Showing posts with label GDP. Show all posts
Showing posts with label GDP. Show all posts

Wednesday, August 5, 2020

Why resurrect a failed policy? -- My interview

Q: The ordinances passed by the Centre regarding amendments in APMC and Essential Commodities Act have been hailed as path-breaking reforms in the legal framework. On the contrary, you have called these amendments a threat to Indian agriculture.  

When several decades back a former US Secretary of Agriculture, Earl Butz, at the time when Ronald Reagan was the American President, had famously said farmers: “Get Big or Get Out” I thought it was a prescription, good or bad, meant only for American farmers. But when Dr Shengann Fan, the Director General of the International Food Policy Research Institute (IFPRI) a couple of years back spelled out the same strategy, almost same, as a readymade prescription to pull Indian agriculture out of the crisis, I never thought Indian policy makers would be more than willing to push it not even caring to know whether this prescription is what the country needs.   

He had said: “Move Out, Move Up,” which as he explained meant basically bringing in economic policies to facilitate outward migration or ‘move out’ people from rural to urban areas and those who stay back to ‘move up’ in farming. After pursuing an unwritten policy of moving out a large section of the rural population over the past several decades to meet the growing demand for dehari mazdoor in the cities, I find the three farm Ordinances in line with the remaining part of the prescription – to ‘move up’. In other words, the three farm Ordinances point to a clearly laid out roadmap towards Corporate Agriculture, with the guidelines for FPOs if read in contiguity, paving the way for a build up of supply chains for the industry and that too at the Government expense ! 

I thought the massive reverse migration that the country had witnessed after the lockdown was imposed would open our eyes to how flawed the policy prescription of ‘move out’ was. Millions of people who had walked back to their villages were in reality what I call as Agricultural Refugees. They had moved out of the villages over the years when farming failed (and that was deliberate) to economically sustain their livelihoods. The pandemic provides us an opportunity to move in the reverse direction, which means instead of keeping agriculture deliberately impoverished bring in the extra emphasis to turn agriculture into a future powerhouse of India’s economy. This is what perhaps Prime Minister implied when he talked of Atmanirbhar Bharat.  

Q:  You have stated in an interview that the recent changes made by GOI in the agriculture sector are based on the US model. What similarities do we have with the US model? 

Yes, I am surprised the way policy makers have simply gone for a cut paste. All that is now being spelled out as agricultural market reforms have been in existence in America for more than six decades. It has been ‘one country, one market’ in America; farmers can sell anywhere within and outside the country; there is contract farming; there is no stock limit on big retail and there is commodity trading. Despite all these market reforms in existence, American farmers are passing through a terrible crisis.  

If market were so efficient, the question that needs to be asked is how come it failed American/European farmers? The Chief Economist of US Department of Agriculture (USDA) is on record having stated that the farm incomes have been a steep decline since 1960s. Majority of US farmers are bankrupt, with the total bankruptcy touching $425 billion. Rural suicides are 45 per cent higher than the urban centres.   

American/European farmers in reality survive on subsidies. Ever since the WTO came into existence in 1995, US/EU agricultural subsidies had remained a bone of contention. In 2018, the OECD provided a total farm support of $246 billion. This huge subsidy support actually decks up the market inefficiency. Not only for production, even agriculture exports are heavily subsidised. I remember an UNCTAD-India study in 2007 which had shown that if the green box subsidies (protecting domestic support in agriculture) in the developed countries were to be withdrawn, agricultural exports from US, EU and Canada would drop by about 40 per cent. 

Why therefore resurrect a failed policy? Why borrow a system that has crumbled in America and Europe? Why our policy makers can’t come up with policies that suit the national interest, conform to what the country’s needs are, and meet the emerging challenges of the future?   

Q: USA ranks among global leaders in agriculture. The US model has been borrowed by India. American agriculture is considered to be in a terrible state of crisis. In Europe, every minute a farmer quits agriculture despite massive subsidies. Post the agricultural ordinances, how shall the dots join for India? 

These are the questions that I have been seeking answers for. But I wonder whether our policy makers are even aware of these harsh realities. The reason is that they rarely step out of their air-conditioned offices, and at best are seen hobnobbing with agribusiness leaders. That is why the policy direction is taking us towards corporatisation of agriculture. 

Several decades back, at a conference in London, I remember the UK Food Group telling us that every minute a farmer was quitting farming in Europe. Already less than 2 per cent of the American population is engaged in farming, which also is on its way out. This is primarily because of the economic design, a design that tells us that to attain a higher GDP growth people should be moved out of agriculture into the cities. Agriculture has to be sacrificed to keep economic reforms viable. The exodus from the cities back to the villages should now tell us how flawed that economic prescription was. It didn’t happen only in India, it happened in Bangladesh, it happened in Pakistan, it happened almost across the developing world although the scale may be not as large as India. 

