Shackled to the Land

The recently released National Sample Survey Office (NSSO) survey of agricultural households should concern anyone interested in the wellbeing of India’s farmers. While farmer incomes have risen, from Rs 6,426 in 2012-13 to Rs 10,218 in 2018-19, the data hides something troubling. The average landholding size has decreased from 1.15 hectares to 0.876 hectares (ha) in the same period. 

Currently, 76.5 percent of farmers have less than 1 ha — up from 69.6 percent in 2012-13. This increase has consequences for not just how much farmers earn but also how they earn. A majority of the income for farmers with less than 1 ha of land now comes from non-agricultural sources. What this means is that these farmers are predominantly wage earners. 

It is not surprising that farmers need to supplement their income. Agricultural productivity in India is low. While 59% of the country’s total workforce is directly or indirectly dependent on agriculture, the sector only contributes 23% of GDP. This low productivity is further compounded for small farmers that cannot benefit from economies of scale. Furthermore, multiple studies have shown that the input subsidies offered by the Government of India benefit large farmers more than small farmers (Sant, Murgai). 

But why are landholdings so small? The average holding size in India has steadily reduced since the 1970s. Restrictive land laws — from land ceiling laws to lease restrictions and use restrictions — devalue the price of agricultural land. Some states even restrict whom you can sell your land to. 

In effect, farmers do not really have a right to exit farming. This is especially concerning since over 76% of farmers said they would move out of agriculture if they could (Sood). But the ability to exit is low. This, in part, is because the restrictions on sale make prices for these lands less  remunerative. 

Further, the laws restricting land use mean that small and marginal landowners cannot put their land to the most efficient use. Even though conversion of land for other uses is allowed,  most states have a complicated process that requires multiple approvals. This process is especially arduous for a smaller farmer with fewer resources. As a result, farmers must continue to use their farm for farming even if better alternatives exist. 

Any commodity or asset that is so heavily restricted will lose some market value. Land that cannot be sold with ease is worth less than land that can be. Non-agricultural land is worth more than a similar piece of land restricted to agricultural use. 

What can be done to improve the situation? If the aim of doubling farmers’ income is serious, we first need to reduce the number of farmers. Historical trends from around the globe show that quick gains in prosperity depend on shrinking agricultural employment (Shane). India has too many farmers. India is already a food surplus country and spends billions of dollars in subsidies. Doubling farmer incomes while maintaining the same number of farmers is unlikely. This doesn’t mean farmers should be forced to sell their land and join the labour force. The land laws ought to be reformed so that farmers who want to leave, can. This would allow farm sizes to become larger and allow for capital investment, improving productivity.

Farmers need to start being treated as entrepreneurs engaged in the business of farming and granted the right to exit farming. This means lifting the onerous and counterproductive restrictions that hurt farmers. India’s demographic dividend may soon become a demographic nightmare as landholdings shrink and farmers continue to remain trapped in agriculture.

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