The Hindu Business Line : Unshackling rural markets — Key vectors of an overdue agenda

The widening gap in per capita income between the farm and non-farm sectors has huge economic and social implications. Agriculture must be brought to centre-stage and, more important, the emphasis must shift from production to marketing. The engagement of governance, reforming produce markets, micronising democracy, and rethinking subsidies should be the key prongs of this approach, says R. Gopalakrishnan.

BEFORE 1700, the difference in per capita income between the richest and poorest countries was small. The average American in 1700 earned five times what the average Indian earned — contrast this with the 1980 multiple of 105! Why? Everywhere, most people were employed on the farm, they all followed about similar farming techniques. The major differentiators were soil and climate. Therefore, their incomes were not hugely apart. If India and China accounted for half the world GDP, it was because they had half the world population!

Technological discontinuities of three centuries created inequality in incomes because only some seized the emerging opportunities, thus altering dramatically the sectoral composition of their national economies and the workforce. Farm income is a negligible part of the GDP of developed countries though it is over-represented in their politics. The first reality that India faces is that the developed world protects its agriculture while preaching free trade in industrial goods and services. There is a second reality.

Socialism has not been successful; in fact, it has collapsed. While market economies have not been free from problems, they acknowledge that inequality is inevitable and they should leverage rather than suppress it. By encouraging a spirit of adventure, the system encourages people to respond to opportunities through the natural human instincts of greed, optimism and herd mentality.

Global trends and urbanisation make agriculture look unattractive to intellectuals. It is the task of policy to bring it back centre-stage in the nation's economic thinking. Why? First, two-thirds of the population earn one-fourth of the national income from agriculture, making the per capita earning 0.4. One-third of the population in the non-farm sector earns three-fourths of national income, making the per capita earning 2.2. The income ratio of five (2.2 divided by 0.4) was under 3 just before liberalisation and under 2 in the 1970s.

Continuously, the widening gap in per capita income between the farm and non-farm sectors has huge economic and social implications, especially when the latter is incapable of employing the poor from the former. Unless the poor are enriched through economic reform, they will become hostile to reform.

Second, the non-farm sector needs consumers and this requires policy to put money into their hands. Money can reach the poor through public investment in agriculture (rural roads, irrigation, marketing infrastructure) and employment (rural industries, public works). The absence of purchasing power is visible in the slack demand for goods, the most glaring being consumer products.

It is not enough merely to bring agriculture centre-stage; we need to shift emphasis to the marketing from the production aspect. Our traditional mindset is to focus on production. Today, the agricultural marketing system and infrastructure are incapable of profitably absorbing even the current output. This may seem self-evident and obvious. But it is not uncommon to miss the obvious!

Micronising democracy

Only about 40 per cent of India's agricultural area is irrigated. Most of the favourable locations for irrigation have already been developed, so future irrigation may exhibit lower marginal returns and greater environmental sensitivity.

Greater attention will have to be paid to rain water harvesting, and increasing the irrigation potential through micro-watershed development.

There is also considerable scope to improve the efficiency of existing irrigation infrastructure through better and more participatory management practices. Watershed projects cannot succeed without full participation of project beneficiaries and careful attention to issues of social organisation.

Therefore, when it comes to agriculture and Rural India, it is time the focus is shifted from central to local leaders, national planning to empowering local administrators, from the sarkar being mai-baap to villages taking the future into their own hands. This requires strong leadership by politicians such as the Prime Minister, Dr Manmohan Singh.

Noted social activist, Anna Hazare's Ralegan Siddhi village in Ahmednagar District has demonstrated that miracles could happen through strong leadership and mass cooperation. Hazare based his social revolution on measures such as enhancement of water resources through percolation tanks and bunds, tree felling, cattle grazing on farmland, compulsory shramdaan, etc.

Environmentalist Mohan Dharia's non-governmental organisation, Vanrai, is facilitating 300 villages by giving local villagers direction and information about government schemes they can benefit from.

In Gawdewadi village, for example, out of the total 888 hectares of land, 538 hectares are watered by surface irrigation through percolation tanks and nearby bunds. Earlier, they grew only bajra, groundnuts and green chillies, whose production dependent totally on the rains. After these water-conservation efforts, they grow tomatoes, custard apples, pomegranates and mangoes.

In Aurangabad district (Gazaj village), the collector launched an Amrutdhara Jal Abhiyan. She first sent the villagers to Dewas in MP to study water conservation through people participation. On return, through shramdaan, the villagers built mud and concrete bunds to create artificial ponds. Now, farmers are able to raise a multi-crop selection from crops such as cotton, bajra, maize, bhindi, tomato, moong and palak!

In Sangli district, the collector has done similar things. She worked on the villagers to change their attitude from asking how much will they get to what can they contribute.

The paradox of subsidies

One of the great paradoxes of agriculture is the role of subsidies. Particularly in the 1990s, the policy approach has been to secure an increase in production through

input subsidies on power, water and fertilisers; and

output support prices. The equity, efficiency and sustainability of the current approach are questionable.

These subsidies do not improve income distribution or the demand for labour. The boost in output from subsidy-stimulated use of fertiliser, electricity and water has the potential to damage aquifers and soils. Worse, these subsidies crowd out public agricultural investment in roads, irrigation and power.

The last blow is the mistaken belief that the subsidy fails to benefit the poor farmer because the fertiliser manufacturer pockets the money. This is political and administrative muddle-headedness of an extreme degree.

If proof is required, one has only to ask why the fertiliser industry, a supposed beneficiary, would lobby for freedom from controls and subsidy.

It is true that rural markets are developing, that the rural consumer is getting more savvy and there are techniques to be learnt on how to design products for them and how to reach out to them.

In reality, there were about 165 million poor people in 1951 and, today, it is up 50 per cent to 250 million. Percentages of poor people mask the reality of these absolute numbers.

The engagement of governance, reforming agricultural markets, micronising democracy, and rethinking subsidies are four key vectors of a long overdue agenda. In these actions lie the true liberation of India's rural market.

(Concluded)

(The author is Executive Director, Tata Sons.)

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