A world of distress

Print edition : April 10, 2009


AS the outstanding Marxist economist Paul Baran had pointed out in The Political Economy of Growth, what is cooked in the kitchen is not decided in the kitchen. Similarly, what happens to agricultural producers is decided outside agriculture by public policy. The ruling partys Jai Ho campaign before the imminent general elections takes us back to the National Democratic Alliances (NDA) infamous India Shining campaign of 2004 in the middle of acute agrarian distress and farmer suicides.

What is the situation today after five years of United Progressive Alliance (UPA) rule? Agrarian depression continues and farmer suicides are unabated not only in Maharashtra but in Chhattisgarh, Andhra Pradesh and Karnataka, to which weaver and textile worker suicides have now been added. Professor K. Nagarajs recent study of farmer suicides (Farmer Suicides in India: Magnitudes, Trends and Spatial Patterns) shows a higher incidence in States that produce export crops as well as certain tribal population-predominant States. Only Kerala has seen a drastic drop in farmer suicides by 2008 owing to swift measures taken by the Left Democratic Front government after coming to power in May 2006, though the very recent dip in export crop prices is again raising the spectre of renewed distress.

The public memory is surely not so short that the mephitic role played by Manmohan Singh as Finance Minister in the P.V. Narasimha Rao government in initiating the agricultural depression has been forgotten. Subscribing to the economic dogmas of international financial institutions (the International Monetary Fund and the World Bank) advising a cutback in state spending and a reduction of already meagre agricultural subsidies, from July 1991 a strongly contractionary, expenditure-deflating set of policies was put in place by Manmohan Singh, targeting mainly the unorganised sector sharp reduction of Central and State government development expenditures, large cut in fertilizer subsidy, devaluation of the rupee, unrestricted primary exports, and so on. For the first time in 30 years, Indias per capita gross domestic product fell and the crude death rate rose in certain States. Financial sector reforms from 1994 redefined the priority sector for bank lending and squeezed out the peasantry from affordable bank credit, forcing them into the willing arms of usurious moneylenders who take Rs.3 to Rs.5 a month interest on Rs.100 lent in a year.

After a brief interregnum, the NDA government from 1998 pursued the same deflationary policies with equal vigour and by prematurely removing quantitative restrictions on trade, exposed our producers to the full fury of the global price declines that had started from the mid-1990s. Peasants who had borrowed to expand cash crops output expecting prices to be maintained became quickly insolvent. Farmer suicides started and they continue to this day after a whole decade has passed: they are only the tip of the iceberg, the most tragic expression of a vast submerged world of distress. The share of both rural development spending and infrastructure spending fell drastically in the 1990s, the steepest rate of fall being the one during the Congress rule up to 1996. The Central governments total development spending registered negative annual growth over the entire 1990s after growing at a steady 6 per cent annually during the 1970s and the 1980s under the previous Congress and alternative governments.

All this is known and history, it might be argued. In recent years development spending has risen again, so why harp on the past? The point is, first, that a decade of relentless state attacks on farmers viability has had such deep and traumatic effects in raising unemployment, drastically lowering the output growth rate, depressing mass incomes and hence reducing the incentive to invest by the peasantry, that only a well-thought-out and coordinated set of measures can revive this sector, which supports over three-fifths of our population.

Second, the world recession has unleashed a second round of income-depressing factors on rural producers by contracting demand, both internal and external, and leading to a fresh round of price declines, problems which are not being addressed at all.

In the present situation, the extant pontifications of the experts on agricultural revival are grossly inadequate and express a pious wish-list rather than a concrete action plan. Such a plan has to include genuine debt relief measures for producers including the state taking over farmers debt to private moneylenders, crop valorisation, crop price stabilisation through revival of the commodity boards and their purchase function, and income generation to revive demand. Our policymakers still refuse to face up to the fact that it is their misguided actions alone that have created the present crisis.