The answer lies in revitalising farming operations. And that would be possible only if farmers are ensured of an assured monthly income package. After all, they too have families to take care; they too need money to take care of family’s health expense, education, travel and so on. Farmers too have aspiration, and if markets could make that possible I don’t see any reason why OECD should continue to provide such massive subsidies year after year. Just because the ideology behind neoliberal economics is built on strengthening open markets does not mean we refuse to see where it has failed.  

That is why among the several measures I have time and again suggested to prop up agriculture, I have been calling for setting up a Commission for Farmers Income & Welfare with the primary objective of ensuring how a farm family can be assured of at least an income package matching the monthly income of the lowest Government employee. My argument is very clear: Give farmers his rightful income, and he will turn farming into a powerhouse of economic growth.   

Q: Noted industry leaders have called the recent agri reforms the "1991 moment for agriculture". They have said that the reforms shall open up the markets for farmers and lead to a huge transformation of the supply chains of agricultural output. But the 14-year-old Bihar experiment of doing away with APMC mandis failed. 

You said it right. Those who compare recent agricultural reforms as the 1991 moment are in fact industry voices. They speak for what is good for the industry. It does not necessarily mean that what is good for the industry automatically turns out to be good for farmers. 

In India, only 6 per cent farmers get the benefit of MSP. The remaining 94 per cent farmers in any case have been dependent on markets. If market were so benevolent I don’t see any reason why agrarian distress should have continued to grow. I don’t see any reason why thousands of farmers should be ending their lives every year. I also see no reason why an estimated 9 million people should be abandoning farming and migrating to the cities looking for a menial job. 

Talking about the Bihar failure with market reforms. Let me explain here why the failure of market reforms in Bihar that should be a lesson for future. I remember the excitement all around when in 2006 Bihar threw away the APMC Act. We were told that Bihar would be the harbinger of a new agricultural revolution based entirely on the markets. Private investments will flow, private market yards will spring up and farmers will get able to get a price discovery, meaning will be paid a higher price. In short, it will usher in rural prosperity. For 14 years, the nation has waited for that miracle to happen. 

It didn’t. In fact, even now some unscrupulous traders are transporting large quantities of wheat and paddy to be sold in Punjab and Haryana mandis where at least they get the MSP that the Government announces every year. If only instead Bihar had laid out a network of APMC mandis and provided farmers with an assured MSP every year I am sure the outward migration from Bihar would have dropped drastically.  

Bihar is a classic example of the failure of agricultural markets, a lost opportunity. This experiment has already played out on millions of farm families in Bihar, for whom it was a lost decade and a half. Let’s not repeat the experiment again.  

Q: What do you think is the role played by public sector in agriculture? Why is it vital and non-negotiable? 

You are very right. If only India had continued with heavy public sector investment over the decades it would have laid a strong foundation for resurgence in agriculture. But unfortunately, with World Bank/IMF breathing down the neck, and with our own economists parroting the failed prescription of moving people out of agriculture into the cities, the easiest way was to reduce the investments in agriculture. According to RBI, between 2011-12 and 2017-18, public sector investments in agriculture had remained between 0.3 and 0.4 per cent of the GDP.  

Now what miracle can you expect from agriculture, which involves roughly 50 per cent of the population, when the sector is deliberately kept starved of public investments?  

Compare this with the industry, which receives 6 per cent of the GDP by way of tax concessions alone. In fact, I have always maintained that the industry thrives on subsidies. This was very cleverly covered by a switch in vocabulary. When financial support is given for agriculture, it is termed as subsidy, a word that has been demonised. But when massive subsidies are provide to industries, these are called incentives. The general impression that has been created is that subsidies are a drain on the exchequer whereas incentives are absolutely essential for growth!  

It is all therefore a question of priorities. Since the intention was to move people out of agriculture, the investments were brought down. To restore the pride in agriculture, there has to be a renewed effort in boosting public-sector investments, large investments flowing in over the next few years. Private sector investments in agriculture will naturally follow once the Government makes its intent clear.  

For a country like India, public-sector’s role in agriculture is non-negotiable. Agriculture is the biggest employer in the country, and the effort should be to strengthen farming, which in turn will revitalise the rural artisans and the farm-based rural industries. The way to boost demand lies in improving agriculture, sustainably and economically. As I have often said agriculture alone has the potential to reboot the economy. I have failed to understand why mainline economists fail to see this simple but vital connection.  

Q: In wake of the three Ordinances, what is your suggestion for bringing prosperity to our farmers.   

