• <div class="header-image" style="background-image: url(/live/image/gid/4/2756_V6N7Web_Header_small.rev.1533574420.jpg);">​</div><div class="header-background-color"/>

Modi’s Rural Challenge: Balancing Poverty and Inflation

March 13, 2016
Indian Prime Minister Narendra Modi recently reaffirmed his vision of helping Indian farmers. Unfortunately, this task has historically resulted in economic dysfunction for the rest of the population. This “Rural Challenge” is exacerbated by fraudulent reporting systems as well. Join Wonk Tank’s International Trade and Foreign Policy team in discovering how to balance rural and agrarian poverty with Indian economic health.

Background

Having seen his party take a hit in elections in Bihar last November, India’s Prime Minister Narendra Modi is working to regain the people’s confidence.[1][2] In particular, the prime minister has recently turned his attention to rural areas, especially since villagers comprise approximately 70% of India’s population.[1] Just two weeks ago, Modi released a budget reflecting his goal to help farmers with their financial troubles, and Arun Jaitley, the Finance Minister of India, announced that the government “plans to double farmers’ income in five years.”[1][2] But if Modi’s government is to fulfill this high expectation, it will have to successfully juggle several competing priorities, including the risk of inflation, crop microinsurance for farmers, and sustainable government spending.

<em>Narendra Modi, Current Prime Minister of India</em>Narendra Modi, Current Prime Minister of India 

Learning from the Past

As D. Jayaraj, professor at Chennai’s Madras Institute of Development Studies, explains, the Indian government can increase farmers’ incomes either by raising crop prices or by raising the subsidies that cover farmers’ input costs.[1] The first method would evidently impact the non-agricultural portion of India’s population, who are consumers of this agricultural output. In fact, empirical evidence confirms that Modi would assume a great deal of risk if he were to select this route. His predecessor, Manmohan Singh, decided to raise crop prices during his time in office and saw agricultural wages grow 13 percent annually on average. This was counterbalanced by a rapid rise in inflation, causing public backlash against Singh’s party.[1] Thus far Modi has made sure to keep crop prices low, with the result that inflation has been contained—but, agricultural wages have grown a meager 2.4 percent annually under his policy.[1] Nevertheless, if manageable inflation is to remain a priority for Modi’s administration, as it must if Modi’s Bharatiya Janata Party (BJP) is to regain momentum among the people, he will not be able to rely on increasing crop prices as a vehicle to promote wage growth among farmers.

 

Fixing Crop Microinsurance

The only alternative is to subsidize the farming business, and to this end, one of the components of the $5.2 billion agricultural plan laid out by Modi and Jaitley focuses on improving crop insurance.[2] In spending more on crop insurance, the government will need to address many logistical concerns with the existing microinsurance structure rather than simply increasing current subsidies, while simultaneously ensuring that the government’s insurance expenditures are sustainable. Indeed, in 2011, under the National Agricultural Insurance Scheme, the ratio of annual insurance claims to the farmers’ premiums exceeded 100%, implying that heavy government subsidies already in place.[3] However, this system is far from perfect, as evidenced by numerous farmer suicides and low agricultural incomes.[2][4] Also, Jaitley’s objective of decreasing the fiscal deficit to 3.5% of India’s GDP contrasts with the large agricultural spending campaign. As a result, the government will need to be hawkish with respect to overfunding crop insurance.[2]

One of the problems with the crop microinsurance system is immense fraud. In one case in Gujarat, a group of farmers had claims that indicated a groundnut yield of 32 quintals per acre, yet an investigation by the state government found that the yield was actually close to 450 quintals per acre.[4] Doling more money out to farmers without a higher level of scrutiny could exacerbate the problem of fraud. Another problem is that insurance coverage is too low. Some states such as Haryana, Madhya Pradesh, and Punjab do not receive the same level of benefits that other states such as Maharashtra, Tamil Nadu, and Gujarat enjoy.[4] The Economist reports that even in areas of India where weather-related crop microinsurance is available, only 5% of farmers opt into the plan.[5] Modi’s government would do best to research solutions to these problems in order to improve the effectiveness of the crop insurance program in keeping farmers.

 

<em>A mob of Indian farmers in Madhya Pradesh.</em>A mob of Indian farmers in Madhya Pradesh.

