost of Cultivation of Principal
Crops.4 As the data on each aspect of crop cultivation has been collected directly from the
farmers on regular basis, CCS data has been considered as an important source of
information on cost and income. The announcement of minimum support price every year
for various crops by the Union Government is also primarily made using CCS data (see,
Sen and Bhatia, 2004). Therefore, it is necessary to study as to whether the farmers are
able to generate any profit from the cultivation of different crops over the years using
CCS data to understand the state of income in crops cultivation.
As mentioned earlier, an important issue that evaded analysts’ attention is the level of
profitability of crops cultivated under irrigated and less irrigated conditions? Many in
academia and policy circles all along believe that the crops cultivated under irrigated
condition generate significantly higher income than its less irrigated counterparts. They
believe that since the productivity of crops is higher in irrigated area as compared to the
same cultivated in less irrigated area, the profitability would also be higher. However,
profitability of any crop is not determined by its productivity alone. Factors like cost of
cultivation of the crop, market price of the produce, marketing facility from government
agencies, etc., play an important role in deciding the profit. There is a possibility that
because of increased supply (production) of agricultural output in irrigated region, the
 FARM INCOME IN INDIA: MYTHS AND REALITIES 57

unit price of the crop can be lower than that of less irrigated region where reduced supply
is common.
With the use of CCS data from 1970-71 to 2013-14, an analysis attempted here to
verify whether any significant difference exists in farm profitability between irrigated and
less irrigated region.5 Jowar, bajra, maize, gram, groundnut and cotton are mostly
cultivated with irrigated conditions and also with very less irrigated condition in different
states and therefore, these crops have been considered for the analysis. Profitability in
crops cultivation has been calculated both in relation to cost A2 and C2.6 Against the
expectation of many, CCS data does not show any bright picture in favour of crops
cultivated with higher coverage of irrigation in terms of profitability. Between TE 1973-
74 and TE 2013-14, the profit computed in relation to cost C2 is pathetically poor in both
the regions except in the case of cotton crop, where the profitability of irrigated Gujarat
was very high as compared to its neighboring state of Maharashtra (see, Table 2). In
relation to cost A2 too, except for cotton crop, the profitability of crops cultivated under
higher irrigation coverage is not consistently very high as compared to the same crops
cultivated with less irrigated condition at all the time points. Even the quantum of profit
realised in relation to cost was not very high in irrigated states, which is evident from the
low ratio of value of output to cost A2 and C2. In fact, in crops like gram and groundnut,
farmers from the less irrigated states have reaped higher profit in quite a few years than
their irrigated area counterparts (see, Figure 1). How does this happen? One of the
important reasons for this unusual tendency is due to increased cost of cultivation in the
irrigated areas. With the increased irrigation coverage, farmers are encouraged to adopt
the modern yield increasing inputs for crops cultivation which resulted in increased cost
of cultivation. But, this seems to have not happened in the case of less irrigated crops
possibly because of risk in getting expected yield and income. Therefore, it is not always
correct to conclude that the farmers in the irrigated region reap higher profit than their
less irrigated area counterparts.7
TABLE 2. PROFITABILITY IN DIFFERENT CROPS CULTIVATED IN IRRIGATED AND LESS IRRIGATED STATES
(Rs./ha at 1986-87 prices)
Category Profit in relation with cost A2 Profit in relation with cost C2
of TE TE TE TE TE TE TE TE TE TE
Crops States states 1973-74 1983-84 1993-94 2003-04 2013-14 1973-74 1983-84 1993-94 2003-04 2013-14
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
Jowar Karnataka IRS 1027 784 568 -96 124 389 103 91 -838 -176
Madhya LRS NA 514 446 102 569 NA -203 -614 -1119 -673
Pradesh
Bajra Gujarat IRS 625 1023 1247 445 1914 -212 -106 -51 -988 -248
Rajasthan LRS 443 389 378 594 563 17 -123 -376 -796 -1181
Maize Andhra IRS NA NA NA 1471 4152 NA NA NA -810 646
Pradesh
Rajasthan LRS 1189 866 546 333 1538 204 -520 -1019 -2039 -1831
Gram Madhya IRS NA 1588 1869 2547 3343 NA 626 396 734 1161
Pradesh
Uttar Pradesh LRS NA 1855 NA 3161 2341 NA 406 NA 1049 148
Ground- Tamil Nadu IRS 1279 1726 NA 1121 3373 13 43 NA -2244 -212
nut Gujarat LRS 1157 1131 1584 3594 2657 234 -184 -37 1298 -81
Cotton Gujarat IRS NA 2459 3452 3789 6502 NA 676 1332 1264 2637
Maharashtra LRS NA 991 NA 1533 3963 NA 125 NA -501 236
Source: Computed using data from CACP (various years).
Notes: IRS – Irrigated state; LRS – Less irrigated state.
58 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

6000
5000 MP IRS UP LRS
4000
3000
Rs/ha

2000
1000
0

Figure 1. Trends in Profitability (with cost A2) in Gram, Irrigated and Less Irrigated
State.

