•  India has seen a steady decline in the proportion of national income coming from the primary sector overlaying a rapid decline in rural farm incomes and this has impacted the demographic dynamics too.
• Between 2001 and 2011, the growth rate of rural population declined by 5.9%, while the urban population growth rate increased by 0.3%.
• This steady rise has been by way of-migration from rural areas, increasing density of habitation spaces in urban fringes, and emergence of new towns.
• The rapid growth in urban populations has put an immense strain on urban infrastructure, quality of life and raised doubts of sustainability of well-being despite a rapidly increasing per capita income in India.
• Parallelly, in rural India, household ownership of land has declined from 107.2 million hectares (ha) in 2002–03 to 92.4 million ha in 2012–13 (NSSO 2013).
• The declining farm income is reflected in the rising number of farmer suicides—an estimated 3.18 lakh farmers have committed suicide in the past 21 years beginning 1995 according to the National Crime Records Bureau.
• The latest estimates show that 12,602 farmers had committed suicide in 2015, an increase by 2% from 2014. Thus, guaranteeing a farm income that ensures a decent living for the farmers is an urgent need of the hour.

Policy Response

• In response to this crisis, while presenting the union budget of 2016, Finance Minister Arun Jaitley had announced the government’s intention of doubling the farmers’ income in the next five years. This is a welcome intention in the context of the severe agrarian crisis, and the rising spate of farmer suicides.
• According to the Economic Survey 2016–17, the average farm household income in 17 states of India stands at a paltry ?20,000 per year, that is, an average monthly income of ?1,666.
• According to the estimates from the 70th round of the National Sample Survey (NSS), the average farm household income was ?6,426 per month, including ?3,345 from non-farm activities. These are clear indications that the extent of farm income insecurity is primarily responsible for prevailing agrarian crisis.
• In contrast, the recently announced Seventh Pay Commission guarantees a minimum basic pay of ?18,000 per month for the lowest paid government employee.
• Farmers who undertake the critical task of providing food to the nation are somehow left to the vagaries of weather variations and market fluctuations, and have no secure means of income.
• The most talked about minimum support price (MSP) mechanism to ensure fair farm incomes is unequal to the task on at least two counts:
• first, it has not kept pace with the rise in farm costs, and
• second, as admitted by the Shanta Kumar Committee, only 6% of the farmers get the benefit of MSP.
• Doubling the farm income, therefore, seems an impossibility using the MSP as a tool.
• The other two ways by which net incomes could be enhanced are: growth in agricultural productivity or reduction in production costs (if prices are stable).
• While agricultural productivity has stagnated over the years on an average across the country, Punjab has shown that even raising crop productivity does not automatically lead to an end to the agrarian crisis.
• With 98% assured irrigation and wheat yields of 45 quintals/ha and paddy yield of 60 quintals/ha, Punjab is on the top globally when it comes to crop productivity and yet has emerged as a suicide hotspot.
• Reduction in the cost of production may in any case be mostly influenced by market forces than individual actions.
• Therefore, none of these strategies seems to be a feasible mechanism to meet the policy goal of increasing farm incomes.

Payment for Ecosystem Services (PES) as a Solution?

• One mechanism which is inclusive and would ensure increase in farm incomes is by compensating farmers for ecosystem services that they generate.
• Ecosystem services are those benefits generated by the ecological systems that contribute to human well-being both directly and indirectly.
• The Millennium Ecosystem Assessment (2005) classified the ecosystem services into four broad categories: provisional, regulatory, support and cultural services
• Except for the provisioning services, the other ecosystem services are not traded directly in the market, which necessitate generation of surrogate methods for valuing these services.
• Providing a monetary value for the ecosystem services is an important method to raise awareness and convey the importance of ecosystem services to policymakers.
• One of the first attempts to estimate monetary values of global ecosystems services was done by Costanza et al (1997). They estimated the contribution of ecosystem services to be $33 trillion per year and then revised this estimate to $125 trillion per year in 2011 (Costanza et al 2014).
• A series of efforts were made to compute the values of ecosystem services and The Economics of Ecosystems and Biodiversity (TEEB) initiative made significant progress in this aspect.
• It led to the creation of the Ecosystem Service Valuation Database (ESVD) with about 1,500 global peer-reviewed publications on ecosystem services valuation covering 22 such services from 16 biomes. The values were standardised to the base year 2007 and the normalised values were expressed in terms of per year and per hectare. As de Groot et al (2012) point out, these are estimates “of their benefits to society—benefits that would be lost if they were destroyed or gained if they were restored.”

What is Millennium Ecosystem Assessment?