The three Ordinances have already been notified. The urgency to push so called reforms, without even consulting farmers in whose name these are being pushed, has received huge farm protests in Punjab and Haryana. Interestingly, while farm protests are growing, all that the industry, the economists and the Government is saying is that farmers are being misinformed while in reality these measures will boost farm incomes.

But before we move any forward let us be first clear. I don’t want Indian agriculture to forever remain in subsistence. Economic Survey 2016 had told us that the average income of a farming family in 17 States of India, which means roughly half the country, is only Rs 20,000 a year, which means less than Rs 1,700 a month. This is not even enough to rear a cow. I shudder to think how these families survive. As if this is not enough, another study by OECD-ICRIER had clacluated that Indian farmers had suffered a loss of Rs 45-lakh crore between the years 2000 and 2016-17. This is a clear pointer to an extraordinary crisis that prevails on the farm. Later, studies by Niti Aayog have shown that growth in real farm income after 2015-16 and 2018-19 have remained almost ‘near zero’.  

This is not what Indian farmers deserve. Yes after year, farmers have worked hard to produce a bumper harvest. And yet, year after year, their incomes remain frozen or are on the decline.  

They too need a bright future. Let us therefore think of policies and measures that can pull them out of the grave agrarian crisis they live in. It is primarily a crisis of income insecurity. As I have always said, the problem is not in the crop field, but in economics. The crisis is not because of productivity shortfalls but because we have denied farmers their rightful income over the decades.  

To begin with, let’s first look at the three Ordinances. Well, if the three Ordinances are actually expected to give farmers a higher price for their produce, which means a higher income, then why a 4th Ordinance can’t be brought in which makes MSP a legal right for farmers? After all, if the reforms will lead to price discovery as everyone claims, why can’t MSP be a legal entitlement? This will assuage farmers concern, and since everyone feels the farm incomes will increase, I don’t see any reason why should the industry object to making MSP a legal right. If not, then it means the promise of a higher price is not a commitment.   

I am looking for the day when instead of just 6 per cent farmers getting MSP, the entire 100 per cent farming population become legally entitled to it (whosoever is eligible). This step alone will make farmers a true stakeholder in the resurgence of India.  

Secondly, since there are only about 7,000 APMC mandis the immediate need is to expand the network. If a mandi has to be provided in 5 kms radius, India will need 42,000 mandis. Third, the expansion of mandinetwork has to be accompanied by a nationwide programme to construct godowns at the village, panchayat and block level.  

This in my understanding should be the blueprint for ushering in Atmanirbhar Bharat. #

Source: Why resurrect a failed policy? Agriculture Today, Aug 1, 2020.http://www.agriculturetoday.in/magazine/2020/magazine-aug-2020.pdf


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Wednesday, July 15, 2020

A Rethinking in Economics is Urgently Needed.



This biased economic thinking has to change. While farm loan waiver is despised at, corporate bad debt write-off is believed to lead to economic growth ! 

Former US Labour Secretary Robert Reich tweeted the other day: “America’s richest 1 per cent now owns half the value of the US stock market. The richest 10 per cent own 92 percent. So when Trump says the stock market is the economy, know who he’s really talking about.” Well, Trump is not the only head of a State, who believes that a booming stock market is a reflection of the state of the economy, the list of such leaders is pretty long. This shows how effectively credit rating agencies have drilled the idea into our minds.

Even on a day when India’s Finance Minister rises to present the annual budget all eyes are on the stock markets. When in Sept last, Nirmala Sitharaman announced a slew of measures to build up domestic demand at times of a slowdown; she presented a tax concession bonanza of Rs 1.45-lakh crore to the industry, reducing the basic corporate tax rate to 22 per cent, the celebrations next day were observed on the stock markets. Shares jumped by as much as 5 per cent, the highest in 10 years as some media reports indicated. If only the same amount had been allocated for providing more money into the hands of the poor, stock markets would have remained subdued but perhaps more demand could have been generated thereby refuelling the economy.

Even now, when globally the pandemic has left economies bleeding, the stock markets are on a Bull Run prompting Nobel laureate Paul Krugman to say there is something terribly going wrong. This is also evident from the fact that the top 614 of America’s billionaires increased their wealth by over $ 584 billion between Mar 18 and June 17 while more than 45.5 million Americans joined the unemployment queue in the same period. While, much of the wealth increase is related to the Wall Street, economic bailouts and stimulus packages have helped transfer more money into the pockets of the stinking rich. On top of it, is the ‘printing’ of surplus money in the form of Quantitative Easing (QE). According to Fitch Ratings, global QE asset purchases are expected to touch $ 6 trillion in 2020. By bolstering the financial and property markets, this helps the rich become richer. But rarely have I seen the universities deliberating on the need to make QE work for the people. Why does it invariably fail to become part of the economics curricula or be a part of media debates is beyond my understanding?