Another myth which needs to be studied and answered in the context of farm
profitability is: can we increase the farm income by increasing the productivity of crops?
It is often believed that the increased productivity would help the farmers to reap higher
profit. An Occasional paper by NITI Aayog (2015) has also stressed this point elaborately
to have more income from farming. Although increased productivity is necessary for
augmenting the farm income, many fail to understand that rising productivity alone
would not help to increase the farm income since it depends upon many other factors.
Well structured market is a key requirement for raising farm income. If procurement
arrangements are not made adequately at appropriate time, any amount of increase in
productivity would not benefit the farmers. Similarly, if the increase in cost of cultivation
is higher than that of the income realised through increased productivity, then farmers
would not get benefitted from increased productivity. Therefore, it is necessary to study
whether productivity of crops plays any significant role in deciding the farm profitability.
An analysis carried out with the help of CCS data does not clearly show that the
increased productivity would help the farmers to reap higher profit. To clarify this issue
further, an attempt is made to find out as to what extent the profitability of High
Productivity States (HPS) is different from the Low Productivity States (LPS) for six
important crops namely paddy, wheat, tur, groundnut, sugarcane and cotton. The results
generated from 1971-72 to 2013-14 prove that the profitability of HPS is not significantly
different from that of LPS in most crops presented in Table 3. HPS states have neither
managed to reap profit in a consistent manner nor able to generate significantly higher
profit than LPS category in all the time points considered for the analysis (see, Table 4).
A question arises here is: why are the high productivity states not able to reap higher
profit? We have answer for this question from CCS data itself. The cost of cultivation of
HPS states in all the crops is not only substantially higher than that of the crops
cultivated in LPS states but also increased at faster rate.8 Although the value of output of
the crops from LPS is substantially higher, the increased cost of cultivation has reduced
the profitability. In fact, because of increased investment made by the farmers in
agriculture, cost C2 has increased much faster in the recent years than in the 1980s and
 FARM INCOME IN INDIA: MYTHS AND REALITIES 59

1990s (see, Figure 2). In addition to low profitability, the year-on-year fluctuations in
profitability are also found to be very high in HPS, which might be hurting the farmers.

TABLE 3. PROFITABILITY IN CROPS CULTIVATION AMONG HIGH AND LOW PRODUCTIVITY STATES
(Rs./ha at 1986-87 prices)
Profit in relation with cost A2 Profit in relation with cost C2
Category TE TE TE TE TE TE TE TE
Crops State of states 1983-84 1993-94 2003-04 2013-14 1983-84 1993-94 2003-04 2013-14
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Paddy Andhra Pradesh HPS 1904 NA 4110 5134 -112 NA 91 723
Orissa LPS 1326 NA 1186 1566 -2436 NA -1327 -1615
Wheat Punjab HPS 2283 3016 4327 5976 414 588 1102 2109
Madhya Pradesh LPS 1380 1516 1849 4207 180 -186 -252 1189
Gram Madhya Pradesh HPS 1588 1869 2547 3343 626 396 734 1161
Haryana LPS 809 1851 1326 2935 -165 524 -296 522
Tur Uttar Pradesh HPS NA 4456 3212 2977 NA 2269 534 -915
Madhya Pradesh LPS NA 1747 2057 3243 NA 625 248 1044
Groundnut Gujarat HPS 1131 1584 3594 2657 -184 -37 1298 -81
Karnataka LPS 1604 NA 558 1502 561 NA -536 -569
Sugarcane Tamil Nadu HPS 11768 NA 11821 18505 7708 NA 4481 11093
Maharashtra LPS 7951 6833 3999 18663 3544 2633 -2348 9566
Cotton Gujarat HPS NA 2459 3452 3789 NA 676 1332 1264
Maharashtra LPS 991 NA 1533 3963 125 NA -501 236
Source: Computed using data from CACP (various years).
Notes: HPS – High productivity state; LPS - Low productivity state.

TABLE 4. NUMBER OF YEARS PROFIT (RATIO > 1 TO COST) REAPED OR LOSS (RATIO < 1 TO COST)
INCURRED BY FARMERS IN VARIOUS CROPS FROM 1970-71 TO 2013-14

Ratio >1.00 Ratio >1.00

(VOP to cost A2) (VOP to cost C2)
1970-71 1995-96 1970-71 1970-71 1995-96 1970-71
to to to to to to
Crop name State 1994-95 2013-14 2013-14 1994-95 2013-14 2013-14
(1) (2) (3) (4) (5) (6) (7) (8)
Paddy Punjab 14/14 18/18 32/32 13/14 18/18 31/32
West Bengal 16/16 20/20 36/36 09/16 00/20 09/36
Wheat Punjab 23/23 20/20 43/43 17/23 19/20 36/43
Madhya Pradesh 19/19 20/20 39/39 11/19 15/20 26/39
Gram Madhya Pradesh 16/16 20/20 36/36 15/16 18/20 33/36
Haryana 15/15 17/17 32/32 10/15 10/17 20/32
Tur Uttar Pradesh 09/09 18/18 27/27 09/09 16/18 25/27
Madhya Pradesh 10/10 20/20 30/30 10/10 19/20 29/30
Groundnut Gujarat 16/16 19/20 35/36 11/16 12/20 23/36
Karnataka 12/12 17/17 29/29 9/12 01/17 10/29
Rapeseed and Rajasthan 11/11 20/20 31/31 11/11 20/20 31/31
Mustard Assam 11/11 20/20 31/31 11/11 02/20 13/31
Sugarcane Tamil Nadu 04/04 17/17 21/21 04/04 17/17 21/21
Maharashtra 15/15 20/20 35/35 15/15 14/20 29/35
Cotton Punjab 19/19 20/20 39/39 17/19 13/20 30/39
Maharashtra 09/09 18/18 27/27 07/09 10/18 17/27
Source: Computed using data from CACP (various years).
Notes: Numerators are number of years profit reaped; Denominators are total number of years for which data
was available.

