India's Rural Areas Are In Trouble And Might Pose Modi's Biggest Challenge

15/05/2015 3:15 PM IST | Updated 15/07/2016 8:25 AM IST
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SANJAY KANOJIA via Getty Images
An Indian relative looks at a family photograph of farmer Anupa Devi at a gathering in the village of Godhapur on the outskirts of Allahabad on April 21, 2015, following Devi's death. Sixty-five year old Devi is said to have died from shock following the destruction of her crops by unseasonal heavy rains in the northern Indian state of Uttar Pradesh. India's poor but powerful farming lobby flocked to Prime Minister Narendra Modi's right-wing Bharatiya Janata Party (BJP) at the general election last May, when the Hindu nationalist premier won the biggest mandate in 30 years. But anger in rural areas has been mounting over his government's bid to overhaul land purchasing laws, compounding woes over extensive damage to winter crops due to unseasonal rain across northern India. AFP PHOTO/ SANJAY KANOJIA (Photo credit should read Sanjay Kanojia/AFP/Getty Images)

Just one year after taking office, Prime Minister Narendra Modi is facing a challenge that could come to haunt him - the farm sector that sustains three-fifths of the population is in deep trouble, and he is being blamed for not doing enough.

Promising good governance and a stronger economy, Modi romped to power in elections last May by the biggest margin any prime minister has got in three decades. But the rural crisis has dented his popularity and the vanquished opposition is finding new vigour in his discomfort.

From the start of the crop season last October through March, India's farm exports have fallen more than 11 percent to $15 billion, as the impact of the global commodities glut has been sharpened by events like Iran's nuclear talks and a currency dip in Brazil.

The fall in exports has depressed domestic farmgate prices just as unseasonal rain damaged winter crops such as wheat, potato, chickpea and rapeseed. Farmers have little money now to buy seeds for the summer sowing, and meteorologists have predicted the annual June-October monsoon will be below par, which means the next crop may also fail.

"A perception is gaining ground that the government is slow in responding to the crisis in the countryside," said D.H. Pai Panandiker, president of the RPG Foundation think-tank in New Delhi. "Any inept handling of the situation will only invite trouble and impair the plans for economic reforms."

Farming accounts for only 15 percent of India's $2 trillion economy but provides a livelihood to 60 percent of its 1.25 billion people. A crisis in the countryside would have severe political impact.

The opposition Congress party, crushed by Modi a year ago, is latching on to rising discontent in the countryside.

Party leader Rahul Gandhi has been touring the affected farming regions and the heir apparent to the Nehru-Gandhi political dynasty is getting a good response.

"While Modi has failed to help us, Rahul Gandhi was here to assuage our pain," said Paramdeep Singh, a wheat farmer at Khanna wholesale market in the northern Indian state of Punjab.

"His visit has forced the government to at least acknowledge the fact that we've suffered huge losses."

The fightback by the opposition has slowed Modi's reform agenda in parliament. This week, Congress delayed bills that would make it easier for corporations to buy land - changes it says are "anti-farmer" - and harmonise national and state taxes.

DRAW THE STING

Finance Minister Arun Jaitley said last week agriculture was the biggest challenge for India's economy and would need major investments.

Meanwhile, Modi's government has asked state governments to tap into more than $1 billion from the State Disaster Response Fund and raised compensation by 50 percent for farmers suffering crop losses.

In an attempt to draw the sting of falling exports and prices, the government has also eased quality requirements for wheat purchases by state agencies, raised import taxes on rubber and sugar, and given an incentive for raw sugar exports.

To some farmers, the response is too little, too late.

"When you lose 10,000 rupees ($156), they offer you 100 rupees. So far we haven't got any assistance," said Manik Andhale, a farmer from Kamargaon village in Maharashtra state, whose onion crop suffered rain damage.

To be sure, some of the events that have led to the crisis are beyond the government's control.

Until last year, for example, Iran paid a premium for Indian sugar, soymeal, barley and basmati rice. Now, with the easing of some Western sanctions, Iran is looking to buy elsewhere. Cotton exports have been hit by China's decision to abandon a stockpiling plan, while non-basmati rice shipments face headwinds after Thailand decided to run down its stockpiles.

On the other side of the world, a decline in the Brazilian real following a scandal at oil giant Petrobras last year has weighed on sugar prices, making Indian exports uncompetitive. Meanwhile, the fall in global crude oil prices has depressed prices of grains and oilseeds used for biofuels. It also trimmed freight rates, making imports of commodities such as corn and soymeal from South America cheaper for Asian buyers. A strong rupee - despite a fall last week – has further made India's farm exports uncompetitive and imports cheaper.

A major commodities trader has said the decline in agricultural exports could be as much as $5 billion, or nearly 20 percent, for the crop year to September, which would be the steepest on record.

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