In India, while the industry is lobbying hard to seek further tax concessions to the tune of Rs 2.50-lakh crore by bringing the corporate tax slab to a low of 15 per cent, an Oxfam study had earlier pointed to a creation of 117 million jobs if the richest 1 per cent globally were to be made to pay an additional tax of just 0.5 per cent over the next ten years. If we look at it economically, this makes terrific sense. To promote inclusive and sustainable growth, UNCSD tells us that creating employment and decent job opportunities will ultimately drive progress. But then why mainline economists have invariably failed to demand imposition of a slightly higher corporate tax if it could lead to such huge employment opportunities, still continues to baffle me.

In the past 30 years, says Bernie Sanders, the wealth of top 1 percent has gone up by $ 22.65 trillion, while the wealth of bottom 50 percent has gone down by $776 billion. “This growing wealth inequality is morally obscene,” he regretted. Inequality is not only related to wealth accumulation, but also stems for an ideological bias. In India, a former Chief Economic Advisor had once said that writing-off corporate bad loans leads to economic growth. The question that wasn’t asked is how come when both the corporate and farmers draw loans from the same banks, writing-off of corporate bad debt leads to economic growth whereas farm loan waiver upsets the national balance sheet? Similarly, why should nations continue to blindly pursue the outdated economic theory that workforce from agriculture needs to be shifted to the urban centres, primarily to ensure that companies don’t have to pay higher wages? Is it not a reflection of an ideological position?

Similarly, why is that any additional investment in agriculture, public health and education is seen as a drag on the economy? For instance, why is it that a sledge hammer blow of a pandemic made the government realise the importance of public health. “The public sector has an inescapable obligation towards health. The private sector alone cannot fulfil it. Of course, there will be public-private partnerships. Over the next five years, the Centre alone should be able to at least spend 2.1 per cent of the GDP on health,” N K Singh, chairman of the 15th Finance Commission recently said. Whatever the reason, even in normal times the emphasis on public health should not have diminished. But if only the reports of the finance commission for instance were deliberated and hotly debated in the class rooms will the future economists not get a peep into how our financial policies lays the framework for declining public sector investments in social sectors, and also lead to the kind of stark socio-economic inequalities.

Still, the bigger lesson is that if Britain can spend 9.6 per cent of its GDP on public health, why should India not try to catch up with at least 6 per cent to begin with? Why should public sector investment in agriculture continue to hover around 0.4 per cent of the GDP (between 2011-12 and 2017-18) when the sector employs roughly 50 per cent population? Why should the poor continue to live on the margins while the rich are routinely provided with massive bank write-offs, tax cuts and subsidies packed in the name of incentives for growth? Why should we have socialism for the rich, and leave poor to the market forces? Why should growth economics come in conflict with nature?     

These are not difficult questions, but need a rethinking in economics. #

Incentives for the rich, raw deal for the poor. The Tribune. July 13, 2020


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Tuesday, February 4, 2020

Budget 2020: A lost opportunity



Farmers work very hard only to find they have been shortchanged. 

It’s a lost opportunity. At a time when a slump in rural spending had led to a decline in rural demand pulling down country’s GDP to less than 5 per cent, providing more money into the hands of rural population – where 70 per cent households are engaged in agriculture – was being considered to be the surest way to prop up the economy. At a time when rural consumption is at an all time low, strengthening public expenditure in rural areas would have given a much wanted stimulus to agriculture. 

Knowing that the slowdown was not because of global factors but was driven entirely by domestic reasons -- lack of demand and slackening investments – most economists had suggested pumping in more money by way of direct income support to farmers and farm workers. At a time when bottom 60 per cent of the population holds only 4.8 per cent of the nation’s wealth, enhancing the budgetary allocation under PM-Kisan Samman Nidhi Scheme was considered to be an ideal route. Although I had suggested increasing the PM-Kisan allocation by another Rs 1.50-lakh crore, which would mean a direct income support of Rs 1,500 for a farming family per month, I was thinking at least the government would double the annual allocation for farmers – from the existing Rs 6,000 to Rs 12,000 per year. In addition, the budgetary allocations under MNREGA were anticipated to go up from Rs 70,000-crores, to at least Rs 1-lakh crores to make a meaningful impact. After all, farm wages have dipped to a five year low. 