Assessing the ground reality of the farm sector, the recent report by NITI Aayog on
remunerative farming heavily stressed upon the productivity of crops for raising the farm
income. It surmises that “To increase productivity, progress is required along three
60 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

140
120 Paddy (Andhra Pradesh)
100
80
Percent

60
40
20
0
1971-72
1976-77
1978-79
1980-81
1982-83
1984-85
1987-88
1990-91
1995-96
1997-98
1999-00
2001-02
2003-04
2005-06
2007-08
2009-10
2011-12
2013-14
Figure 2. Percentage Difference between Cost A2 and C2 in Paddy and Wheat.

dimensions: (i) Quality and judicious use of inputs such as water, seeds, fertiliser and
pesticides; (ii) judicious and safe exploitation of modern technology including genetically
modified (GM) seeds; and (iii) shift into high value commodities such as fruits,
vegetables, flowers, fisheries, animal husbandry and poultry. In the longer run,
productivity enhancement requires research toward discovery of robust seed varieties and
other inputs, appropriate crops and input usage for a given soil type and effective
extension practices” (NITI Aayog, 2015). Increase in productivity is surely not the
solution and if we allow the market to have low prices during high
productivity/production years. Therefore, this strategy alone would not help the farmers
to get sufficient income from farming. Raising productivity might help the consumers and
the country to further strengthen the food security with reduced food inflation. But, the
farmers at large would not benefit through increased productivity unless efforts are made
simultaneously to control the cost of cultivation and improve the procurement
arrangements through state agencies, which are missing in the listed strategies. Farmers
have been arguing in the recent years that increased cost of cultivation especially the
wage cost has been seriously affecting the income from crop cultivation, which is also
supported by CCS data (see, Tables 5 and 6). More fundamentally, it is not simply the
high productivity but better prices that dictate the income trends. Increase in cost of
cultivation was also cited as the main reason for declaring paddy ‘crop holiday’ in about
four lakh hectares in the fertile area of Andhra Pradesh. Therefore, measures are urgently
needed to cut down the cost of cultivation wherever possible while formulating policies
for promoting productivity of crops.

TECHNOLOGY AND FARM INCOME

Can technology be useful in augmenting farm income? Although technical progress

has been continuously taking place in Indian agriculture since the introduction of Green
Revolution, three important new technologies/methods have been introduced after
 FARM INCOME IN INDIA: MYTHS AND REALITIES 61

TABLE 5. INCREASE IN LABOUR AND OTHER INPUTS COST IN SELECTED CROPS,

TE 1982-83 AND TE 2013-14
(Rs./ha at 1986-87 prices)
Crop State Operations TE 1982-83 TE 2013-14 Per cent change
(1) (2) (3) (4) (5) (6)
Paddy Andhra Pradesh Human Labour 1264 3335 163.84
Fertiliser 1081 914 -15.45
Cost A2 + FL 3319 5339 60.86
West Bengal Human Labour 1413 3873 174.10
Fertiliser 345 698 102.32
Cost A2 + FL 2284 4366 91.16
Wheat Punjab Human Labour 729 780 7.00
Fertiliser 1073 737 -31.31
Cost A2 + FL 3179 3694 16.20
Uttar Pradesh Human Labour 724 1276 76.24
Fertiliser 640 613 -4.22
Cost A2 + FL 2810 3353 19.32
Gram Madhya Pradesh Human Labour 351 826 135.33
Fertiliser 25 223 792.00
Cost A2 + FL 1003 2270 126.32
Rajasthan Human Labour 378 1143 202.38
Fertiliser 11 89 709.09
Cost A2 + FL 829 1488 79.49
Tur Karnataka Human Labour 414 1219 194.44
Fertiliser 109 312 186.24
Cost A2 + FL 875 2297 162.51
Madhya Pradesh Human Labour 647 1043 61.21
Fertiliser 163 178 9.20
Cost A2 + FL 959 1641 71.12
Groundnut Gujarat Human Labour 697 1891 171.31
Fertiliser 508 662 30.31
Cost A2 + FL 2459 4640 88.69
Andhra Pradesh Human Labour 754 3484 362.07
Fertiliser 312 704 125.64
Cost A2 + FL 2132 5837 173.78
Sugarcane Tamil Nadu Human Labour 3764 12227 224.84
Fertiliser 1932 1856 -3.93
Cost A2 + FL 9312 14714 58.01
Maharashtra Human Labour 4118 6831 65.88
Fertiliser 3254 2718 -16.47
Cost A2 + FL 11431 14737 28.92
Cotton Maharashtra Human Labour 676 3320 391.12
Fertiliser 523 1321 152.58
Cost A2 + FL 1773 6431 262.72
Gujarat Human Labour 1305 3195 144.83
Fertiliser 942 1024 8.70
Cost A2 + FL 4379 5159 17.81
Source: Computed using data from CACP (various years).

