The Hindu Business Line : Bank loans, food for work: Cut the cackle

VISITING Kurnool and Mahbubnagar districts last week in order to see for himself the extreme distress faced by farmers in those parts, so agonising was the desperation he witnessed, and so bleak the prospects, that Dr Manmohan Singh then and there announced that there was an urgent need for a "second Green Revolution," in these and other water-stressed areas of India's semi-arid tropics - even though he was well aware that non-saline ground water levels in these areas have fallen 20 to 30 feet or more; as indeed has been the case even in those parts of the country which spawned the first Green Revolution.

The new Planning Commission, the Prime Minister announced, would, "once it (was) in place," look into "the option" of writing a new chapter in Indian history that would, with the help of increased bank credit/fiscal support, and of inputs from the Committee headed by Dr M.S. Swaminathan, "eradicate poverty, hunger and disease in the country."

As it happens, this statement was made just one day after the Finance Ministry's announcement in Delhi that GDP had grown 8.2 per cent over 2003-04, thanks to a "higher farm output."

This seems a bit odd, at first sight. The agricultural sector's contribution to GDP, according to the Interim Report of the RBI's Advisory Committee on Flow of Credit to Agriculture, fell from 44.5 per cent in 1970-71 to 22.2 per cent in 2003-04.

Under these circumstances, even a 20 per cent growth in agricultural output, would, other things remaining the same, increase GDP by no more than 4.4 per cent, thereby pulling GDP down, rather than giving it a boost.

In what sense, then, can it be said that higher farm output made such a difference? Simple. Agriculture had a negative growth of 5.2 per cent during 2002-03, before growing at a phenomenal 9.1 per cent in 2003-04; from the lowered base caused by the earlier dip.

If one ignores the dip, it turns out that agriculture grew only 3.1 per cent over 2003-04, perhaps less than a third of the rate of growth of the rest of the economy.

Given the higher base level now, it is unlikely that agriculture will contribute even half as much in the current fiscal year as it did in 2003-04.

In short, whether or not the economy continues to grow at 8.5 per cent (or a somewhat more modest 7.5 per cent), at constant prices, in 2004-05, as "highly placed sources" say is being aimed for, next year's quick reactions to the "quick estimates" are sure to say that a "lower" rate of agricultural growth has kept the economy from `realising its full potential.'

But, there is also one other angle to the story. Namely that whether or not a new Green Revolution is ushered in, tomorrow or in the decades to come, there will be a major increase in rural spending, thanks to the huge amounts of money that are sure to be pumped into rural areas this year, by banks to stave off distress (even to non distressed people in non-distressed areas).

Under these circumstances, reports that major FMCG players are counting not only on the buoyant economy but also on rising rural "income" to stimulate their growth, and therefore the rate of growth of the economy as a whole, do not come as a surprise.

There has been a great deal of discussion over the past 35 years about the effect on the viability of institutional sector lenders of the tens of thousands of crores rupees that they have been (and will continue to be) forced to pump into the rural sector.

But, so far as I know, there has not been a single major study on the effect of this flow of funds on the net worth of small, medium and landless farmers, and on others who are trying to eke out some sort of living in rural areas. The point is that we need to focus very much more on the question of what bank credit did to the net worth of borrowers.

I, personally, have no doubt at all that any properly conducted study will reveal that the overwhelming majority were better off before they were `targeted' by the banks than they were afterwards.

It is not a second Green Revolution that is needed; but ways to increase the purchasing power of the lower strata of people living in rural areas. Ways that increase and stabilise the money they have available to spend, rather than attempts to increase their income by requiring them to increase the (large and painful) amount of work they (already) do; or the risks they take.

In short, it is not agricultural or rural productivity that we need to target; but the well being of the poorer strata of rural society. In most rural areas in the country, given the state of affairs (both physical, like the weather, and institutional) local economies are beyond redeem. Rural people, on the other hand, are definitely not.

The RBI's Interim Report of the Vyas Committee on the Flow of Credit to Agriculture (dated May 18, 2004, and available online) ought therefore simply be shelved, along with the dozens of other reports that our `experts' have been, and continue to, coming/come out with.

It simply boggles the mind that in this day and age the Committee had no qualms about helping agriculture in order to slow down or stop the flow of people to urban areas, where most of the growth of the economy takes place. Or about suggesting genset-operated ATMs in rural areas!

One last thing. Aristotle was not at all impressed by Plato's idea of philosopher-kings. (It probably needs to be added here that by far the most important topic in `philosophy', in those distant times, was statecraft.) Kings, said Aristotle, ought to confine themselves with governance; while taking particular care of the well being of philosophers like himself. Problem is that `Aristotelian' kings would simply not know which philosophers to turn to advice. And even the best of philosophers, cordoned off from real world affairs, would have little to contribute, even if kings turned to them for advice.

As a result, `philosophers' like Aristotle almost managed to bring the growth of civilisation to a grinding halt, in the city-state phase, during the second half of the first millennium BC. Greek philosophers and sophists looked down on the Romans after the latter conquered Greece.

Because the Romans had little use for (empty) "learning and scholarship," even though it was the latter who provided the basis for the continued growth of civilisation.

The irony is that `classical' scholars today, nevertheless find themselves at home with Aristotle, and `Classical Greece', rather than with the Romans.

The physical and intellectual architects of the Roman Empire, the real torchbearers of modern civilisation, they treat with contempt. Were this tendency confined to scholars poring over dusty manuscripts in cloistered universities, it would not have mattered very much.

Unfortunately, this is not the case. That is why we find ourselves in situations in which Andhra Pradesh farmers, owning small patches of land, borrow huge amounts of money, staking everything in an abortive gamble against Nature. One of them dug four wells, one after another; and then, at a loss about what to do next, jumped into the fifth.