Not only that the Finance Minister failed to utilise PM-Kisan and MNREGA for creating more rural demand, which would have led to increased consumption thereby leading to a higher economic growth, agriculture and allied sectors, irrigation and rural development and panchayati raj too did not receive any quantum jump in budgetary allocations. The total budgetary provisions this year are at Rs 2.83-lakh crores, which is hardly an increase over last year’s revised estimates of Rs 2.68-lakh crores. The outlay for farm credit has however been increased from Rs 13.5-lakh crore last year, to Rs 15-lakh crore this year. Studies have meanwhile shown that 41 per cent small and marginal farmers do not still avail credit from scheduled commercial banks. What needs to be understood is that farmers do not need more credit. What he needs is a higher income. 

In fact, the budgetary allocation for food subsidy has come down from 1.84-lakh crore to 1.15-lakh crore this year. This has raised doubts whether the government is intending to withdraw from procurement operations. Many farmer groups have raised this concern. Since the Finance Minister in the very beginning of her speech talked of liberalising farmers markets, more concerns have cropped up over the reduction in food subsidy. This assumes importance in the wake of recent developments where the Commission for Agricultural Costs and Prices (CACP) have recommended putting a stop to the open-ended food procurement policy. Already, Punjab and Haryana are under tremendous pressure to cut down on food procurement. Punjab has meanwhile amended the appropriate laws allowing for private sector participation and opening up for of private mandis.   

The 16-point action plan the Finance Minister spelled out as part of the Aspirational India that she talked about provides a roadmap for shifting to corporate agriculture. She said that the government would encourage those States which have implemented the three Model Acts that have been proposed earlier. These relate to land leasing law, market liberalisation and contract farming. Saying that agriculture needs to be made competitive, she listed a couple of programmes to double milk processing by 2025, increasing fish production to 200 lakh tonnes by 2025, integrating financing on warehousing receipts with e-NAM so as to encourage commodity trading. To launch Kisan Rail and Kisan Udaan for transporting perishable commodities too would be beneficial for agribusiness companies. Although much of the 16-point action plan that she listed have already been talked about in previous budgets but I didn't find any separate allocation for these programmes. .  

To lay out a roadmap for the direction of future agriculture is perfectly alright but there is a need to first ascertain how effective the pathway would be. Most of the reforms being brought in agriculture are borrowed from America and European Union. But what is not being explained is that if these policies were effective, why is it that agrarian distress in US/EU is at its peak? The spate of rural suicides in America, for instance is 45 per cent higher than the suicides in urban centres. Real farm income growth has been steadily on the decline in the US since the 1960s. India therefore needs to redesign agriculture in a way that it ushers in rural prosperity. #

READ MORE - Budget 2020: A lost opportunity

Sunday, November 17, 2019

India stays out of RCEP treaty


15 members of RCEP --Wikipedia map

Soon after assuming office, when the US President Donald Trump withdrew from the Trans Pacific Partnership (TPP) mega-trade agreement between 12 countries, which shared a common coastline on the Pacific and made up for 40 per cent of the global GDP, it came in for a lot of criticism. Terming it as a “horrible deal” President Trump was convinced that the treaty, which was meant to remove 18,000 tariffs on agricultural and manufactured goods, would steal American jobs.

Withdrawing from another mega-trade deal -- the Regional Comprehensive Economic Partnership (RCEP) -- which covers 45 per cent of the global population and accounts for 25 per cent of world’s GDP, Prime Minister Narendra Modi in a statement a few days ago, said: “When I measure the RCEP Agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscious permits me to join RCEP.” Remarkable words, indeed. Again, like US President Trump, what perhaps weighed on Prime Minister’s mind were the massive job losses and livelihood destruction expected on removing tariffs on 92 per cent of the tradable goods, including manufacturing and agriculture.

At a time when the dominant economic thinking is swayed towards globalisation, a strong leader demonstrating political courage to withstand the tide is certainly admirable. More so, at a time when dominant economic thinking creates a fear of the unknown – how much the country will miss out by not being a part of the proposed free trade agreement (FTA), some term the phenomenon as Fear of Missing Out (FOMO), the Prime Minister’s assertion for fairness and balance is legitimate. Such a precautionary approach becomes absolutely essential knowing that in the past too India had entered into free trade agreements with 12 of these RCEP countries (including the 10-member ASEAN grouping) with the same illusion of finding an access into their markets only to register a whopping trade deficit of $ 107.28 billion. The assumption that getting into an RCEP agreement at this stage will further widen the trade deficit and hit agriculture the most therefore is not entirely unfounded.

Similarly, the over enthusiasm with which India went on signing Bilateral Investment Treaties (BITs) on the presumption that it will promote investments were in reality vague and without proper homework. As the number of arbitrations increased, India terminated 58 of these BITs.