How committed the UPA government has been to reversing agrarian distress can be judged from the fact that the Reserve Bank of India ended Rs.6,000 crore general line of credit enjoyed by the National Bank for Agriculture and Rural Development (NABARD) two years ago. This country is sitting on a mountain of reserves, which are being used by the RBI to support the United States balance of payments, while it refuses to support rural development banking in this country even to the most meagre extent.

On the supply side, primary export thrust to fill supermarket shelves in Northern countries has shifted 8 million hectares away from foodgrains, resulting in a drastic drop in per capita grain output. The Planning Commission economists are talking about above 4 per cent growth rate during the period of UPA rule by taking the initial grain output as 198.4 million tonnes in 2004-05, which happened to be a remarkably low output year (the previous years output was 213 million tonnes), and then comparing this very low output with a peak output of 230 million tonnes in 2007-08. Base year manipulation and taking trough to peak output to dress up the growth rate is an old ploy although it fools nobody; prestigious bodies like the Planning Commission should not stoop to such cheap tricks. The country last saw a peak output of 199.4 million tonnes back in 1996-97 and it is this which should be taken for comparison with the 2007-08 peak output. The peak-to-peak growth rate from 1996-97 to 2007-08 works out to 1.3 per cent per annum, well below the population growth rate of 1.8 per cent. Per capita output is falling faster than ever before.

Poverty drove this farmers family near Bangalore to commit suicide, in 2002. Financial sector reforms from 1994 redefined the priority sector for bank lending and squeezed out the peasantry from affordable bank credit, forcing them into the willing arms of usurious moneylenders. Farmer suicides started in the late 1990s and continue to this day after a whole decade has passed.-G.P. SAMPATH KUMAR

In such a situation of output shortage, food price inflation should have started long ago if demand had been maintained, but in fact the inflation rate was at a historic low with the Consumer Price Index for Agricultural Labour rising only 11 per cent over the five years 1999-2000 to 2004-05. What explains this? A severe squeeze on aggregate demand of the mass of the population (at least 60 per cent of the total) has been engineered through the measures of income deflation.

Advanced countries with a history of centuries of colonial exploitation and parasitism have developed the bad habit of believing that other peoples resources can be appropriated by them as they please. They have been paranoid about China and India with their vast populations using up more of the worlds scarce resources as their per capita income rises. They have deliberately advised income-deflating policies for India and other developing countries, which depress mass incomes and purchasing power, thus reducing the rate of domestic absorption of even basic foodgrains to ease the diversion of land to export crops for filling up supermarket shelves in the global North. Unfortunately, Chinas market-oriented reforms have had the same effect of displacing grain with cotton and commercial crops.

The success of these income-deflating policies appears to be not known to former U.S. President George Bush and economist Paul Krugman, who have been quick to blame India and China for the 2007-08 global price rise citing their high rate of per capita income growth which they say must be raising grain demand per head both for direct consumption and for use as feed to convert into animal products. They do not have the slightest idea of what has been going on owing to their ignorance of the factual position as well as theoretical misconception. The factual position is that far from a rise, there has been a sharp decline not only in per capita output, but also in per capita total (food plus feed grains) demand over the period of market-driven economic reforms in both countries, namely, the last 15 years. The income of the minority indeed has been rising fast but, at the same time, the income of the majority has been falling or stagnating. The rise in per capita total grain demand of the minority which is getting richer and demanding more animal products, that is, more feed grains, is being more than cancelled out by an enforced fall in per capita grain demand of the majority which is stagnating or getting absolutely poorer. The result is overall decline, increase in mass hunger. Stagnating income too will produce falling food intake when market pricing for health, education, and so on raises these costs forcing sacrifice of food spending.