• TheMillennium Ecosystem Assessment (MEA) is a major assessment of the human impact on the environment, called for by the United Nations Secretary-General Kofi Annan in 2000, launched in 2001 and published in 2005 with more than $14 million of grants.
• It popularized the term ecosystem services, the benefits gained by humans from ecosystems.

What is the potential of PES?

• Potential of agriculture in providing ecosystem services is gaining research attention globally. Agriculture conventionally supplies food, fibre, and fuel—“provisioning services” in ecosystem service parlance (Millennium Ecosystem Assessment 2005).
• Apart from provisioning ecosystem services, the agricultural ecosystems supply “regulating services” like climate regulation, water purification, surface water flows, groundwater level, and waste assimilation and breakdown.
• Thus, agro-ecosystems provide beneficial ecosystem services to society at large and currently there is no mechanism to compensate the farmers for it.

What is India doing?

• In India, we already have precedence in the forestry sector where a compensation mechanism is in place for changes in ecosystems services—the Compensatory Afforestation Fund Management and Planning Authority (CAMPA) fund.
• The policymakers then could use the same framework to compensate farmers for ecosystem services from agro-ecosystems.
• Within the agricultural systems, the type of production system determines the scale and capacity for generating ecosystem services as these are vulnerable to land-use changes as well as techniques of production.
• For instance, intensive agricultural production with increased use of agro-chemicals, and pesticides has a negative impact on generation of ecosystem services and can cause irreversible damage to environment.
• The objective of this exercise is to examine payment for ecosystem services (PES) as a mechanism to compensate farmers for the net economic value for ecosystem services that flow from agro-ecosystems in India.
• These values could be integrated into a well-defined mechanism for PES.
• The PES mechanism can be used to correct for natural externalities and help adapt sustainable measures which would help increase the net stock of natural capital.
• This can form one component of the guaranteed income basket being proposed for the farming community.

Data calculations

• The total economic value (TEV) of the various services (food, water regulation, climate control, biodiversity, soil quality, air quality, etc) is estimated to be $3,839 per year per hectare (at 2007 prices).
• In order to make this compatible to Indian prices, the dollar can be converted to rupee values in 2007 (using the 2007 exchange rate of ?45/$1).
• Further use the gross domestic product (GDP) deflator to project the values for 2016.
• The calculation translates this to a figure of about ?77 lakh.
• If the values for food and recreation are deducted (provisioning and cultural services which could be marketed), a figure of ?1,74,800 per hectare per year translating into a payment of ?14,570 (approximately) per hectare per month was arrived.
• This would fulfil the objective of doubling farm incomes from the existing NSS-estimated income and at least be in proximity to the seventh minimum basic pay promised to the lowest paid government employee.

Promoting Sustainable Agriculture

• Agricultural operations could not only provide ecosystem services but also deplete ecosystems and natural assets.
• The major disservices observed in Indian agriculture are excessive water extraction, overuse of chemical fertilisers and pesticides, air quality deterioration (stubble/straw burning), decline in biodiversity, and so on.
• For instance, one of the important concerns is the dramatic decline in groundwater table, which is mainly linked to irrigated agriculture, especially in states like Punjab. Between 2009–10 and 2013–14, the lowering of the water table is more pronounced in Maharashtra (14.8 metres), Tamil Nadu (9.8 metres), Punjab (7.2 metres), Karnataka (4.1 metres) and Rajasthan (3.3 metres) (CBG 2010, 2014).
• The guaranteed income from ecosystem services must be adjusted for the loss of ecosystems.
• On the flip side, there are farmers who are contributing more ecosystem services than the average farmer because of farming practices such as organic farming.
• They should receive a higher payment than others who are not following natural capital asset enhancement through their farming practices. The adjusted values thus derived could form part of the proposed guaranteed income basket of the farm household.

Conclusion

• The PES approach would help fulfil the promise of a guaranteed income to the farmers while prompting them to adopt sustainable farming practices.
• Unlike many other schemes of the government, the PES would not be a subsidy but a payment for benefits generated by farmers for which they have not been compensated, due to lack of a market mechanism.
• PES schemes have been experimented with in China on large-scale starting with their “Grain for Green” programme.
• Similar proposals have been floated in Europe. Efforts to reorient farming practices towards sustainable agriculture by paying for ecosystem services are being experimented in the Midwest of the United States.
• A suitable institutional mechanism can be evolved in India with stakeholder participation. This would help achieve multiple goals of doubling the farm income, reducing rural–urban migration, reduce the pressure on urban infrastructure, and lead to adoption of ecologically sustainable production techniques. Agriculture, in turn, would become a profitable and attractive profession to pursue.