Read more about the significant role agriculture plays in India's economy here.
India’s primarily informal rural economy has been stuck in varying states of paralysis after India removed over 80 percent of cash from circulation in November 2016. Without the 500 and 1,000 rupee notes—which are worth roughly $8 and $15, respectively—consumers are often simply unable to make the purchases they would have previously.
The cash ban has been so disruptive that it has even taken a toll on the country’s total gross domestic product (GDP) growth. India’s cash economy had previously been estimated to constitute 80 percent of the country’s employment and nearly 50 percent of its GDP. Unsurprisingly, India’s growth rate for the second quarter dipped to 5.7 percent—nearly a full percent below what economists had previously predicted. To make matters worse, July’s haphazard implementation of a sorely needed goods and services tax has only created further confusion among farmers struggling to sell their crops.
Sources indicate that farmers have so far supported Modi’s cash ban, despite it hamstringing India’s informal agricultural economy. In the farming-intensive state of Uttar Pradesh, which is also the country’s and the world’s most populous, Modi’s Bharatiya Janata Party (BJP) won a record 311 of 403 seats in March, underscoring the Prime Minister’s mandate and all but ensuring his reelection in 2019.
With seemingly unflagging popular support, Modi’s reelection in 2019 initially appears all but guaranteed. While his Hindu nationalist base seems reliable, some recent events suggest a fraying of farmer support for the BJP.
In recent months, a rash of farmer protests have taken place across India. Modi’s personal reputation has been protected by the cash ban’s alleged populist virtues. But the farmers’ grievances include falling farm incomes and food price deflation, both of which have been exacerbated if not outrightly caused by the ban. So far, state officials in Rajasthan, Uttar Pradesh, and Maharashtra—with total population of nearly 400 million people—have all agreed to waive farmer loans after mounting pressure following weeks of protests. Notably, all three states are controlled by Modi’s BJP party.
Looking ahead, farming organizations and agricultural lobbyist groups are preparing for national rallies on both October 30 and November 17, which are expected to attract millions of attendees. Since the events are scheduled directly after most kharif crop harvests will be completed, their size and political significance may ultimately depend on how content farmers are with their yields.
Meanwhile, Modi’s main opposition—the Congress Party—has doubled down on courting farmers. If harvests are underwhelming and cause loud farmer discontent, opposition party arguments may get a hearing. In this manner, Modi’s re-election could hinge on crop yields. Before the rally, therefore, it will pay to monitor the ongoing harvest.
Rice and wheat, India’s two primary staples, jointly account for roughly 80 percent of the country’s total cropland. In India, as in other northern hemisphere countries which plant and harvest both crops, wheat-growing regions roughly skew towards the north. Rice-producing areas skew south, and the two crop areas overlap in the middle. The fertile Gangetic Plain often makes the central state of Uttar Pradesh the largest producer of both, but the two harvests come during different seasons.
India’s 2017 wheat crop has already been completed, and early reports indicate that a record 96 million tonnes have been harvested—a 10 percent year-over-year increase. Bolstered by returning monsoon rains, vegetation indices had indicated a welcome increase to normal levels by the time of initial harvests in late February.
Wheat comprises a larger portion of the average commodity trader’s portfolio, but rice is unquestionably more important to the average Indian. Harvests are fast approaching in several key regions.
As with wheat, returning monsoon rains have primed bumper rice crops. According to the USDA’s most recent forecast, India is set to simultaneously produce more rice and wheat than ever before.
Meanwhile, retail prices for both crops remain relatively stable in key cities. Assuming prices for rice do not plummet upon harvest, farmers will surely be content with the largest revenues seen since before the 2015-16 drought. With the majority of the country’s farmers growing either wheat or rice, robust harvests of these two crops alone might be enough to seal Modi’s re-election—as foreshadowed by BJP’s resounding victory in Uttar Pradesh.
Indigenous to India, cotton has had a storied history within the country, and it remains the most important non-food crop to this day. Although only the second-largest exporter of cotton, India is the largest producer in the world and is expecting its second-largest harvest ever this year. The robust monsoons fed a projected 6.5 million tonnes of cotton—a remarkable 11 percent year-over-year increase.
Most importantly for Modi, India’s primarily cotton-based textile industry is the second-largest employer after agriculture and accounts for roughly 4 percent of the country’s total GDP. Employing 51 million people directly and 68 million people indirectly, it’s also conveniently centered in Gujarat, whose politically-important state election is set for later this year. With bumper crops and high global prices converging just in time for the vote, farmers, textile workers, and especially Modi (who is from Gujarat) will likely vote for the same party.
If any crop is to give Modi a significant cause for concern, it is sugar, whose harvest happened before monsoon rains could salvage most crops. Prices remain low both domestically and internationally, and India’s sugar production has declined precipitously for the second year in a row. Production quantity fell from 30.46 million tonnes to 21.93 million in the past two years, down 28 percent. India has fallen from the third largest to fifth largest exporter in the same period.
Luckily for Modi, Uttar Pradesh is the largest sugar-producing state, and with their state election in the rearview, low sugar yields may only lead to political losses among farmers in the less-populated southern regions. Moreover, the USDA is projecting a strong rebound in production next year due to the returning monsoons, further undercutting any chance that poor yields will threaten Modi’s re-election.
If Modi’s crackdown on cash does not markedly reduce graft in India, it will clearly have been a failure of governance and policy. Yet strategically, the cash ban has already proven to be a tactical and moral triumph for Prime Minister Modi and the BJP.
At the heart of Modi’s success is timing, much of which may have been unintentional. Modi’s policies have clearly had a direct and negative impact on India’s agricultural economy. Yet as bumper crops continue to appear across the countryside, a weak rupee may actually help offset a glut by making exports more competitive abroad. Furthermore, global food prices have recovered from historic lows last year and appear to be stabilizing well above both 2015 and 2016 levels. If Modi deserves any credit, it’s for choosing the perfect economic and physical climate in which to unveil his cash ban. Indian farmers set to benefit from simultaneous near-record yields, high prices abroad, and favorable exchange rates will probably give him the benefit of the doubt.
In other words, even if agriculture and farmer productivity do represent Modi’s Achilles’ heel, they shouldn’t worry him too much in this election.