How to Increase Farmers’ Income?

Farmers in India have resumed their protest against the Modi government after Modi failed to fulfill the promises he made to them two years ago. Farmers are feeling betrayed by Modi. They started their agitation two years ago when the Modi government introduced two farm bills with the intent of a corporate takeover of the Indian farm sector. I wrote about those bills in detail when many liberty lovers in India and outside were terming those bills as Modi’s market friendly reforms! They weren’t farmer or market-friendly reforms and anyone who knows Prime Minister Modi’s history will know he isn’t a market-friendly leader. He is a fascist dictator who is busy selling India to his cronies like Adani and Ambani who are creating monopolies everywhere. Modi is busy creating a totalitarian monopoly of political power for himself, and his corporatist friends are funding and helping him in this effort. He has zero regard for the welfare of the people. Indian farmers have sensed the ugly nature of the Modi regime and they are resisting his totalitarianism. 

The farming sector is in distress almost all the time in India just like other sectors of the Indian economy. 77 years of socialist central planning has ruined everything. The Indian farm sector has been plagued with low productivity for ages and witnesses one of the highest numbers of suicides every year. Overall, the per capita income of Indians is a mere US $2,411. No wonder the income of the majority of farmers is even lower than this. Wages in India are lower by and large because of multiple factors like the huge supply of mostly unskilled and semiskilled workers, and low productivity levels. 

Adding to this problem of low wages in the farming sector is the ever-rising cost of production which squeezes farmers’ income even more. As many of the protesting farmers have complained, the rising production cost is causing their poverty. The major objective of all these protests is to raise the farmers’ income, so how can we raise their income? In this article, I will discuss the things that no one is talking about. The 800-pound gorilla in the room that protestors and others are ignoring is the Indian central bank RBI. 

One thing where farmers are wrong is thinking that a higher minimum support price will raise their income. Such price control measures will only create more problems. On the other hand, economists like Dr. Arun Gulati who are opposing farmers’ demands of MSP are also wrong in applying the principles of demand and supply to the farming sector, which assumes the absence of any government interference in the economy. Talking about the market economy in India is meaningless because there is no market economy in India! India has been a socialist centrally planned economy since its inception. Under this socialist planning, no commodities’ prices are being determined by freely functioning forces of demand and supply. Such discussion makes sense only once India becomes a market economy. Economists like Dr. Gulati are right in their thinking that the market economy will be good for the Indians, but then they are wrong in forwarding policy suggestions like the ‘price stabilization’ fund for the farmers. Such funds only mean more socialist central planning and interventions by the government. If economists like Dr. Gulati and other liberty lovers in India are serious about bringing market reforms in India then they need to focus on a couple of changes that I am now going to talk about. The only way we can bring a market economy into existence in India is by eliminating the interference of the government from the economy and society. Socialism must end. 

As I said above, farmers are wrong in their thinking that a minimum support price will raise their income. It might raise their nominal income, but it will lower their real income. And real income is what matters when it comes to economics. Real income is determined by the purchasing power of money or the currency in circulation. In India’s case, this means a higher purchasing power of the Indian rupee will increase the real income of not only farmers but everyone else. What determines the purchasing power of the rupee? Let’s see. 

Rupee is a commodity just like any other commodity trading in the market. The way the prices of other commodities in the market are determined by the forces of demand and supply, in a similar way the price or the purchasing power of the rupee is also determined by its demand and supply factors. If the demand for rupees is constant and its supply increases then under the condition of other factors remaining constant, its price will go down or its purchasing power will decrease. And if its supply decreases then its price or purchasing power will increase. We now have to understand what determines the supply of rupees. In India, the Indian Central Bank RBI has the monopoly of issuing rupees, and so the RBI governor and its monetary policy committee have the power to either increase or decrease the supply of rupees. When RBI increases the supply of rupees, it is called inflation. Inflation is a situation where due to increased supply of rupees the purchasing power of rupees goes down. Compared to the situation before inflation, rupees now buy less commodities in a market trade. Alternatively, looking from the perspective of the market commodities, their prices go up. Under the inflationary condition, prices of commodities (both consumer and producer goods) are not rising but the purchasing power of rupees is going down. This reduced purchasing power of rupees lowers the real wages of farmers as well as every other worker. Inflation reduces the standard of living of people. 

The above analysis means, that one sure way in which we can raise farmers’ real income is by eliminating inflation from the economy. RBI is the source of inflation so dismantling the RBI should be the focus of farmers’ protests instead of asking the government to control the prices of farm products via laws like MSP. At present farmers, and everyone else, are neglecting the 800-pound gorilla of inflation in the room. Dismantling the RBI to eliminate inflation will also free the economy of government intervention in a major way because RBI is the enabler of big welfare and warfare government. Once we deprive the government of a major source of income and political power which they use to aggrandize us, they won’t be able to exploit us via inflationary policies. It will help us in reducing the size of the government. By dismantling the RBI, we will take one big step in the direction of dismantling 77 years of socialism in India. 

Another major way in which we can boost the income of farmers, and everyone else, is by eliminating taxes. Farmers and common Indians should stop their demands of MSP and redirect their protest efforts to dismantle the GST and income tax. Eliminating GST and income tax will free up lots of resources that can be invested in farming and other sectors to boost productivity and so future real income. It will also help us reduce the interference of the government in the economy. 

Dismantling the central bank RBI, the GST, and the income tax regime will boost farmers’ income overnight. It will also eliminate the socialist central planning and will pave the way for a future market economy, which people like Dr. Gulati rightly desire. 

The economics of solving Indian problems is straightforward. The difficult part is the politics and culture of India. Does India have such a stateman who can carry out these changes? Will the Indian population (voters), habituated to the nanny government and its welfare freebies, support any such changes? Will experts like Prof. Gulati advocate such radical changes to the government? I’ll leave the answer to these questions to the imaginations of my readers. Any other patchwork reforms like the so-called stabilization fund etc., will not work in the end. It will collapse the system sooner rather than later. Socialism is not India’s solution. Neither is Modi’s dictatorial fascism nor a possible future military dictatorship. Only the idea of liberty can save India.