Given this backdrop, it is quite obvious that the fear of unknown has been over-hyped. If the FTAs with the Asian countries were pushed in the search of penetrating important markets and participating in the value chains of East Asian economies, it didn’t work. To Illustrate, India’s trade deficit with the 10-member ASEAN, signed in 2010, has increased by 250 per cent. It is therefore quite obvious that the Indo-ASEAN Agreement was signed without any adequate assessment, no proper scrutiny and was perhaps based more on the unknown FOMO factor. Otherwise there is no reason that the exposure to 10 Asian countries markets should fail to provide any significant trade outcomes. It is therefore heartening to know that the Prime Minister has now called for a review of Indo-ASEAN trade agreement. In fact, not only Indo-ASEAN there is a dire need to review all the bilateral and plurilateral trade agreements that India has so far signed.

There are lessons in store. When the multilateral World trade Organisation (WTO) treaty came into effect, a lot of euphoria was generated. We were told that a multilateral trading system – based on one country one vote principle – would obliterate the need to get in cumbersome and time consuming bilateral agreements. But over the years, this was proved wrong with more than 300 bilateral free trade agreements (FTAs) signed, which in principle were WTO plus treaties with stronger intellectual property rights (IPRs) and aggressive push to open up markets. Since most countries already are into bilateral agreements – with emphasis on zero tariff imports and removal of non-tariff barriers -- I fail to understand how any incremental growth can be expected from regional treaties where majority members are already having separate FTAs. Unless of course the new grouping includes a giant like China (with which India has a trade deficit of $ 53 billion) and countries like Australia and New Zealand (like in the RCEP) which desperately eye to get a foothold into India’s dairy (and farm sectors) to pull out their own dairy sector from distress.

The extra precaution with which India wants to engage with RCEP trade partners is therefore quite justified. Although the Commerce Minister Piyush Goyal lays out three conditions – strict rules of origin, updated base duty period, from 2014 to be moved to 2019, and auto-trigger mechanism – to be addressed before re-entering the RCEP negotiations, India’s decision making should be guided by more detailed studies and more open and transparent stakeholder dialogues. The Ministry of Commerce cannot be allowed to work in isolation, and needs to take other ministries on board. Reports saying that China was upset at India opening up issues like auto-trigger at times of volume surge, changing the base duty etc a few months before the treaty was being finalised raises questions over the competence of Indian negotiators. How come for seven years of RCEP negotiations, they failed to bring up these crucial issues that India is in any case fighting for in the ongoing Doha Development Round of WTO. 

Even during the earlier days of WTO negotiations, the promise of a drastic reduction in the monumental agricultural subsidies being provided by the richest trading block – the Organisation for Economic Cooperation and Development (OECD) – was projected to act like a ‘big bang’ for India’s farm exports. This was a gigantic mistake. Except for a jugglery in the way these agricultural subsidies were very conveniently shifted between the three boxes – green, amber and blue (in WTO parlance) – these subsidies have remained more or less intact. The 28-member EU provides $ 65 billion in farm subsidies, three times of what the US gives, and any quick effort to sign an FTA with these two giants must be carefully evaluated in the light of the damage it can inflict on India’s agriculture. Considering that 600 million people are engaged in agriculture, directly or indirectly, it is important to weigh the fallout on farm livelihoods before rejoicing over the market access an FTA provides. Nor can agriculture be sacrificed anymore for some gains in the services sector. Let’s treat Mahatma’s talisman as the preamble for any future trade negotiations. #


India holds its own. The Tribune. Nov 15, 2019
https://www.tribuneindia.com/news/comment/india-holds-its-own/860892.html?fbclid=IwAR1-S3eR9t3Fg4Lcn25eVXYWSVjqbnlcnwGRu9muy4aRpdp5McRabJCG8vU
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Sunday, September 8, 2019

Rural Economic Distress led to Slowdown




Terming the economic slowdown as unprecedented and perhaps the worst in the past 70 years, the Niti Aayog Vice Chairman Rajiv Kumar had called for extraordinary steps to fuel the economy. But strangely I did not find the Niti Aayog raise any alarm bells when it became known that Indian farmers suffered a back-breaking loss of Rs 45-lakh crores in the 17 years period, between the years 2000 and 2017.

The unprecedented crisis in agriculture, which was evidently passing through its worst phase in the past 70 years, did not evoke any response from the mainline economists as well as the policy makers. Not only the OECD-ICRIER study that pointed to the denial of rightful income to farmers and thereby leading to a loss of Rs 45-lakh crore, an earlier leaked Periodic Labour Force Survey 2017-18 report of the National Sample Survey Office (NSSO) had shown that 3.4-crore casual labourers in rural areas, of which 3-crore were farm workers, had lost their job between 2011-12 and 2017-18. The signs of a terrible rural economic distress were all there but it is only that the policy makers refused to see it.

