Modi’s Inflation War Angers India Farmers as Wage Gains Slow

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Wheat Production in Uttar Pradesh
A farmer holds damaged wheat at a farm in Aligarh, Uttar Pradesh. Photographer: Prashanth Vishwanathan/Bloomberg

In the wheat fields stretching across northern India, farmers like Dalvir Sharma are starting to turn on Prime Minister Narendra Modi.

Sharma, 51, voted for Modi’s Bharatiya Janata Party last year after it promised to stem rising prices in the market. Now he’s struggling to pay back a 100,000 rupee ($1,570) loan after unseasonal rains destroyed most of his crop and guaranteed prices increased at the slowest pace in at least four years.

“We voted for the BJP as we thought Modi will change our lives,” said Sharma, a farmer in Uttar Pradesh, India’s most populous state. “So far, nothing has happened.”

Modi won office a year ago in part on pledges to rural voters that he’d rein in one of Asia’s fastest inflation rates. While consumer price gains have slowed, he’s now facing resentment among rural households that became accustomed to large wage increases under his predecessor.

How Modi handles rising discontent among his rural support base will determine his ability to win upcoming elections in largely agrarian states like Bihar where farmers hold the biggest sway, according to Himanshu, who goes by one name and teaches economics at Jawaharlal Nehru University in New Delhi.

“Agriculture is unlike any other industry -- once the gloomy mood sets in then it stays for some time,” he said. “It’s going to have an impact politically.”

Modi’s challenge is to show the 840 million Indians who live in rural areas -- more than double the U.S. population -- the benefits of containing inflation.

Modi’s Dilemma

On its face, the political bet seemed simple. Prior to last year’s election, former Prime Minister Manmohan Singh argued that while inflation was high, wages were growing at an even faster pace. Voters didn’t buy it: His Congress party ended up suffering its worst loss ever in a national vote.

Under Modi, consumer prices in rural areas are now rising faster than wages even as inflation has eased. Rural wage growth slowed to 5 percent in March from 37 percent a year earlier. Rural inflation decelerated to 5.6 percent from 8.1 percent in that time.

“It’s a dilemma for the government: If your main objective is to keep inflation down, then you have to control rural wages,” said Prasanna Ananthasubramanian, chief economist at ICICI Securities Primary Dealership in Mumbai. While Modi may face short-term pressure to increase rural spending, he said, over the longer term surplus labor could move into the industrial sector if his manufacturing push is successful.

Empty Bank Accounts

Many of Modi’s moves so far have impacted the business community more than the rural masses. He’s allowed more foreign investment in insurance and defense, scrapped subsidies on diesel fuel and ended a 40-year-old state monopoly on mining and selling coal, putting India’s benchmark stock index among the world’s best performers last year.

Policies affecting the rural sector have been less visible. Insurance programs announced in the budget have only started to take effect, and about 60 percent of 125 million bank accounts opened under a financial inclusion plan sit empty.

The drop in rural income growth is largely due to government-set minimum support prices for food grains. Price gains in the agricultural year through June for rice and wheat, India’s biggest food crops, were less than half the compounded annual growth rate under Singh’s 10-year rule.

Consumer spending in rural areas is showing signs of slowing. Motorcycle sales declined for the seventh straight month in April, according to data from the Society for Indian Automobile Manufacturers.

Land Snatched

Unseasonal rains that destroyed crops and a push by Modi for a law to ease land acquisitions are adding to the discontent in rural India. The opposition Congress party has seized on the issue to portray Modi as pro-business and anti-farmer, a line of attack that is starting to resonate.

“Our land shouldn’t be snatched as we earn our bread from the land,” Rajkumar Singh, 40, said in Uttar Pradesh, India’s biggest wheat growing state. “Why is he acting as a broker between the companies and farmers? Once the land is sold where will we go? Nobody is there who can fight for us.”

Modi’s government has pushed back, arguing in radio addresses and speeches that the new law would help bring development to rural areas. It has also pointed the finger at states for failing to quickly hand out relief money, particularly in Uttar Pradesh, where the BJP doesn’t hold power.

‘People Are Dissatisfied’

“We are getting the blame for poor distribution of those funds,” Sanjeev Kumar Balyan, a junior minister of agriculture, said on Wednesday. “We know that people are dissatisfied.”

The stakes are highest for Modi in Uttar Pradesh, which has about as many people as Brazil. His party won 71 of the state’s 80 seats in the last national election, and will be key to retaining power in 2019. He’s also hoping to make gains in a state election two years from now.

To do so, Modi will have to win the support of farmers like Saroj Devi, 60, who voted for him last year but now is having second thoughts after rains destroyed her crops. She wants Modi to forgive her loan of 200,000 rupees, which would be worth much more than any government-approved compensation. Like many in rural India, she doesn’t have crop insurance.

“I will burn the crop rather than spending money on harvesting as there is neither wheat nor any fodder left,” Devi, who has a family of 18 that depends on farming, said as she surveyed her fields. “The cattle won’t even touch it.”

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