Estimates and Analysis of Farm Income in India, 1983-84 to 2011-12
Backdrop
● The most appropriate measure of farmers' well-being is the level of farm income, but
this is not available in most countries, including India.
● Scholars have observed a strong bias in policies against agriculture and markets tend
to be biased against agriculture. This has been examined in a large number of studies,
using the terms of trade between agriculture and other sectors as an indicator of bias.
Some studies find terms of trade remaining against agriculture, while others find them
in favour of agriculture. The main reason behind this difference is the choice of study
period.
● A review of the literature shows that since 1990-51, the terms of trade for agriculture
sometimes declined, sometimes increased, and did not show any trend in other
periods. A more recent study (Dholakia and Sapre 2013) shows that terms of trade for
agriculture have fluctuated considerably over time and a consistent rise in favour of
agriculture is seen after 2005-06.
● The discrimination against agriculture is seen in the disparity in per worker income in
the agriculture and non-agriculture sectors. This has been due to a higher decline in
the share of agriculture in national income compared to the decline in the share of the
agricultural workforce in the total workforce of the country. Studies have stretched
this inference to conclude that farm income is very low and not rising, but there is no
series on farm income available in the country.
● In the absence of actual estimates of farm income, indicators like the value of
agricultural output, net domestic product (NDP), income from selected crops, and
some survey-based estimates have been used to draw inferences about the behavior of
farm income.
● Narayanamoorthy (2006) derived estimate of farmers' income from the cost and
receipt data for crop cultivation reported in the National Sample Survey Office
(NSSO) report on the Situation Assessment Survey. The study by Narayanamoorthy
presented a dismal picture of farm income, with the annual net income of a farmer
household for the country as a whole estimated to be only Rs 2,837 in 2002-03. This
estimate was derived from cost and receipt data for crop cultivation reported in the
NSSO report on Situation Assessment Survey (2005: 472).
● Chand et al (2011) derived an estimate of farm income for one point of time from
value-added in agriculture reported by the Central Statistics Office (cso). Based on
this, the per hectare farm income for the country as a whole from 2007-08 to 2008-09
was Rs 33,267 per hectare, at 2004-05 prices. Income of 62% who own less than 0.8o
hec land was below the poverty line for the same period.
● Sen and Bhatia (2004) estimated farm business income using data from the central
government's Comprehensive Scheme for Studying the Cost of Cultivation of
Principal Crops in India from 1981-82 to 1999-2000. The authors concluded that the
level of farm business income per farmer on an average was hardly sufficient to pay
for essentials.
● 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.
● It also does not cover horticultural crops and several minor crops that constituted 38%
of the total value of the crop sector in 2011-12. Additionally, the data on income from
the livestock sector is not appropriately captured in the cost of cultivation schedules.
Estimation Procedure
● The sectoral income (NDP) of agriculture is not the same as the income of farmers, as
it is shared by hired farm labour and farmers. This means that income derived by
farmers from agriculture is not the same as the income of the sector, as part of it goes
as a wage bill in cash or in kind to labour hired for farm work.
● Additionally, the ratio of farm income to sectoral income will undergo changes with
changes in the composition of farm labour, between family labour and hired labour,
and the composition of the total cost of production between labour and other costs.
Therefore, farm income and agricultural income are different and likely to follow
different paths.
● Farm Income= GDP agri and allied sectors – capital consumption – wage bill for
hired lab Or Farm Income= NDP agri and allied sectors – wage bill for hired lab
● Wage Bill= No of hired lab x wage earnings/day x no. of days worked in a year
● Data on the number of hired agricultural labourers, wage earnings and days of
agricultural wage employment was obtained/estimated from the published reports as
well as unit record data at the house-hold level available in various rounds of the
NSSO on employment and underemployment.
● The estimates of farm income were prepared for the years corresponding to six rounds
of the NSSO on employment and unemployment. Farm income obtained at current
prices was deflated by the Consumer Price Index for Agricultural Labourers (CPIAL)
to arrive at the real farm income. The farm income thus obtained was estimated per
cultivator, per land-holding, and per unit of net sown area.
