Estimates and Analysis of

Farm Income in India,

1983–84 to 2011–12
Ramesh Chand, Raka Saxena, Simmi Rana (2015)
 Lack of an appropriate estimate of Farm Income
● Usage of proxies of farm income such as value of agricultural output, net
domestic product (NDP) of the sector, income from selected crops, and some
survey-based estimates. Not truly representative of Farm Income.
● Narayanamoorthy’s (2006) attempt to derive farmer’s income: premised on
cost and receipt data for crop cultivation reported in the NSSO report on the
Situation Assessment Survey.

Flaws of this study —- i) deducts the cost twice from the receipts and thereby
making the reported income one-fourth of the actual income of Rs 11,628
(ii) included only crop income and ignored income from livestock, per farm
income increases to Rs 12,720 after including it.
Lack of an appropriate estimate of Farm Income (Contd.)
● Sen and Bhatia (2004):
Data source – Cost of Cultivation (coc) of Principal Crops in India from 1981–82
to 1999– 2000, which is inclusive of farm business income both from crop
cultivation and livestock.
Is that enough? NO.
Shortcomings in the data set: COC data considers only crops or crop complexes
in major growing states, not the entire country or the entire agriculture sector.
COC data also does not cover horticultural crops and several minor crops that
constituted 38% of the total value of the crop sector in 2011–12.
Therefore, no study has estimated the level of farm income at the national and
state level in the country.
 Estimate of Farm Income: Paper’s Contribution
● Earlier studies construed the sectoral income of agriculture as the income of
farmers.

Agriculture’s sectoral income ≠ Farmers’ income

As, Agriculture’s sectoral income = Farmers income + wages of hired agricultural

workers.

Farm Income = GDPAgriculture & Allied – Capital consumption – wages of

agricultural hired laborers
= NDPAgriculture & Allied — wages of agricultural hired laborers
Alternatively, farmer’s income = total output - input cost - wage bill
 ❖ Trends in Costs of Input:
At current prices the use of inputs in agriculture increased 15 times. However,
the input share in output dropped significantly.
From 1983-84 to 1987-88 input share in output => 29%
In 1993-94 it fell to 25.3%
Further in 2011-12 it ↓ to 22.75%

❖ Changes in wage-bill: Between 1983–84 and 2011–12, at current prices

the wage bill increased 23 times.

Any of the 3 factors can be responsible – i) ↑ in number of hired laborers;

ii) ↑ in wage earning per day; (iii) ↑ in number of days in employment

Substantial hike in wage-rate.

 Year Wage Share in Output (%)
1983-84 11.16
1987-88 12.63
Due to ↑ in labor
1993-94 14.82 employed + ↑ in
wage rate
1999-2000 15.47
2004-05 12.52
2011-12 13.67

Post 1999-2000 wage share dropped as the number of labor employed fell.

After 2004-05, it increased again. As the huge labor employed shifted away from
agriculture labor productivity ↑es and so does the wage rate.
 Scenario of Farm Income
At nominal prices, Farmers’ income between 1983–84 and 2011–12 multiplied 20
times.

Deflating it by CPIAL, in order to take away the effect of inflation, we get that real
farm income increased by three times in the last 30 years.

● Distribution of net value added in agriculture between cultivators and labourers:

In 1983-84, cultivators received 83.58% share and labourers received 16.4%. In the
next one and a half decades the share of cultivators followed a decline and that of
labourers witnessed an increase of about 5 percentage points. After 1999–2000,
cultivators’ share increased.

In 2012 81.9% of total income generated in the agriculture sector in the country goes
to cultivators and 18% to labourers.
● Growth rate in real farm income of a cultivator depends on:

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

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.

Total farm income in this decade increased at 3.7% while farm income per
cultivator increased by 2.74%, as almost 1% of the increase in total farm income
was offset by the increase in the number of cultivators.
● 1993–94 to 2004–05: growth in output remained almost the same, but the
growth in the wage bill was small compared to the previous decade. However,
number of cultivators increased. The net result was poor growth of less than 2%
a year in the farm income earned by a cultivator.
● 2004–05 to 2011–12: the increase in the wage bill to 5.8% per annum. The net
effect on farm income has been a robust 5.36% rate of growth. Crucial thing in
this period is a substantial decline in the number of cultivators, which raised
growth in per cultivator farm income to 7.29%.

Inference drawn by authors: a decent growth in a farmer’s income entails

(i) reasonably high growth in output; (ii) favourable prices for farm produce; and (iii)
a reduction in the number of cultivators
 Farm distress & Farm Poverty
the number of farmers’ suicides from 1995 to 2005 increased from 10,700 to
18,200— an increase of 70% in 11 years. The growth rate in per farmer income in
this period was a mere 1.96%, which was the lowest in the last three decades. After
2004, the growth rate in per cultivator farm income accelerated to 7.29% and the
number of farmers’ suicides dropped to 13,700 by 2012.

This indicates that the low growth rate in farm income was associated with an
increase in farmers’ distress, and high growth rate is associated with a decline in
agrarian distress.

About 53% of farm households in India will be living in poverty if they do not have
earnings from non-farm sources.
 Profitability of farm sector
Measure of farm profitability = farm income / (agricultural inputs +
wage bill)

The farm income generated through one rupee invested in farming

Profitability hasn’t been declined over the years.