Whatever happened to farm employment?

Print edition : May 23, 2003

Many small and very marginal farmers have lost their land over the past decade, and have been forced to search for work. - G.R.N. SOMASHEKAR

Agricultural employment is on the decline and the reasons can be traced to the fundamentally flawed philosophy of the neo-liberal reform programme.

IT is now almost commonplace to recognise that Indian agriculture is in a state of crisis. There are numerous indicators of this crisis - the stagnation of agricultural gross domestic product (GDP) and the fall in per capita GDP in agriculture in recent years, the increased volatility of output and greater susceptibility of Indian prices to international price movements, and rising input costs that make it even more difficult for Indian farmers to compete with the threat of subsidised imports.

One indicator of the problematic condition of Indian agriculture that is cited is the collapse in farm employment generation in the recent past. While employment generation in general has been a major failure of the macroeconomic policies of the past decade, the decline in agricultural employment generation has probably been the most startling.

The growth of agricultural employment by usual status (the number of people reporting themselves as "usually employed") fell from an annual rate of 2.08 per cent in the period 1987-88 to 1993-94 to only 0.8 per cent in the period 1993-94 to 1999-00. The fall in terms of daily status was even sharper - from 2.47 per cent to 0.14 per cent per year in the same period.

Within this, the really sharp fall was in the number of those classified as "self-employed" in agriculture, that is, those working on household operated holdings. Even within this category, the most obvious decline is in terms of the number of women reporting themselves as working on household plots.

What explains this reduced ability of cultivation to generate additional work? One explanation hinges on the expansion of the non-agricultural sector in rural areas. According to this argument, labour has been moving out of agriculture because of greater demand for labour in other sectors. But this explanation is not good enough since the increase in non-agricultural work has been much less than the decline in agricultural employment. In fact, at least some of this increase in non-agricultural employment might simply be because rural residents are desperately searching for any job that can be had.

Another explanation suggests that technological and cropping pattern changes have reduced labour demand in agriculture. There is no doubt that these factors have been important. Recently, there has been an increase in the mechanisation of Indian agriculture, which is labour-saving in nature and so reduces labour demand. The general thrust of the cropping pattern shifts (especially towards horticulture and floriculture at the margin in some areas) may have also reduced demand for labour.

But there is one other factor that needs to be considered - the pattern of land relations in rural India. It is now clear that this period (1993-94 to 1999-00) witnessed a significant degree of concentration in terms of operated holdings, which reflected changes in both ownership and tenancy patterns. Many small and marginal peasants lost their land during this period and, therefore, were forced to search for work as landless labourers. Surveys also report increased leasing-in by large farmers from small landowners. There has been a very large increase in landless households as a percentage of total rural households at the all-India level - from around 35 per cent in 1987-88 to as much as 41 per cent in 1999-2000.

It is well known that, for various reasons, those occupying small holdings tend to use land and labour intensively to achieve higher per land unit productivity than larger farms. Typically this means that they will be employing more household members in some agricultural work. If those who previously occupied some land are now effectively dispossessed and are forced to hire themselves out as wage labour, they are less likely to get similar levels of household employment.

In other words, when a particular plot of land is occupied by small and marginal peasants working on household farms, it is likely to show higher use of labour than when that same plot is taken over by a large farmer using hired labour. Not all of this may be disguised unemployment since the fact that small/marginal cultivators also use other non-land inputs more intensively suggests that they would use this additional labour to increase per hectare productivity. Therefore, increasing landlessness (even in terms of occupancy holdings) of the rural population may also lead to less employment generation in agriculture. The question then remains: Why has the proportion of landless population increased so substantially over these two periods? This may be owing to changes that have adversely affected small farmers in rural India over this period.

One of the more crucial changes has been the virtual collapse of formal rural credit, especially for small cultivators. This reduced availability of credit has very severe implications, especially for small farmers. A number of input costs have also increased as fertiliser subsidies have been reduced, and water rates and other user charges have gone up.

In addition, there is some evidence that although real wage growth slowed down substantially during the 1990s, real wage rates continued to increase in most parts of the country. Since the seasonality of agricultural operations means that most cultivators, whatever the size of holding, need to hire labour during peak seasons, this raised costs and made hiring labour more worthwhile than working on own operated land in peak seasons.

The process of trade liberalisation has meant that domestic agricultural prices have less relation to domestic demand and supply conditions and instead follow world prices. This means that even when the harvest is lower or there are crop failures, cultivators do not get any recompense in terms of higher prices.

There is much greater use of a range of monetised inputs, including new varieties of seed, and related inputs marketed by major multinational companies. Small cultivators, who have taken on debt, often from informal credit sources at very high rates of interest, in order to pay for these cash inputs, then find themselves in real difficulty if there is crop failure or output prices remain low.

All these could be reasons why the proportion of rural households not operating any land at all increased so much over this period. This in turn would mean that there would be less people reporting themselves as self-employed in agriculture, which is what is observed, and a general reduction in employment generation because fewer people would be hired than those who had lost employment from own cultivation.

It could be argued that there is nothing wrong with declining employment in agriculture since that is, after all, the eventual aim of the development and industrialisation process. By this argument, we should actually desire negative employment elasticity in agriculture as workers move out to industry and services along the classic pattern observed in the now-developed countries.

There, of course, the crux of the problem is that non-agricultural employment has simply not grown enough to make up for the slack. The fall in employment generation also has to be seen in the wider context - not of dynamic agriculture in a vibrant and growing economy but of stagnating cultivation conditions in a rural economy in which aggregate incomes are also stagnating.

It would also be remiss to forget that when the neo-liberal reforms were first introduced in the early 1990s, one of the most basic claims made was that the policy package would free cultivators from the straitjacket of controls and the bias towards urban industry. It was argued then that the sectors that were seen to reflect the Indian economy's comparative advantage - agriculture and labour-intensive manufacturing - would benefit the most. It was further argued that these sectors would experience significant increases in employment.

The experience of the past decade has given the lie to all those claims. The stagnation of agricultural employment, in this context, points to a very basic flaw in the philosophy of the neo-liberal reform programme. That could be one reason why official policy-makers increasingly tend to downplay the observed realities on Indian farms.

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