nineties specifically to conserve resources and to increase farm income. They are Drip
Irrigation Technology (DIT), Genetically Modified (GM) crop in cotton (called as Bt
cotton) and System of Rice Intensification (SRI). DIT was introduced primarily to
conserve irrigation water and also to increase the yield of crop. Bt cotton, which is one of
the GM crops approved for commercial cultivation in India so far, was introduced to
increase the yield of cotton by protecting the bollworm attack, a major pest problem
encountered by the cotton farmers around the world (see, Narayanamoorthy and
62 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

TABLE 6. COMPOUND GROWTH RATE IN COST A2, C2 AND VALUE OF OUTPUT IN SELECTED CROPS
(per cent/annum)
Cost A2 Cost C2 VOP
1970-71 1995-96 1970-71 1995-96 1970-71 1995-96
to to to to to to
Crop State 1995-96 2013-14 1995-96 2013-14 1995-96 2013-14
(1) (2) (3) (4) (5) (6) (7) (8)
Paddy Punjab 5.59 6.78 6.08 7.29 7.96 8.47
West Bengal 10.21 9.40 9.71 8.83 9.15 8.06
Wheat Punjab 8.76 6.39 8.79 7.33 8.57 8.99
Madhya Pradesh 11.67 7.38 12.92 7.97 10.42 8.97
Gram Madhya Pradesh 8.81 8.40 8.59 8.21 8.79 8.17
Haryana 6.81 9.73 8.07 8.56 8.26 6.06
Tur Uttar Pradesh 3.84 6.78 2.85 7.93 3.43 3.78
Madhya Pradesh 3.51 8.75 4.27 7.67 4.31 6.67
Groundnut Gujarat 8.68 9.57 9.17 9.67 8.51 11.53
Karnataka 7.31 7.80 7.70 7.88 8.61 9.15
Rapeseed and Rajasthan 6.77 8.32 6.66 8.16 8.16 6.89
Mustard Assam 7.60 9.37 7.82 8.91 5.90 8.24
Sugarcane Tamil Nadu 4.72 6.41 4.70 6.10 5.38 5.73
Maharashtra 7.10 8.12 6.71 8.58 5.52 9.52
Cotton Punjab 10.56 8.50 10.17 8.06 10.99 8.71
Maharashtra 9.09 10.76 9.26 10.83 10.50 10.48
Source: Computed using data from CACP (various years).

Kalamkar, 2006; Gandhi and Namboodiri, 2006). A relatively young method known as
SRI was introduced in paddy cultivation specifically to reduce the cost of cultivation,
save water and to increase the yield of paddy. While the cost of cultivation involved in
adopting these three technologies/methods vary widely9, it is useful to understand as to
what extent these technologies are beneficial to farmers in terms of profitability.
Drip irrigation technology has been in use for crop cultivation since late eighties but
its popularity has increased only after the introduction of Central Scheme with generous
subsidy component during early 1990s. INCID (1994) report mentions that DIT can be
used efficiently for cultivating over 85 crops in India; not only wide spaced horticultural
crops but also suitable to many narrow spaced crops like pulses, oilseeds, cotton,
sugarcane and even in paddy. Because of very attractive promotional schemes introduced
by the Central as well as some state governments, the area under DIT has increased many
folds over the years; from 70,589 hectares in 1990-91 to 3.38 million hectares in 2014-15
in India. Today, India stands as one of the largest adopters of DIT in the world.
Since the introduction of DIT in India, a large number of studies have been carried
out to understand the intricacies of crop cultivation. Reduced cost of cultivation,
substantial saving of water and energy and significant increase in productivity of crops
are often reported as the main benefits of drip irrigation technology. As per the farm level
data based studies, crops cultivated using DIT are able to reduce water consumption to
the extent of 30-60 per cent per hectare, while increasing the productivity of crops to the
extent of 30-50 per cent (see, Narayanamoorthy, 1997; 2003 and 2008). DIT requires
fixed investment and therefore, some studies have explored the economic viability
including profitability of this technology under with and without capital subsidy
scenarios. Studies undisputedly proved that the crops cultivated under DIT can generate
significantly higher income for farmers than those crops cultivated under conventional
 FARM INCOME IN INDIA: MYTHS AND REALITIES 63

