Untie the farmer

We should first note that agriculture declines as economic development takes place. All over Europe and North America, agriculture produces less than 5 per cent of the nation’s GDP. Asia has not escaped this law of development either. In 1990, agriculture accounted for 27 per cent of GDP in China, 19 per cent in Indonesia and 15 per cent in Malaysia. By 2009-10, these shares were down to 11 per cent in China, 13 per cent in Indonesia, 7 per cent in Malaysia. In India, 31 per cent of the nation’s GDP came from agriculture in 1990, declining to 14 per cent by 2011-12.

Whereas annual growth rates of 7-8 per cent in industry are common, agriculture rarely grows at more than 4-5 per cent annually in the medium to long run in developing countries. Over time, this means a steadily declining share of agriculture in GDP. The locus of economic activity shifts towards cities, industries and services. This, of course, does not mean that agriculture can be neglected. Agriculture remains the producer of food, not industry. Moreover, to populate the workforce in industry and services, labour also comes primarily from the countryside. As Nobel laureate W. Arthur Lewis argued, stagnant agriculture can neither produce enough food nor release enough workers, whereas dynamic agriculture can do both. That is why a nation can’t normally durably prosper if agriculture does not do well. Large food imports are not a reliable option.

However, since agriculture cannot generate enough opportunities for rural citizens, it is better to link the countryside to industry and urban services. Cities do have their share of problems: indeed, governance challenges in Indian cities are formidable. But despite such problems, Bangalore and Mysore will grow faster than Karnataka villages, Delhi and Meerut more rapidly than the Uttar Pradesh countryside.

No society has been able to help farmers by keeping them tethered to land. To leave farmers on land and not give them skills for urban and industrial lives is equal to trapping them in misery. Nor do younger rural folk wish to remain in farming.

This leads to two questions. How is politics connected to rural welfare? And how do we make agriculture dynamic in such a way that farmers produce enough as well as get more productively linked to the urban economy?

The first question is easier to answer. India’s democracy has a rural thrust. More voters still live in villages and, of late, villagers have also tended to vote more than the urban folk. As a result, even though India’s urbanisation has gathered speed, its governments are still by and large made or unmade in the countryside. Cities may dominate the economic landscape, but villages are the primary locus of political power. Political parties hurt themselves if they neglect villages.

The second question is more complicated. Rahul Gandhi recently argued in Parliament that the previous government had raised the minimum support prices (MSP) for farmers at a significantly higher rate than the current government, and that is why agriculture did better under the UPA government but is currently suffering. As is well known, the MSP is the guaranteed price at which the government buys foodgrains and some other commodities from farmers.

Gandhi’s argument was right for an earlier era, but is flawed for the present times. Price incentives are certainly a way to help farmers, but agricultural policy always needs a balance between price and non-price measures. The more a government provides price incentives to farmers, the less it has for investments in upgrading the technological base of agriculture (irrigation, agricultural research, electricity), for infrastructure connecting villages to cities (roads, transport) and for rural health and education (which would prepare rural citizens for opportunities in industry and services).

The UPA’s agricultural policy was excessively price-led, both for outputs (crops) and inputs (water, electricity, fertiliser). Wheat and rice were bought from farmers in large quantities at high prices, even though the country did not have enough warehouse capacity for storage, leading to a considerable proportion of the procured wheat and rice rotting. Public investment in agriculture rose inadequately. During 2012-13, more than 85 per cent of investment in agriculture was private. It is well known that most of what lifts the technological base of agriculture and connects it productively to urban opportunities requires public investment — in irrigation, research, seeds, power, transport, schools, skills, etc.

Price incentives were absolutely necessary to raise farm production at the time of the Green Revolution in the 1960s, when India’s food production dropped abysmally. India does not have a national crisis in food production today, as the high public stocks show. But it has agrarian distress, for agricultural productivity is low and skills for the exploitation of non-agrarian opportunities have not been created. That can only come through a better balancing of price and non-price interventions.

Unless agricultural strategy today is married to a 21st century vision of expansion of opportunities, which requires linking, in a more integrated way, the village to the city and agriculture to industry and services, we will only enhance the misfortune and misery of India’s rural citizens.

The writer is Sol Goldman Professor of International Studies and the Social Sciences at Brown University, where he also directs the India Initiative at the Watson Institute. He is a contributing editor for ‘The Indian Express’.