 

New Measures

To solve the problem of fraud, one possible solution is to shift the metric used for evaluating the weather-related damage to a more objective measure. As per the current National Agricultural Insurance Scheme, insurance claims are computed using crop-cutting experiments done on the output of the farms and comparing the calculated yield to a threshold.[6] While this method may seem the most accurate due to its direct measurement of crop yield, the problem is that the process of visiting a farm and performing the experiment relies heavily on a human (i.e. the government official who is charged with the task). One official with field experience in crop insurance reports that in some areas, farmers bribe government assessors in order to obtain unwarranted payments.[4] The key, then, is to remove human error and selfishness from the evaluation process. EARS Earth Environment Monitoring, an organization in the Netherlands, conducted a study on agricultural microinsurance in Africa and found that the metric of relative evapotranspiration (RE), which describes the amount of water that is used by crops, has a strong positive correlation with crop yield.[7] Moreover, in the study, RE is computed from a satellite (Meteosat), so the assessment of insurance claims does not necessitate communication between farmers and government officials.[7] The EARS report also cites a study by the Agricultural Economic Institute that validates the sustainability of microinsurance based on the satellite RE metric.[7] Therefore, the Indian government should research the use of a satellite metric such as RE for evaluating insurance claims, as such a regime could diminish the problem of fraud while also contributing to a more sustainable insurance program.

Modi should also invest funds into expanding the infrastructure of the insurance program to reach more farmers in regions that currently see little benefit. In order to increase interest in the program in areas where insurance is offered, the government should aim to target groups of farmers rather than individuals. According to a study by experts at Oxford University, providing information about the reasons to buy into crop insurance against the weather to Ethiopian farmers who were members of social and financial groups increased the “take-up … from just 2% to 36%.”[5] Modi should devote a portion of funds to research and implement a similar strategy, which could be effective in India as well.

The economic challenge of reconciling the goal of doubling farmers’ incomes in the next five years with concerns about inflation and over-expenditure is far more complex than the rhetoric of Modi and Jaitley would suggest. If the Indian government is to be successful in its venture to improve crop insurance, it must focus its efforts and resources primarily on addressing the problems of fraud and insufficient coverage by leveraging existing studies and conducting further research. By heading in this direction, Modi would maximize the chance of a positive outcome for both poor farmers and the BJP.

 


  [1]Krishnan, Unni. “Want to See If Modi Is Changing India? Watch Farmer Incomes.” Bloomberg Business. March 3, 2016. Accessed March 05, 2016. http://www.bloomberg.com/news/articles/2016-03-03/watch-farmer-incomes-to-see-if-modi-is-really-transforming-india.

 

  [2]“Modi’s Government Reveals Pro-poor, Farmer-friendly Budget for India | News | DW.COM | 29.02.2016.” DW. February 29, 2016. Accessed March 05, 2016. http://www.dw.com/en/modis-government-reveals-pro-poor-farmer-friendly-budget-for-india/a-19081518.

 

  [3]“National Agricultural Insurance Scheme in India.” Global Facility for Disaster Reduction and Recovery. Accessed March 5, 2016. https://www.gfdrr.org/sites/gfdrr.org/files/DRFI_India_mNAIS_Final_Oct12.pdf.

 

  [4]Kumar, KP Narayana. “Why Crop Insurance Schemes Fail Poor Farmers When They Are Needed the Most.” The Economic Times. April 26, 2015. Accessed March 05, 2016. http://articles.economictimes.indiatimes.com/2015-04-26/news/61542788_1_crop-insurance-scheme-insurance-fraud-kisan-credit-card/2.

 

  [5]“A Hard Sell.” The Economist. January 04, 2014. Accessed March 05, 2016. http://www.economist.com/news/finance-and-economics/21592653-new-research-suggests-insurance-can-be-made-more-attractive-poor-farmers-hard.

 

  [6]“National Agricultural Insurance Scheme (NAIS).” Dept. of Financial Services, Ministry of Finance, Government of India. Accessed March 05, 2016. http://financialservices.gov.in/insurance/gssois/nais.asp.

 

  [7]Rosema, Andries, Jolien Van Huystee, Steven Foppes, Joost Van Der Woerd, Erik Klaassen, Jacqueline Barendse, Marcel Von Asseldonk, Mathieu Dubreuil, Sabrina Regent, Sebastien Weber, Anaar Kara, Gary Reusche, Rose Goslinga, Michael Mbaka, Frank Gosselink, Richard Leftley, Juliet Kyokunda, Joseph Kakweza, Ryan Lynch, and Kees Stigter. “FESA Micro-insurance - Crop Insurance Reaching Every Farmer in Africa.” EARS - Satellite Data for Climate, Water and Food. Accessed March 5, 2016. http://www.ears.nl/user_files/FESA Micro-insurance - reaching every farmer in Africa.pdf.
Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

 

PENN WHARTON PPI
RESOURCE SPOTLIGHT:

  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>