Farmers poor income: Who is responsible- RBI/Gov/Middle-men? Fallacies or Puzzles?
Farmers as usual for last 70 years, are in limelight and slogans have changed (Jai Jawan, Jai Kisan to Double income mandate), but focus and condition have not!
So why Indian farmers are poor? Middlemen / Small land holdings / Lack of storage facilities, Poor productivity – all of this combined or none of the above?
The issue is why despite so much focus and attention, farmers condition keep on getting from bad to worse? So some puzzles on RBI / Govt role
Puzzle 1: Inflation targeting & poverty of farmers
1. The policy of Govt / RBI is to keep inflation rates low as that’s is one of the key economic parameters
2. The rise of food prices creates maximum havoc politically ( onions have led to the loss of many govt, though don’t know as to why Onion is such sensitive topic when its share in household budget is less than 1%. Media focus probably?)
3. So Govt works overtime to keep food prices low
4. India being an agrarian country, almost 60% of the population is dependant on agriculture. Agriculture is food production
5. Remember Govt is committed to keeping food prices low
6. That means, Govt is committed to keeping the income of this 50 % of population low ( while all costs are education/housing/travel/health/electronics etc rising)
7. So why it is a surprise that farmers remain poor. Remember, Govt and policymakers are working to keep prices low. So overall policy is succeeding not failing
Puzzle 2: Interest, Inflation, and elasticity of food prices
1. In India weight of food products in CPI is close to 50% ( 14% in the US, Singapore 16% and Japan / Thailand exclude fresh food from inflation ).
2. RBI is targeting inflation so one can that it is targeting food inflation given such high weight.
3. Now food consumption shall be inelastic in nature for most of the items. Nobody starts consuming 20 kg of onion or 100 kg of potatoes per month if prices drop to 50 paise per kg.
4. So how low-interest rates will help in the demand side. They might kill the supply side only. So is RBI killing supply side rather than managing the demand side?
So are these fallacies or realities? please, point out counter-arguments or what I am missing here?