It was as if nothing had hit the Indian economy, which strangely feels turbulence only when the industry fails to perform. It was as if rural India does not exist; as if rural India is somewhere situated in sub-Saharan Africa, so far away so not be of any concern. But if only the Niti Aayog had woken up in time to the grim realities that continued to plague Indian agriculture perhaps the economic slowdown being felt now wouldn’t have been so pronounced. The slowdown is essentially an outcome of a downward spiral in domestic demand, which emanates from a slump in real farm incomes thereby resulting in a collapse in rural demand. Low liquidity has nothing to do with the present crisis.  

With ‘near-zero’ growth in real farm income in the past two years, and with less than half a percent growth per year in the preceding five years, between 2011-12 and 2016-17, it was quite apparent that the rural economy was undergoing a sharp slump. Farm incomes are at a low in 14 years. To add to the dismal scenario, a report of the Reserve Bank of India had shown that public sector investment in agriculture had also remained very low -- between 0.3 to 0.4 per cent of the GDP between 2011-12 and 2016-17 -- clearly showed that how a sector which provides the largest employment in the country has been neglected all these years.

All efforts should therefore be to revive the rural economy. But on the contrary, while the crisis was in agriculture it was the industry which built up a sob story showcasing how auto sales were down, the inventory for the real estate was building up, underwear sales were refusing to pick up and Parle biscuits had warned of 10,000 workers at the verge of being laid off since the poor were thinking twice before buying a Rs 5-pack of biscuits. Seeking an economic stimulus package of Rs 1-lakh crore, industry lobby groups were backed by a large section of the media. In the deafening noise that the drum-beaters created, farmers and rural poor were once again forgotten. 

All measures to kickstart the slowing economy harbours on improving sentiment, provide more sops and tax concessions to the rich, and thereby providing more money into the hands of affluent sections of the society. But I wonder how will all this help in creating more demand. How will it help in providing more money into the hands of the poor? While everyone agrees that the slowdown is essentially because of a collapse in rural demand, I don’t understand how will measures that provide more money into the hands of those who are actually responsible for the slowdown, be helpful. Isn’t it like what the Chief Economic Advisor K Subramanian had said of India Inc’s tendency to “privatise profits, and socialise losses?”

After all, with almost Rs 8.5 lakh crore of bad loans written-off in the past 12 years, since 2007, and with banks staring at another Rs 17-lakh crores of stressed loans, of which many analysts say Rs 12-lakh crores is unlikely to return, it is the private sector which has already sunk a black hole. Since 2009, ever since the days of the global economic meltdown, the Indian industry has been getting an economic stimulus package of Rs 1.8 lakh crores every year. In other words, it has already received Rs 18-lakh crores by way of a bailout package in the past ten years. All this is in addition to an annual tax concession in the range of 5 per cent of GDP. The Chief Economic Advisor was right when he said that the industry should learn to fend for itself, and not run to the government every time it is faced with a slowdown. When the government provides a stimulus package to bail out loss-making Air India, the industry cries for privatising the public sector airline; but when the loss-making industries seek a bailout package to survive why shouldn’t they be nationalised? 

While all eyes are on the Rs 1.76-lakh crore lifeline that RBI has provided, the best option to revive economic growth lies in providing more money into the hands of rural poor. Considering that the average income of a farm family in 17 states of India or in roughly half the country is only Rs 20,000 a year, the cash reserve should be used to double the direct income support to farmers under the PM-Kisan scheme. At present, land owning farmers are given an income support of Rs 6,000 per year. It should be doubled to Rs 12,000 per year per family, which effectively means an income support of Rs 1,000 per month. It is also time to include the landless farmers under the ambit of PM-Kisan. 

In addition, public sector investment in agriculture needs to be enhanced significantly. To begin with, efforts should be geared up to upgrade the promised 20,000 village haats into modern mandis. #


READ MORE - Rural Economic Distress led to Slowdown

Thursday, February 14, 2019

Agriculture can alleviate employment woes.


Pic courtesy: IVHQ


Look at these headlines. As many as 7,000 people, most of them college graduates, applied for 13 job vacancies for waiters in Maharashtra’s secretariat. Of the 4,607 applicants for 14 job vacancies of sweepers and sanitary workers in Tamil Nadu Assembly Secretariat, most have professional qualification of MBA, M Tech, B Tech, post graduate and graduates, reads another. And last year, in March 2018, an estimated 25 million people, more than the population of Australia, applied for about 90,000 positions in India Railways, screamed TV news channels.


