Wanted: farmer members in FICCI-CII

The problem, however, is that while the number of middle-income families in ruralIndia grew by 18 per cent annually in the pre-reforms period (1985-86 to 1989-90), this fell to a mere 3 per cent in the post-reforms period (1992-93 to 1995-96). By contrast, the growth in the number of middle-income urban families actually grew faster between the two periods. Across the board, in almost all income classes, rural India has fared worse than urban India.

So what, industrialist-members of chambers of commerce such as FICCI and CII may well ask. The fact is, they’ll argue, rural markets continue to grow at a fast rate, and that’s all that really matters. That, however, is missing the wood for the trees. What they should really be focusing on, is what an increase in rural incomes would do to really spark off another boom in demand. NC-AER’s report gives a few examples of this.

Let’s take, say, the entire class of non-electrical consumer goods. According to NCAER’s survey, on an average, urban households today have around 60 per cent more than their rural counterparts the urban household has3.5 non-electrical consumer durables as against the rural 2.1. Now, obviously, this is due to various factors such as lifestyles. NCAER’s economists, however, have done an exercise to try and isolate the impact of just incomes. So, let’s say rural tastes remain the same, but their income goes up to urban India’s levels. Immediately, the `penetration’ rates for rural India go up to 2.8. That’s an increase of a third!

A more startling picture emerges for electrical consumer goods where, with poor progress in providing electricity in villages, rural India’s purchases are way below those of urban India. In 1995-96, the average urban householder had 3.6 electrical consumer goods as against just 0.9 for his rural counterpart. Provide electricity to all rural households and, NCAER’s analysis shows, the average rural household’s purchases go up three times! If rural incomes also go up to urban levels at the same time, the effect is even greater.

That industry will benefit from increased rural prosperity is, ofcourse, nothing but good, old common se-nse. So, stimulating it is good business for the country’s demand-starved industry. The problem, however, is that industrialists are so caught up with their immediate problems that, given a chance, what they will recommend is simply an increase in government spending on agriculture. Given the fact that this is budget-month, what better time to make these suggestions.

But that’s not going to help either. As various studies by agriculture economists such as Hanumantha Rao and Ashok Gulati have shown, much of government spending on agriculture simply gets wasted. We spend close to a rupee on subsidies, for example, for every rupee that is spent on building long-term infrastructure such as irrigation facilities and greater rural electrification.

Worse, as a study by Gulati shows, a very large part of subsidies, such as the one on fertilisers an integral part of any increase in government spending on agriculture does not even go to the farmer! Instead of going in forcheaper imports, we simply subsidise inefficient and probably dishonest high-cost local producers. So, it’s actually possible for the government to cut its subsidy to high-cost producers, and then use this money to develop better irrigation facilities which are vital to increase production levels. Gulati’s report on this was submitted many months ago to the government, but no action has been taken on it so far.

And when it comes to providing electricity to rural areas, attention always gets diverted to the `fact’ that farmers don’t pay for electricity, and so cannot be given more. That, however, is a lot of half-truths. For one, a large part of the so-called agricultural supplies don’t ever reach the farmers, but are simply stolen by the electricity boards and passed off as sales to farmers. It’s also true that since this electricity is supplied primarily in the off-peak hours, in keeping with global practices, it has to be priced far below the normal tariff.

It would, of course, be unreasonable to expectindustry to start lobbying for agriculture and what could be broadly called Amartya Sen-type of issues. Having a few people such as Gulati and Rao as members of FICCI and CII, though, would go a long way in correcting industry’s distorted perspective. It would also help if, in the traditional pre-budget meetings, the finance minister adopted a less-rigid classification and called in a few agriculturists in the meeting with industrialists, and vice versa.