method of irrigation (see, Table 7). While the information on who are the farmers
extracting profits by adopting DIT is not clearly available, existing results show that
the farm income can be increased substantially by adopting DIT in various crops
cultivation. In spite of huge benefits, the spread of this technology as of today is only
about 12.50 per cent of its total potential of 27 million hectares estimated by the Task
Force on Micro-Irrigation (TFMI, 2004).10 Along with the capital subsidy, state agencies
must take sustained efforts to create awareness about this technology to benefit the
farmers. Efforts are also needed to reduce the capital cost of the system so that the small
holders can also adopt this technology to increase their income from crop cultivation.
An important technological breakthrough that has taken place recently in agriculture
is GM seed, which promises to increase the yield of crop significantly with reduced cost
of cultivation and pesticides consumption. Although GM seeds available for a few crops
in the world, Bt cotton is the only GM crop so far permitted for commercial cultivation in
India. Despite of strong opposition from different quarters, the response from the farmers
on adopting this crop has been overwhelming since its commercial introduction during
2002. There are of-course a large number of critics about the GM crops but rarely the
critics substantiated their points with concrete data. As per the report of NITI Aayog
(2015), the coverage of area under Bt cotton has reached to about 11.60 million hectares,
which was over 95 per cent of India’s total cotton area in 2014. As a result of widespread
adoption of Bt cotton seed, the yield of cotton has increased substantially from just 186
kg/ha in 2001-02 to a level of 532 kg/ha in 2013-14, an increase of about 186 per cent.
The impact of adoption of Bt cotton on productivity is not only noticed at the macro-level
but also seen in major cotton growing states like Maharashtra, Andhra Pradesh, Gujarat
and Tamil Nadu.
Studies conducted using farm level data in various states proved that Bt cotton can
increase the income of farmers substantially with marginal increase in cost of cultivation.
Most studies reported in Table 8 reveal that cotton productivity can be increased 40-50
per cent with around 20 per cent increase in cost of cultivation by adopting Bt varieties.
Profit realised by the adopters of Bt cotton is substantially higher as compared to non-Bt
cotton in almost all the states where from credible studies are available. Despite
substantial benefit from Bt cotton, GM seeds are not allowed to be cultivated
commercially in any other crop in India. Can it be called as a right strategy? Bt brinjal,
after going through all the required tests, has been cleared for the commercial adoption by
the appropriate official bodies in 2010 itself, but has been blocked by the Union Ministry
of Environment (NITI Aayog, 2015). Bt brinjal can substantially reduce the consumption
of pesticides while increasing the productivity that would ultimately benefit the farmers
in terms of profitability. The effects on consumption of GM crops have not been well
documented and countries like USA, Canada and China are having no hesitation in
allowing marketing of GM crops. Higher cost of GM seeds is often used to oppose this
technology by the activists because of poor purchasing power of majority of the farmers.
In order to increase the benefit of GM crops to all the resource poor farmers, necessary
arrangements should be made to promote the research and developmental activities
through state agencies, which is presently lacking.
64 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS
FARM INCOME IN INDIA: MYTHS AND REALITIES 65
66 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

A new method of paddy cultivation popularly called as the System of Rice Production
(SRI) and aerobic rice cultivation was introduced sometime during 2000-01 specifically
to increase the yield with less cost of cultivation. Paddy farmers in India have been facing
problems in generating adequate profit from its cultivation for quite some time now
because of increased cost of cultivation and reduced profit margin (see, Narayanamoorthy
and Suresh, 2012). This sentiment was also reflected through declaring ‘crop holiday’ in
paddy crop by farmers in Andhra Pradesh. But, the new method of paddy production
appears to generate lot of benefits to farmers. SRI is not a new variety or hybrid, but it is
only a new method of cultivation, where a set of innovative principles are followed for
cultivating paddy. It was first developed in the 1980s by Henri de Laulanie, a French
priest and farming practitioner living in Madagascar, and furthered in the 1990s by
passionate farmers, scientists and researchers (see, Uphoff, 2004; World Bank, 2008).
This method has proved to increase the yield of paddy significantly with less water, less
seed as well as with less chemical inputs than the conventional method of paddy
cultivation (see, WWF, 2007; Reddy et al., 2005).
The available results on SRI method of paddy cultivation increasingly suggest that the
farmers can increase their paddy productivity by more than two times with lesser of farm
inputs and irrigation water. There are also systematic results about the Aerobic Rice
cultivation. Using SRI method of paddy cultivation, countries like India, Indonesia,
Cambodia, Vietnam, and the Philippines have recorded increase of rice yield from 60 per
cent to over 170 per cent (see, World Bank, 2008). Studies carried out in different
locations in India do suggest that the paddy cultivated using the method of SRI can
significantly increase the productivity that too with reduced cost of cultivation. Farmers
are able to reap over 50 per cent of profit through SRI method of cultivation than that of
the non-SRI method of paddy cultivation (see, Table 9). Although both the Central and
State governments have introduced various promotional measures including subsidy
scheme for popularising this method in a big way, the progress has not been very
encouraging except in states like Tamil Nadu, Bihar and Tripura (NITI Aayog, 2015).
Extension programmes at a massive scale need to be introduced to popularise this new
method of paddy cultivation wherever possible. On the whole, the available results on
crops cultivated with the new technologies seem to be income enhancing.