In 2015, over 2.3 million candidates, including 2.2 million engineers and 255 Ph.D. holders had applied for 368 posts of peon in the Uttar Pradesh State Secretariat. A year later, a massive 93,000 candidates, including 20,000 graduates and 50,000 post graduates, had applied for the posts of 62 peons with a technical wing of the Uttar Pradesh police. Almost at the same time, another 19,000 people, including MBAs and post graduates had applied for 114 jobs of ‘safai karamchari (sweepers) with Amroha Municipal Corporation in Uttar Pradesh. There may not have been riots over increasing unemployment but not only in Uttar Pradesh is the job situation so appalling, it is equally bad across the country.  

This is borne by the fact that India’s unemployment rate rose to a 45-year high during 2017-18, as a newspaper reported quoting the National Sample Survey Organisation (NSSO) study conducted between July 2017 and June 2018. At a time when India’s economy has been on a growth trajectory in the past four years – growing at an average exceeding 7 per cent per annum – the failure to provide jobs to millions of people joining the employment queues is a clear cut pointer that relying on a higher GDP is not the answer to creating more jobs. Whether we like it or not, it is now becoming apparent that a higher GDP does not translate into more jobs.

Although the Finance Minister Arun Jaitley dismisses the study, saying “if the economy is growing at 12 per cent nominal growth in the past five years, it would be an economic absurdity to say that such a large growth, the highest in the world, doesn’t lead to the creation of jobs,” but the question that needs to be asked is where are the jobs? While all out efforts are being made to show that job creation is on track, a report from Centre for Monitoring of Indian Economy (CMIE) deflates the claims when it shows that in the past one year, almost 11million people lost their jobs. “An estimated 9.1 million jobs were lost in rural India while the loss in urban India was 1.8 million jobs. Rural India accounts for two-thirds of India's population, but it accounted for 84 per cent of the job losses," the report said.

Growth without jobs is meaningless. The indication that a higher GDP does not automatically lead to more jobs was clearly visible in the UPA era when despite a high growth exceeding 8.3 per cent on an average, only 15 million jobs were created in the ten years, between 2004 and 2014. This was against the annual intake of about 12 million fresh entrants in the job market every year, which meant that against the need to provide 120 million people with employment, the UPA could provide only 15 million jobs. Ten years is not a small period, and it is here that policy makers failed to realise the inability of economic growth to create more jobs.

Still worse, a Planning Commission report had worked out that between 2004-05 and 2011-12 , about 140 million jobs were lost in agriculture. Many economists term the migration from agriculture to be a welcome sign. Going by the World Bank prescription, which was doled out way back in 1996, India was directed to go for a population shift, translocating 400 million from the rural to the urban areas in the next 20 years, by the year 2015. While most government economists have blindly followed the World Bank prescription, I have always termed these 400 million people being forced to migrate from the villages as ‘agricultural refugees’. In the absence of any alternative employment opportunity, these millions are swarming into the cities looking for menial jobs.

Without any definite strategy to employ them, no one knows what these millions will do in the urban centres. If the objective is to move people out of agriculture simply to meet the growing needs of cheaper labour for infrastructure, industry and real estate, in other words to provide for dehari mazdoor, there is something terribly wrong with the way dominant economic thinking is perceived. The general understanding being that those moving out of agriculture will be automatically absorbed by the manufacturing sector. It was primarily for this consideration that the National Skill Development Policy aimed at reducing the population in agriculture from 52 per cent to 38 per cent by the year 2022. But the reality is that during the period agriculture saw an unprecedented rate of migration, manufacturing too slumped, causing a loss of 53 million jobs. More recently, another 10.6 million jobs were lost in the manufacturing sector during the four year period 2011-12 to 2015-16.

Since agriculture is the biggest employer, employing 52 per cent of the population as per 2011 Census, the answer to the monumental employment crisis that India faces actually rests in the crop fields. If only agriculture can be turned economically viable and ecologically sustainable, it can easily take away much of the pressure the country faces in creating additional employment. All it requires is a paradigm shift in economic thinking, which begins by first treating agriculture as an economic activity, which has multi-faceted roles cut out. Making farm livelihoods economically sustainable should be the first step, with the objective to ensure gainful employment to marginalised communities. Once agriculture becomes economically viable, providing more income in the hands of 600 million people, it will reignite the rural based industry, and in the process trigger a reverse migration.

Only agriculture has the ability to reboot the economy. The increased demand a refurbished agriculture will create will be phenomenal, leading to a spurt in industrial production. This may not be ascribed in the economic textbooks, which still emphasise on reducing the population in farming but it is time to look beyond. If Constitution of India can be amended umpteen numbers of time, I see no reason why dominant economic thinking (and economic curriculum) cannot undergo a transformation for better, keeping in tune with changing times. It’s time to accept that agriculture is truly the mainstay of Indian economy. #

Agriculture can alleviate employment woes. The Tribune. Feb 15, 2019
READ MORE - Agriculture can alleviate employment woes.