What Bush, Krugman and indeed many of our home-grown economists suffer from theoretically is the fallacy of composition (in which the behaviour of the part, the rich minority, is assumed to be the same as the behaviour of the whole, the entire population). Market-oriented reforms worsen income distribution while they are assuming unchanged income distribution. The National Sample Survey data on consumption show that, between 1993-94 and 2004-05, over 60 per cent of Indias rural population has seen a substantial absolute decline in the intake of both cereals and animal products such as milk, eggs and meat, while the top 10 per cent registered a sharp rise in animal product intake though not in cereal intake. The average decline in nutrition is the result of these divergent trends and we see not only falling per capita calorie intake but also falling per capita protein intake. The Army has been obliged to lower its physical standards for male recruits in some centres owing to the shortage of candidates satisfying the previous standards. While woman and child malnutrition is much talked about, the reality is that the entire population save the very top groups is affected. The percentage of persons unable to obtain a daily energy intake of even 2,200 calories rose from 58.5 per cent in 1993-94 to 69.5 per cent by 2004-05 and the position now would be worse.

What are the measures which should be taken by the new government which will assume office two months from now to reverse these alarming trends? Much will depend on the political complexion of the government and its commitment to improving welfare. The measures taken to counter agrarian distress by the government of Kerala after assuming office in May 2006 can serve as a model in many respects.

First, it speedily formulated The Kerala Debt Relief Commission Act, 2006, which was notified on January 18, 2007. Under this Act, applications for relief were invited from farmers unable to repay debt including from private moneylenders. This immediately put a stop to harassment of indebted farmers and the suicide rate dropped sharply.

The procurement price of paddy was substantially raised a whole year before runaway global price rise forced the Central government to raise procurement price of wheat. Suicides in paddy-growing areas stopped and paddy acreage has started slowly recovering.

The National Rural Employment Guarantee Scheme was implemented with vigour in the affected districts with strictly equal pay for men and women, and has helped to restore demand. The recent commodity price declines as the global recession has taken hold will again affect farmers badly, and to prevent fresh distress, budgetary allocation to the extent of Rs.10 crore, to be raised if necessary, has been made last month for a Commodity Price Safety Net which will meet the difference between falling actual price to the farmer and a living price.

There are many measures which a Central government can take and which are not within the purview of the States. First, the indiscriminate signing of free trade agreements without any consideration for their adverse impact on our producers has to stop, and tariffs have to be raised for sensitive products and quantitative restrictions imposed when necessary.

Second, the purchase function of the Commodity Boards (such as Spices Board, Tea Board, Coffee Board) were terminated years ago and they exist only in name. Effective revival of market intervention by Commodity Boards to purchase a substantial part of output put on sale at minimum support prices is essential for stabilising price to the grower without which there can be no revival of profitability or investment.

Cardamom being weighed and packed at a spices sales outlet in Kochi, Kerala. Effective revival of market intervention by bodies, such as the Spices Board, to purchase a substantial part of output put on sale at minimum support prices is essential for stabilising the price to the grower.-K.K. MUSTAFAH

Revival of mass demand is needed with a big thrust on development spending and on employment guarantee, without which once more food stocks will build up in godowns instead of meeting the needs of the hungry as in 2002, and a rising share of food subsidy will go uselessly in holding stocks.

The Land and Livestock Survey of 2002-03, compared with 1999, shows an alarming loss of livestock with over nine-tenths of all farmers and an alarming rise in the proportion of zero or nil operational holdings, from 19.8 per cent to 31.2 per cent at the all-India level, while for States like Andhra Pradesh and Kerala the proportionate increase is even more than this average.

Many of our progressive intellectuals writing on land holdings are so petrified that they refuse to mention the facts of these surveys and produce only a single cryptic sentence in their papers saying the two figures are not comparable. Non-comparability if it does exist, does not preclude the situation being even worse than the data indicate. Facts do not go away if one buries ones head in the sand, and a much more mature intellectual stance of facing unpalatable facts boldly is needed for formulating practical measures to reverse the trend of asset loss and virtually unabated distress which are emerging from the data.

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