VI

FUTURE AGENDA

It is clear from the analysis of SAS and CCS data that the income realised by the
farmers from different crops cultivation is very low over the years. Although the income
from crop cultivation alone (at 1986-87 prices) has increased from Rs. 3,645 in 2002-03
to Rs. 5,502 in 2012-13 per farmer household as per SAS data at the national level, it was
found to be far less than the national level average in many states of India. In states like
Andhra Pradesh, Bihar, Jharkhand, Orissa, Tamil Nadu and West Bengal, the annual
income from cultivation per farmer household was pathetically low. In fact, the income
realised from cultivation by the farmer household at current prices works out to be only
about Rs. 101 per day during 2012-13. Can a farmer household satisfy the family
FARM INCOME IN INDIA: MYTHS AND REALITIES 67
68 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

consumption needs and other expenditures with this meagre income? Similar to SAS
data, data on cost of cultivation surveys from 1971-72 to 2013-14 too reinforce the fact
that the income from crop cultivation is very poor across different crops and states in
India. The poor income from crop cultivation is not only seen with the crops cultivated
under rainfed/less-irrigated condition but also among crops that are cultivated under
increased coverage of irrigation. Against the common notion, the CCS data of different
crops shows no significant and consistent difference in profitability between high
productivity states and low productivity states. Farmers were unable to realise increased
income consistently in any of the crops considered for the analysis. Besides low income,
the year on year fluctuation in crop-wise income is also widespread in most crops since
early 1970s, which also intensified during post 2000s.
Farmers have suffered losses or realised low income due to both increased cost of
cultivation and insignificant increase in value of output due to market failure.
Productivity and production increase can in no way be a solution as the simple law of
market economics defeats the logic. Larger the arrival in the markets lower is the price of
the product and hence the increase in production will be eroded by consequent fall in
prices. This needs to be realised. The reduced margin of profit from crop cultivation
would not provide any incentive to farmers to continue to engage in agriculture in an
intensive manner (see, Swaminathan, 2008). As per SAS data (NSSO, 2005a), about 40
per cent of the farmers are reportedly willing to quit agriculture because of poor
remuneration from farming. The income from crop cultivation is not even enough to meet
the annual cultivation expenditure in many states, which is also proved by SAS data. No
single programme can help increase the income of the farmers on a continuous basis.
Farmers need sustained support in the form of increased returns from their crop
cultivation. Therefore, along with price incentives, concerted efforts need to be taken to
strengthen the non-price incentives such as the procurement system and market
infrastructure, public investment in agriculture, irrigation infrastructure and institutional
credit.
Although the awareness about the Minimum Support Price (MSP) is very low among
the farmers11, it is plays a key role in deciding the market price of agricultural
commodities (NITI Aayog, 2016). It is alleged by the farmers that MSP for the crops are
not fixed in consonance with cost of cultivation in most cases. The analysis on CCS data
also seems to support this point. Without reasonable profit margin from crop cultivation,
farming cannot be sustained and the expected growth in the agricultural sector would also
be difficult to achieve. Therefore, as a first step towards increasing farm income, MSP
should be fixed keeping in view the market trends in produce as also input prices. The
National Commission on Farmers (NCF, 2006) and the Working Group on Agriculture
Production (Business Line, 2010) have suggested that the MSP for crops at 50 per cent
more than the actual cost of production (cost C3), albeit without giving any rationale to
that incremental percentage. Prices fixed based on cost A2 do not cover the entire cost of
cultivation, which is also proved by our analysis presented in the paper. Due to changing
nature of agriculture, cost on fixed investment, rent and supervisory cost has increased
substantially over the years. For instance, in Punjab, the difference between cost A2 and
C2 was only about 60 per cent during TE 1982-83, but this difference increased to about
 FARM INCOME IN INDIA: MYTHS AND REALITIES 69

105 per cent in TE 2013-14 for wheat crop. Similar situation is seen in paddy in Andhra
Pradesh and sugarcane in Maharashtra as well. The cost A2 does not include these
important items, which cannot be justified by economic logic. Therefore, MSP should be
fixed based on cost C2, after working out real cost of cultivation through credible data. In
addition to this, in order to protect the farmers from the inflationary pressure, the MSP
announced every year for various crops can also be fixed by linking with the wholesale
price index of produce as also the inputs, as followed for salaried classes by way of
dearness allowance (DA).
Mere announcement of MSP would not help the farmers but along with MSP, there is
also a need to strengthen the procurement infrastructure. Even in paddy and wheat, except
for a few states like Andhra Pradesh, Punjab and Haryana, the procurement level by the
state agencies has all along been very poor (see, Narayanamoorthy and Suresh, 2012). At
the country level, the procurement of paddy and wheat to its total production was only
about 30 per cent and about 32 per cent respectively during 2014-15. Farm income
especially from paddy crop is found to be very low or negative in all those states (for
example, West Bengal and Orissa) where procurement level is pathetically low.
Procurement arrangements are also very poor in non-foodgrain crops such as oilseeds,
pulses, which is clearly evident from SAS data as well. This has allowed the private
market agents to scrupulously exploit the farmers and then the consumers. Studies carried
out across 236 districts in India show that density of market to cropped area and average
distance to market play a significant role in deciding the per hectare value of output
realized by the farmers (see, Narayanamoorthy et al., 2013). Therefore, procurement as
well as state managed market infrastructures must be strengthened across India for all the
important crops.
Agricultural Produce Marketing Committee (APMC) Act of 2003 (Rules in 2007)
should be implemented at war footing. As rightly mentioned in the 16th Report of
Committee on Agriculture on `Pricing on Agricultural Produce’, APMC “advocates inter
alia provision for private markets and E-markets, contract farming, direct purchase of
agricultural produce from farmers by processors/bulk retailers/wholesalers/ exporters
nearer to the production centre, direct sale of produce by farmers to the consumers, etc.
Such multiple options will enable the farmer to sell the produce for optimum returns
without being compelled to make distress sale in local mandis.” (Government of India,
2014). The role of farmers in deciding the price should be promoted by directly involving
them in the market activities extensively. Farmers’ managed markets in states like Tamil
Nadu and Andhra Pradesh have proved to be beneficial to them (see, Kallummal and
Srinivasan, 2007). Therefore, producers’ markets on the lines of Ryatu Bazars should be
encouraged across every part of the country to improve the farm income and to eliminate
middlemen as underlined in the National Agricultural Policy of 2000 (Government of
India, 2000). Without affecting the poor consumers, online market sale of agricultural
commodities also needs to be promoted to control the exploitation of middlemen in the
market.
In order to protect the farmers from the distress sale during the glut periods, the price
behaviour of sensitive commodities needs to monitored closely for making swift
intervention through the ‘Market Intervention Scheme’ (MIS), as suggested by Expert
70 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

