Don’t kill farms for industry

Lakhwinder Singh
Professor, Department of Economics, Punjabi University, Patiala   

After the rural vote bank turned against the current dispensation, as indicated from the Gujarat assembly election as well as by-elections in Rajasthan and other places, the union government has started consulting experts and scholars on the agrarian crisis.

Economic reforms root cause

The crisis is rooted in the model of economic development followed since July 1991. This model of structural transformation and strategy to achieve it is based on liberalisation, privatisation and globalisation. The system is developed in such a way that the agriculture sector has had to pay the price of the growth and transformation of economy. As a consequence, the relative share of the agriculture sector in generating income went down to 17 per cent in 2017. The other sectors have not been able to provide employment to the workforce dependent on the agriculture sector. This has generated higher dependence of workforce on agriculture and the gap between the agriculture and non-agriculture sectors’ income has increased to a very high proportion —that is, 1:10. The burden of transformation has been put on the agriculture sector in terms of facing adverse terms of trade between agriculture and other sectors. Public investment nosedived and capital formation in agriculture reached the lowest ebb. The recovery of services such as education, health and squeeze of surpluses have pauperised the rural sector of the economy. This kind of model of transformation has hit hard the lower rung of peasants and agriculture labour. Demonetisation has only sharpened the pace of agrarian crisis.

The gravity of the agrarian crisis has forced one after another, state governments to announce debt waiver schemes to pacify the anger of the farmer organisations. The other measures taken are increments in minimum support price, doubling farm income, crop insurance and a variety of subsidies. These measures do not satisfy the aspirations of the sector. While the crisis is structural in nature, the measures are short term, ad hoc and patchy. Therefore, there is an urgent need to recognise the nature and extent of the crisis.

The economic reforms envisioned a greater role of the corporate sector. This sector is considered to provide high productivity and high wage jobs to the workforce with low skill base. The agriculture sector is expected to provide surplus workforce to the manufacturing sector. However, the biggest failure of the economic reforms is that the industrial sector could not take off and thus workforce continues to remain highly dependent on the agriculture sector. 

Thus, it is urgent to recognise that the economic policy employed in the last 26 years has generated the crisis. It is time to look for alternatives as have been done in the Latin American countries and lessons need to be learnt from the East Asian experience of economic transformation.

Relief measures needed

The Indian government should enact immediate relief measures and a long-term strategy to correct the nature and pace of economic transformation from a painful exclusionary to a partner and inclusive transition. 

1Apart from targeted one-time debt relief, the government should enact legislation, as per the Supreme Court decision, to grant interest cut on debt-ridden farmers and also agriculture labourers. 

2Institutional arrangements are needed to implement the MSP to the stipulated crops across the board and bring more crops under the MSP. The MSP needs to be reformulated beyond Swaminathan's recommendations so that farming, in a short period of time, can be made a remunerative activity. A reduction of differences in farm gate prices and market prices is in order. 

3As a long-term measure, the union government should address the issues of low human capital and skill base of the rural workforce. It needs to step up rural investment in these two social services. 

4Agriculture production system is based on agriculture innovation and extension services. To increase agriculture productivity and income of the agriculture households, adequate public investment in research and development is urgently needed. 

5Also, the innovation system should be geared to develop linkage between agriculture sector and rural industrialisation. Since the corporate sector failed to do so, therefore, agriculture produce and processing of it may be incentivised to be done by the rural community. It may be based on establishing modern member-based cooperatives or some other suitable organisation or both. The main principle of this kind of industrialisation should be integrating agriculture primary producers with manufacturing and marketing so that gains remain in the hands of the primary producer. The union government should provide the wherewithal and allow rural communities to not only establish links with the global value chains but also enable to capture value chains to realise higher returns on the produce. A risk fund should be developed on the basis of it is being replenished when success occurs and rescue the failures. 

6This requires that the state turns out to be a hand holding the weaker sections of society rather than protecting the interests of the strong, entrenched corporates.