Cost of Inputs,Wage Bill and Farm Income
● Between 1983–84 and 2011–12, the use of inputs in agriculture at current prices
increased 15 times and the wage bill increased 23 times, resulting in a much higher
rate (17 times) when the labour cost was included in it.
● Agricultural output at current prices multiplied 18.6 times, higher than the increase in
input costs, but lower than the increase in wages paid for agricultural work.
● The increase in wage bill resulted mainly from the increase in the wage rate, as the
number of hired labourers employed in agriculture increased by only 3.6% and
duration of employment witnessed almost no change over a span of 30 years.
● India’s farmers earned Rs 2,11,000 crore from farming in 1983–84, at real prices with
the base year of 2004–05. This increased to Rs 3,03,000 crore in 1993–94.
● Expenditure on various inputs such as seeds, fertiliser, irrigation, plant protection,
repair and maintenance, feed and other inputs constituted 29% of the value of
agricultural output during 1983 The share of input cost in value of output declined to
22.75% during 2011–12.
● The share of wages paid to hired labour for agricultural work increased from 11% in
1983–84 to 15.5% by 1999–2000. After 1999–2000, the number of labourers
employed in agriculture fell by 23% and the number of days of employment also fell,
leading to a fall in the share of wages in output. This opposite effect of the shift in
labour from agriculture on the labour share in agricultural output implies that an
initial shift of labour from agriculture may not raise the wage rate in agriculture, but it
ultimately leads to higher labour productivity and an increase in the wage rate.
● The cost of inputs, wages paid in cash and kind, and depreciation in agriculture
declined significantly in the 1980s and the next two decades.
● The wage bill of hired labour constituted 26% of the total cost of agriculture
production in 1983–84. This share increased to 36% by 1999–2000 due to an increase
in the labour employed in agriculture and an increase in the wage rate.
● The distribution of net value added in agriculture between cultivators and labourers
showed that cultivators received 83.58% share and labourers received 16.4% share in
1983–84. In the next one and a half decades, the share of labour in total agricultural
income (value added in agriculture) saw a small increase and the share of farmers
income’ faced a small decline. At present (2012), 81.9% of total income generated in
the agriculture sector in the country goes to cultivators and 18% to labourers.
Various Dimensions of Farm Income
● Between 1983–84 and 2011–12, the farm income per cultivator deflated by CPIAL
(base year 2004–05) rose 2.7 times, from Rs 16,103 to Rs 42,781. Farm income per
holding doubled and per hectare of net sown area trebled. Wage earnings per labourer
in the same period rose 3.2 times. In 2011–12, a member of a farming family engaged
in agriculture earned an annual income of Rs 78,200 at current prices.
● The growth rate in real farm income of a cultivator is determined by growth in output,
the rate of increase in input cost, changes in wage rates, the number of hired labourers
and days of employment in a year, growth in prices of agricultural commodities at the
farm level, and the level of inflation.
● From 1983–84 to 1993–94, output of the farm sector increased by 2.46% per year, the
cost of inputs went up by 2% a year, and wage rates for agricultural labour relative to
the CPIAL grew at 3.46% a year. This decade also saw a more than 2% annual
increase in the number of agricultural The combined effect of increases in hired
labour and wage rates resulted in a 6.5% annual increase in the wage bill paid by
producer-farmers. In the next decade, 1993–94 to 2004–05, the growth in output
remained almost the same, but the growth in the wage bill was small compared to the
previous decade. The third period, 2004–05 to 2011–12, saw much higher growth in
output and inputs, with a more than 6.5% annual increase in the real wage rate.
However, the number of agricultural labourers declined by 2.4% per year, which
moderated the increase in the wage bill to 5.8% per annum.
● Real prices of agricultural produce at the farm level increased more than 1% a year. It
is inferred that a decent growth in a farmer’s income requires (i) reasonably high
growth in output; (ii) favourable prices for farm produce; and (iii) a reduction in the
number of cultivators. High growth in output and farm income is accompanied by a
high growth in wage earnings.