Group Committee on Indebtedness led by Prof. Radhakrishna. While regulating the

output markets, it is also necessary to simultaneously regulate the input markets
effectively to improve the pathetic income level of the farmer households. Use of
spurious inputs is also partly responsible for crop failures and increased use of pesticides
in crops like cotton. Sale of spurious inputs (seeds, fertilisers and pesticides) has been
reported widely in media in the recent years, which is also an important reason for
increased cost of cultivation and low output. The sale of spurious inputs must be stopped
by all possible means to protect the farmers’ welfare.
With the aim to increase the income of farmers by augmenting productivity of crops,
many new technologies/methods such as micro-irrigation methods (drip and sprinkler),
GM seeds and system of rice intensification (SRI) have been introduced. While these
technologies proved to be useful in increasing the income of the farmers, steps need to be
taken to make these technologies easily accessible to marginal and small farmers. Prices
of GM seeds need to be brought down for which R&D of the government sector should
be promoted (see, Narayanamoorthy and Alli, 2014). One of the very promising
technologies introduced during the 1990s was drip irrigation technology, which proved to
have increased the income of the farmers significantly that too with reduced consumption
of water and cost. However, owing to poor awareness about this technology and
requirement of high capital cost, the spread of this technology is not very high even after
25 years of its introduction. While every arrangement is needed to cut down the capital
cost required for installing DIT, special arrangements are to be made to provide quality
extension services with the specific motto of creating awareness about the importance of
this new irrigation technology.
Besides price incentives, the policy makers should also focus on the non-price
incentives to increase the productivity of crops and also to reduce the cost of cultivation.
Increased capital formation from public account is essential to reduce the transaction cost
for private farmers. Except in the recent years, the fixed capital formation by public
sector in agriculture has been continuously declining both in absolute terms and also in
relation to the agricultural GDP. Efforts should be made to increase the public investment
so that the cost of cultivation can be reduced. The other important non-price incentive
needed for the farmer is the assured supply of institutional credit. Non-availability of
institutional credit often forces the farmers to rely on non-institutional sources of credit to
meet their credit requirements for crop cultivation that ultimately increases the cost of
cultivation. The Rangarajan Committee on Financial Inclusion (Government of India,
2008) made it clear that the bulk of small and marginal farmers do not have access to
institutional credit. By providing adequate credit in time with low interest rate, the cost of
cultivation can be reduced substantially. Therefore, farmers’ friendly policies need to be
framed to provide adequate credit in time to increase the farm income.
One of the reasons for increased cost of cultivation and reduced income from crops
cultivation is the increased reliance on groundwater irrigation in the recent years. Not
only the fixed cost requirement for establishing groundwater irrigation structures has
increased over the years, but the recurring cost on using the same water for crops
cultivation has also increased. CCS data clearly shows an increasing trend in the cost on
account of irrigation in most crops especially in the recent years. This is because of
 FARM INCOME IN INDIA: MYTHS AND REALITIES 71

stagnation in the expansion of public sector managed surface irrigation facilities such as
canal and tank since the mid-nineties.12 Surface irrigation is a low cost source of
irrigation that can reduce the private cost of the farmers substantially. Therefore, adequate
allocation of funds required for completing the on-going irrigation projects with better
monitoring by State agencies need to be focused, as underlined in the report of the
Working Group on Major and Medium Irrigation for the 12th Plan (see, Planning
Commission, 2012).
Many hold the myth that the income of the farmers can be increased by augmenting
the productivity of the crops. There is no doubt that any increase in productivity of crops
would definitely benefit the farmers. However, augmenting productivity of crops is only a
necessary but not a sufficient condition to increase the farm income. Without adopting
new technologies in crops cultivation, productivity of crops cannot be increased
significantly. Farmers would hesitate to adopt the new technologies unless they are
capable of generating increased income with reduced cost. Increased cost of cultivation
(not only costs A2 but C2 as well) has been the major issue encountered by the farmers in
the recent years, which needs to be controlled by all means. Even if MSP is announced in
consonance with the cost of cultivation (cost C2) for crops, it would not guarantee better
income for farmers unless procurement infrastructures are strengthened sufficiently.
Therefore, along with remunerative MSP for different crops, government should also
strengthen farmers’ friendly market infrastructure with other non-price incentives such as
adequate credit and improved surface irrigation facility. There is no doubt that the income
of the farmers can be increased adequately, if procurement arrangements and other non-
price (technology, credit and irrigation) incentives are packaged and sequenced
appropriately along with revision of MSP in consonance with the cost of cultivation.

