Modi’s growth plans and freak weather squeeze Indian farmers (by Amy Kazmin, FT)

For Prem Singh — a small farmer with 2.7 hectares of fertile farmland — and others in Aajnokh village in India’s northern state of Uttar Pradesh, the past decade has been a period of progress, helped by bountiful harvests and high crop prices.

Mr Singh added two rooms to his tiny concrete home, while others replaced their traditional mud huts. Televisions replaced radios. Motorbikes replaced bicycles. Tractors replaced the bullocks that once pulled ploughs through the fields. Telephony arrived, through mobile phones.

But after two disastrous growing seasons, the farmers of Aajnokh feel they are going backwards. Last year, their monsoon-season rice crop was hit by drought. This spring their wheat crop was severely damaged — pounded by unseasonal rains and a rare April hailstorm just weeks before the harvest.

Now, most are left with thousands of dollars in outstanding crop loans and could be forced to sell hard-won assets — or even, potentially, some of their land — to get out of debt. “This is the first time we have ever had crop failures in two successive seasons,” says Mr Singh, 60, who owes Rs450,000 ($7,000) to rural banks and local moneylenders and supports seven family members with his farm income.

Narayan Singh, the village chief, says the community’s 800 farmers are all under the same heavy pressure. “Whatever we have acquired in the last 10 years — bike or tractors — we’ll have to sell,” he says. “If that doesn’t work, we’ll have to sell our land.”

The plight of Aajnokh’s farmers — shared by many across north India’s normally prosperous farming belt — reflects the complexities facing Narendra Modi, prime minister, as he seeks to accelerate economic growth.

Buoyant rural consumption has been an important driver of growth in recent years, but many farmers are being squeezed by lower prices and freak weather that is sharply reducing their output. But as rural consumption fades, other economic drivers have yet to gather steam.

“Things don’t look good,” says Jahangir Aziz, chief Asia economist for JPMorgan. “For the last few years, rural demand was the only engine of the economy that was firing. Now you aren’t going to get any real support from rural consumption. But other parts of the economy — exports, investment, urban consumption — haven’t fired at all.”

With New Delhi pumping money into the countryside, farmers with irrigated multi-crop land acquired durable assets such as motorbikes and tractors, while even labourers bought mobile phones and consumer goods. But this came at a price: double-digit inflation, which eroded urban workers’ spending power as their grocery bills soared.

Agriculture contributes less than 15 per cent of India’s GDP but it remains the primary — if not the exclusive — source of income for about half the population, including landowners, rural workers and their families. Its performance therefore has a considerable impact on the wider economy.

During the later years of the previous Congress government’s decade-long rule, India’s rural population was on something of a spending spree, fuelled by high commodity prices and New Delhi’s much-trumpeted rural workfare scheme, which drove up rural wages.

Mr Modi’s government is moderating rural spending in an attempt to damp inflationary pressure and create space for the Reserve Bank of India to lower interest rates, which it hopes will foster an investment revival.

“India had to move away from consumption towards investment-driven growth and to rein in fiscal spending to create room for monetary easing,” says Rajeev Malik, chief economist of CLSA. “The pullback in terms of consumption was an important part of the broader macroeconomic stabilisation.”

But the financial adjustment has been exacerbated by the weather, and recent predictions of another poor monsoon are adding to farmers’ woes. “Two bad monsoons can wipe out five or six years of very high wage growth, high consumption and high asset accumulation by farmers,” says Mr Aziz.

Farmers’ declining fortunes are already rippling through the economy. Domestic tractor sales by Mahindra & Mahindra fell some 37 per cent year-on-year in the January to March quarter and were down 13 per cent year on year in April. Fast-moving consumers goods firms are also prepared for softening demand.

India Ratings, the local arm of the credit rating agency Fitch, has warned that the crop damage caused by the unusual weather will increase non-performing loans on the books of the already stressed-banks, especially state-owned banks.

Shankar Singh, a farmer in Laudhauli village, has seen the personal toll that crop failure takes. His 42-year-old nephew, Mahipal, suffered a fatal heart attack minutes after seeing how April’s hail destroyed his wheat crop. Yet just a few weeks on, Mahipal’s two sons — who have no income other than the Rs2,500 per month one earns as a rural school bus driver — are already looking to the next planting season.

“We have no choice but to carry on,” says Mr Singh. “The land here is very fertile but the vagaries of nature — how do you deal with that?”

Educated youth remain jobless

Anup Kumar, 20, whose father and grandfather were farmers in Western Uttar Pradesh, spent three-years studying civil engineering at a local government college in Barsana, which he hoped would open the door to a different life.

But his efforts to find work with real estate developers and builders in the town of Mathura yielded nothing. A year after his graduation, Mr Kumar is back on the family farm, though he still hopes for an escape. “They told me the real estate sector is in bad shape, but hopefully it will pick up and I’ll find a job,” he says.

In recent years, millions of young rural people like Mr Kumar have worked their way through India’s education system, hoping it would help them escape the toil and vagaries of agriculture. But when they hit the job market many have come up empty-handed and been forced to return to their villages.

The failure of these youths, armed with different degrees, to be absorbed into India’s urban economy has significant repercussions for the country’s raging debate over land acquisition.

While Mr Modi’s government is pushing for legal changes to make it easier for authorities to take agricultural land for industry and urbanisation, many farmers, who have seen the failure of their educated offspring to find non-farming jobs, are determined to cling to their land as their only source of security.

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