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Wednesday, October 01, 2003

Reinforcing Edwards point about Indian manufacturing, Manufacturing in India grew by 6% in Q1. (Financial Express story here).

Agriculture reported only 1.7% growth as opposed to 2.7% during Q1 to 2002-2003, even though the monsoon was the best in recent memory. Pranab Sen. a planning commission adviser said that "The impact of the good monsoon will be reflected in robust agricultural growth in the second and third quarters of the fiscal. Depending on how well agriculture does, the economy could grow between 6.5 per cent to 7 per cent this year".

Agriculture still contributes close to 40% of the GDP in India. Edward linked to an interesting sssay on Ladakhi agriculture a few weeks back. It is a little late to comment on that article, but I couldnt get down to doing it before now. I empathize with the opinion expressed by Sunita Narain in that article. I just don't agree with it.

I think the invasion of products, culture and services from the plains is killing not just Ladakhi agriculture, but is contributing to rapid mutation (mostly for the worse) of the entire socio-cultural systems of all the Himalayan states/nations in South Asia from Uttarakhand to Tibet. Unfortunately, the traditional modes of agriculture in Himalayas can no longer meet the challenges posed by the increases in population, aspiration and changes in taste. There are three simple reasons why sustaining the traditional means of agriculture in Ladakh will not work:

Food from the plains is cheaper
It is tastier
Ladakhi agriculture cannot scale up to the demand generated by tourism

Why should the Ladakhis be forced to eat Barley when the implants from the plains and the tourists can have rice or wheat ? At least the younger generation who are growing up with TV won't pay for it. Why invest additional money for retaining a way of living, which is not going to survive a collision with modern lifestyles, as we can see elsewhere in the Himalayas. As things stand, We need to find a way for these farmers to augment their livelihood by other trades (e.g. tourism which is increasingly becoming the dominant force in Ladakh) rather than help them keep wherever they are.

But her article does raise the important point about sustaining small farmers who contribute a disproportionate percentage of our agricultural productivity. I was browsing through an FAO report which says

Small-holder farmers (defined as marginal and sub-marginal farm households that own or/and cultivate less than 2.0 hectare of land ) - constitute about 78 per cent of the country's farmers (at Agricultural Census 1990-91). But they own 33% of land and contribute 41% of national grain production. They constitute more than half of nation's population and nation's total of hungry and poor.

The questions are here posed: is the continuance of Indian hunger and poverty a consequence of the smallness of the preponderant majority of the nation’s farms? Or may the productivity of those small farms be so increased as to allow the smallholder families - and the nation with them - to escape from hunger and poverty?

Obviously, the small farmers dont have the means to increase the productivity of their farms. But there are several things other things going here.

In large parts of Northern India, Tamil Nadu etc. land reform did not really take place. A vast percentage of the large landowning families that gained their land during British occupation (or in the era predating that), managedwilly nilly to hold on to it by various legal and illegal means. Every time there was momentum for land reform, the landowners got away by giving away the worst pieces of farming land to the small farmers. I am not sure whether land reform is called for or whether it is practical, but the relatively better agricultural productivity in West Bengal where land reform is one of the very few successful legacies of the left front government there, suggests that taking a fresh look at land reform may not be such a bad idea.

On the other hand, the consensus among economic thinkers in India seems to be that the increasing fragmentation of land holdings is what is ailing Indian agriculture. I would be interested to hear what others think on this.

We also seem to have lost steam after the green revolution of the sixties and seventies and bypassed the more painful agricultural reform issues that need to have followed through. The investment that is going into agriculture seems to be feeding the politically powerful vested interests in the form fo subsidies rather than contributing to productivity. The finance minister seems to have thrown up his hands temporarily. Towards the end of a rather interesting interview with the Jaswant Singh (the finance minister), the Business Standard asked him about the agriculture subsidies:

Is government expenditure under control? You have a problem with the food and fertiliser subsidies. Can't we move away from the minimum support price mechanism to income-based support for farmers?

Food subsidy is something that I cannot reduce. We tried to address this whole issue in yesterday's advisory council meeting. We have to continue with the agriculture subsidy because we have the largest irrigated arable land mass in the world. It's a great asset. When I was doing my homework in this job, I realised it. It will be very difficult for India to move away from this minimum support price system in the near future.

Some of the other departments are looking at income-support alternative......

Yes, it will take time. You see, people have got used to the MSP system. Is it a perfect system? No. Is it just and equitable? Perhaps not the most just and equitable. It is a high cost system, I agree. I have to go to an income-based support, I agree. This is one of the issues that emerged in the meeting. Unless I have perfect transition from MSP to income-based support and unless I have the states of India on board the transition - because you know it is a concurrent subject - I cannot unilaterally decide. I do believe that the future is to give correct income-based support to farmers, without doubt. The United States of America also gives $ 360,000 every third year to maize growers, to not grow maize, $ 2 a day to every cow. But look at our plantation sector, coffee, tea. I just cannot, under any circumstances, neglect this agro industry, which is 150 years old.

The subsidy makes least sense on fertiliser, because the farmer is paying the international price anyway...

I will come to that. Fertiliser, I do believe, is the most inefficient of all subsidies. It is also a subsidy where the farmer does not benefit and we are subsidising inefficient fertiliser producers. I attempted to take the first corrective step in this when I presented the Budget. But I got such a rap on my knuckles.... So what do I do?

But you have a runaway subsidy bill.

Not runaway. It's not a horse that has bolted. I have ridden horses which are hard-mouthed. I do think that I can prevent a runaway situation.

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