NOTES

1. Detailed studies on transaction cost involved in crops cultivation are seldom available in the Indian context. A
study on transaction costs in agriculture from the planting decision to selling at whole sale market carried out in Sri
Lanka estimated a 15 per cent of transaction cost in the total cost of production among the small-holder farmers (see,
De silva et al., 2008).
2. It is necessary to mention here that the definition of farmer households followed in 70th Round of NSSO is
bit different from that of 59th Round of NSSO (SAS data). The major differences in definitions are summarised as
under: “(a) Possession of land was an essential condition for defining a person as farmer (farmer household) in 59th
round, but an agricultural household as defined in NSS 70th Round may or may not possess land. (b) In 59th round,
farmers having insignificant farming activities, like kitchen garden, etc. were excluded from the survey coverage. In
order to eliminate households pursuing agricultural activities of insignificant nature in 70th Round, households with
at least one member self-employed in agriculture either in principal status or subsidiary status and having total value
of produce during last 365 days more than Rs. 3000 were only considered for inclusion in the survey coverage”
(NSSO, 2014).
3. As per the study of Chand et al., (2015), the farm income per cultivator grew at a rate of 1.96 per cent per
annum during 1993-94 to 2004-05, but registered growth of 7.29 per cent per annum during 2004-05 to 2011-12,
which is not borne out from the estimate of SAS data. The other dimensions of growth (per cent/annum) in farm
income estimated by Chand et al., are presented below for ready reference:
Period Total Per cultivator Per holding Per hectare of NSA
(1) (2) (3) (4) (5)
1983-84 to 1993-94 3.67 2.74 1.85 3.73
1993-94 to 2004-05 3.30 1.96 2.10 3.38
2004-05 to 2011-12 5.36 7.29 3.94 5.31
72 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

4. The details of methodology used for collecting data under the scheme of CCS can be seen from the website of
CACP (www.cacp.dacnet.nic.in).
5. Published data on cost of cultivation is available only up to 2013-14 and therefore, we could not perform any
analysis beyond this time period in this paper. Over the years, CCS data has been published with time lag of three to
four years, but in the recent years some improvements have taken place in publishing the data, thanks to the pressures
put forth by the farmers’ organisations.
6. One of the issues debated seriously in the analysis on profitability or income is what is the appropriate cost to
calculate profitability of crop? Recently, Narayanamoorthy (2013) observed that “Many scholars have considered cost
A2 for calculating profit despite the fact that cost A2 does not cover interest on value of owned capital assets and rent
for land, which would form substantial share in modern agriculture today. Moreover, there is also a growing concern
that farmers should also get income for performing managerial functions in agriculture, as has been followed in other
professions where managing director or CEO gets hefty salary for performing managerial operations. The cost A2
also does not include the cost for performing managerial operations in agriculture (See the definition of CACP)”.
Since cost A2 is only partial cost of cultivation, in this study, we work with two cost concepts namely cost A2 and
cost C2 to find out the profitability (returns over cost of cultivation) of different crops selected for the analysis. Profit
of the crop is calculated by deducting cost A2 and C2 from the value of crop output of the respective crop.
7. A detailed analysis using CCS data on profitability in different crops cultivated under irrigated and less
irrigated areas can be seen in Narayanamoorthy et al. (2015).
8. Due to brevity of space, data on cost of cultivation (A2 and C2) is not presented in the tables. A detailed
analysis on the increase of cost of cultivation can be seen from Narayanamoorthy (2013).
9. Costs of these three technologies are not the same. While the requirement of capital cost is relatively high for
DIT because of installing of well structured system in the field, SRI method does not involve any large additional cost
to adopt it in paddy cultivation. However, the cost of GM seed is significantly costlier than hybrids and high yielding
varieties, which is also one of the major reasons why activists oppose for GM technology in India. More details on the
cost of these three technologies can be seen in Narayanamoorthy (2005), Narayanamoorthy and Kalamkar (2006) and
Palanisami et al. (2013).
10. Detailed estimates on crop-wise potential for drip and sprinkler irrigation can be seen from the Report of the
Task Force on Micro-Irrigation (Government of India, 2004).
11. Awareness about the MSP has been poor among the farming community in India. Only about 19 per cent of
farmers had understood the scheme of MSP as per the SAS data of 2002-03. This level of understanding has not
changed much even today. As per the latest data of SAS pertaining to the period January-June 2013, where awareness
of the households about MSP is provided for some specific crops, the awareness was only 31-39 per cent even in
paddy and wheat. In crops like pulses and oilseeds, the awareness about MSP was abysmally low, hovering 5-10 per
cent (see, NSSO, 2005 and 2014). A recent study carried out by NITI Aayog (2016) also reported the prevalence of
low awareness about MSP among the farmers in different states.
12. Even after making massive investment on surface irrigation development since 1990-91, the area irrigated
by surface source is almost stagnant over the last two decades. A comprehensive analysis on the development and
composition of irrigation by source across the states over the years is provided in Narayanamoorthy (2011).

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