Farm Income, Agrarian Distress and Farm Poverty
● The disparity between farm income and non-farm income is increasing, with those
who work outside agriculture progressing faster than those who work in it. Labour in
agriculture is becoming more costly and eating into the net income of farmers.
● In 1983–84, a cultivator earned three times what a labourer earned, while a
non-agriculture worker earned three times the income earned by a farmer or his
family members engaged in agriculture.
● In the next five years, the income of a cultivator increased at a lower rate compared to
the income earned by an agricultural labourer and a nonagriculture worker. By
2011–12, the disparity had fallen to two and half times the income of a labourer in
agriculture.
● The disparity in income between a cultivator and a non-agricultural worker increased
from 1:3 to 1:4 between 1983–84 and 2004–05. After this, the disparity declined to
1:3.15, and a non-agricultural worker earned 3.15 times the income of a cultivator in
2011–12.
● Acceleration in growth of agricultural output and a decline in the number of
cultivators from 2004–05 to 2011–12 reversed the rising disparity in the incomes of
farmers and non-farmers.
● However, recent years have seen some narrowing of the gap in the income earned by
those who are engaged in agricultural activities and those who are engaged in
non-agricultural occupations, but there still remains a large gap between the incomes
of a cultivator and an agricultural labourer.
● The number of farmers' suicides from 1995 to 2005 increased by 70%, while the
growth rate in per farmer income was the lowest in the last three decades.
● After 2004, the growth rate accelerated to 7.29% and the number of farmers' suicides
dropped to 13,700 by 2012. A comparison of the income of a farmer household with
the poverty line for rural India shows that the average farm income per farm
household is only 58% above the poverty line.
● This suggests that 53% of farm households in India will be living in poverty if they do
not have earnings from non-farm sources.
Profitability of Farming
● The more appropriate indicator of the profitability of investment is in terms of income
in relation to investments.
● In 1983–84, one rupee invested in farming generated a net farm income of Rs 1.42
and did not change until 1999–2000. In 2004–05, Rs 1 spent by a farmer in
agriculture generated a farm income of Rs 1.52. The latest data reveals that one rupee
invested in farming yields a net income of Rs 1.70 to farmers.
● These results do not indicate any squeeze in the profitability of farming, measured by
the income of farmer per rupee cost, including hired labour, and profitability showed a
surge after 1999–2000.
Post 2011-12 Scenario
● India had unseasonal rains in March and April 2015, which caused a decline in the
kharif output and damaged wheat and other rabi crops. Two consecutive seasons of
poor harvest and apprehensions about the Land Acquisition Bill have led to protests
by farmers on the neglect of agriculture and the injustice to them.
● The value added in agriculture shows a growth of 1.19% in 2013–14 and 3.8% in
2013–14. The gross value added in agriculture and allied sectors was expected to
increase by 1.1% in 2014–15, but this growth rate will drop when crop losses due to
the freak weather in recent months are factored in.
● This loss will pull down the growth in value added in the agriculture sector from the
anticipated 1.1% to 0.79% in 2014–15.
● The growth in value added or GDP agriculture during the three years after 2011–12
dropped to 1.93%, which is less than half the growth rate achieved from 2004–05 to
2011–12. This is the lowest growth in GDP agriculture in any three consecutive years
since 1991–92.
● The reasons for this decline are obvious: the use of productivity-enhancing inputs has
dropped sharply, and the real prices of agricultural commodities have increased at a
faster rate than non-agricultural prices.
● The CPIAL, which is considered a relevant deflator for farm income, shows a higher
increase than the increase in the wholesale price index (WPI) for agricultural
commodities and farm gate prices. If the increase in wage bill paid by farmers
followed a similar increase as the other costs of production, real farm income would
have increased by about 1% per year post2011–12.
● This growth rate is just one-fifth of the growth rate in farm income from 2004–05 to
2011–12 and is a strong factor of distress.
