January 2004

Do bigha zameen

R Gopalakrishnan, executive director, Tata Sons, traces the growth and progress of economies and the growing importance of agricultural marketing

R. Gopalakrishnan
In the early 1950s, Balraj Sahni as Shambhu portrayed the poignant status of the Indian farmer in a Bimal Roy movie bearing the name of this essay. Dilip Kumar, Raj Kapoor and Manoj Kumar played rural and farmer roles right up until the early 1970s. However, by the early 70s, economic development had set into motion the process of urban migration, and altered the profile of the Indian cinema-goer. Away from their homes and into the urban slums, people had no mood for the chunks of reality that sustained the reputations of Bimal Roy, Guru Dutt, Raj Kapoor and KA Abbas1. Further, perhaps with the success of the Green Revolution in the mid-60s, the plight of the Indian farmer and agriculture ceased to be interesting to the film industry. Indeed the farm sector has ceased to interest anybody, whether it was the city dweller, the businessman, or even the politician. Maybe a part of the lawlessness and social tension, particularly in the Bimaru states, has a connection with this.

I do not wish to prescribe remedies because many worthy experts have expressed their valuable views. Rather I will plead for the urgency of their implementation. The remedy lies in doing what is known. I will discuss how progress happens, why societies do not do what is obvious, and why it is important to bring agricultural marketing centre-stage.

How progress happens
Economic historians state that before 1700, the differences in per capita income between the richest country in the world and the poorest were non-existent or relatively small. Indeed, the average American2 in 1700 earned only five times what the average Indian earned. Contrast this with the 1980 multiple of 105! The reason seems plausible. In all countries, most people were employed on the farm and they all followed about similar farming techniques. The major differentiators were soil and climate. Therefore, their incomes were not hugely apart, and if India and China accounted for half the world GDP it was because they had half the world population!

As Lester Thurow3 points out, during the last 300 years, technological discontinuities occurred such as electricity, industrialisation, etc. These ushered in an era of huge inequality in incomes because only some nations seized the emerging opportunities. Thus the sectoral composition of their national economies and the workforce changed quite dramatically.

Today, less than 3 per cent out of 140 million American workers are employed in agriculture and most of them too are part-time workers. Farm income is a negligible part of American GDP and if it were to disappear, it would not even be felt in the GDP statistics! Yet, farming is over-represented in the politics of all first world countries. The World Bank estimates that first world agricultural protection has the effect of reducing GDP in third world countries by US$ 32 billion. 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 exactly been successful over the last 70 years in its primary aim of suppressing inequality; in fact, it has collapsed. While market economies have not been free from problems, they accept that like turbulence in life, 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. Indeed, through deregulation in the last 10 years, Indian per capita income relative to US per capita income has improved. In 1980, US was 105 times bigger, now it is 75 times bigger, and if Goldman Sachs is to be believed, by 2050, it will be only 5 times bigger, a level last achieved in 1700!

To recapitulate, there are two realities — first that the developed world protects agriculture to the detriment of poorer countries, making economic institutions like WTO as essential fora for change. Second, that inequality in some form is inevitable, we can morph the current one into a less virulent form of inequality, along with progress for common people. Both these require a shift in public policy to the principles of markets and competition from the traditional ones of regulation and support, and a view of agriculture as an agribusiness. It is time for greater boldness in Indian agricultural reform.

Not doing the obvious
Mughal emperor, Akbar, reorganised the land taxation system through a detailed measurement survey. The empire derived three sources of revenue: nasaq, a bit like wealth tax, zabt, a bit like capital gains tax, and ghallabaksh, a bit like income tax. The Gangetic plain had an established reputation for fertility. Townships and canal developments occurred in the proximity of the great river. During the British period, there was virtually no growth in agriculture. For 55 years, from 1891 to 1946, the output growth was 0.4 per cent per year. In fact, the percentage of population dependent on agriculture rose from 61 per cent in 1891 to 73 per cent in 1921!

Around 1930, Will Durant4 visited India, which interested him since his study for the celebrated book The Story of Civilization. Quite startled by what he saw, he wrote, "…I have seen a great people starving to death… due to the most sordid and criminal exploitation of one nation by another… even a casual traveller perceives the decay of agriculture…" After the Bengal famine of 1943, the Indian Agent General in Washington, Sir Girija Shankar Bajpai, melodramatically told the world while addressing the Combined Food Board, "In the south and west of India, 120 million people are already within uneasy hearing of the fluttering of the wings of the Angels of Death… for us, there can be no tightening of belts because you cannot straighten a straight line."

I recount this history because it would seem self evident that independent India's number one priority would have been agriculture. However, in those days, the rapid industrialisation of the Soviet Union was widely acknowledged as an even greater achievement than the progress of Meiji Japan. Nehru was fascinated5 year after year, in Plan documents and Budget speeches, that agricultural development was routinely mentioned as an item — agrarian reforms, rural institution building and improvement of farm practices.

By the mid 60s, the relative neglect of agriculture, exacerbated by US PL 480 supplies, blew into a crisis. India was now ready to do the rational after having tried all other alternatives, and the Green Revolution was unleashed. Given the historical background and the crisis of food shortage, the single-minded focus quite correctly was on food production, not on agricultural marketing. From a 2-per cent growth level prior to the 70s, the three-year moving average of agricultural production in the 1980-90 decade moved to over 3 per cent. Introduction of new seeds, expansion of irrigation, adoption of fertilisers and crop protection on a wide scale, all contributed to this resurgence.

However, the post liberalisation progress of Indian agriculture has been patchy. Public investment in agriculture used to be at 1.6 per cent of GDP in the early 90s. Between 1998-2002, such investment has fallen to 1.3 per cent of GDP, the agricultural production index has stagnated and the productivity of agriculture has made no progress. Worst of all, the consumption of fertilisers has become highly skewed due to some knee jerk response to the issue of fertiliser subsidies. Instead of the optimum NPK ratio of 4:2:1, the usage during these last four years has been 6.5:2.5:1. Such fertiliser usage actually does long-term damage to the soil and mars future production in hidden ways. The dismal situation in agriculture has been exacerbated by a four-year spell of bad monsoons in recent years.

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

Continuously widening of the gap in per capita income between the agricultural and non-agricultural sectors has huge economic and social implications, especially when the non-farm sector is incapable of employing the poor from the farm sector. Unless we can enrich the poor through economic reform, the poor will become hostile to reform.

Secondly, 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. That is why it is essential to include rural economy and agricultural marketing as part of the management curriculum in the MBA / PGDBM programmes.

The question can arise: can agriculture be brought centre stage merely through greater awareness and policy? Yes, see what happened with the Golden Quadrilateral Programme. It has made highway development and road building the engine of a huge amount of economic activity. The kilometres of roads our country builds each month nowadays far exceeds the kilometres built per year for the last 50 years.

Cynics may feel that the benefits are exaggerated. Let me recall what happened in the US when they undertook to build their Interstate highway system. On June 29, 1956, President Eisenhower, lying in a hospital bed, signed the bill for a US$ 25-billion national system of interstate highways. It was sold as a saviour for both rural America and declining rural cores. Vehicle-dependent industries like construction, trade and services substantially increased output and also made productivity gains. People in rural areas found paved roads to be an escape from mud-imposed isolation during the rainy months. Chain restaurants, chain hotels, chain stores, chain everything, all just took off from the mid-50s. Even in our country, any user of the Mumbai-Pune Expressway can attest to the early signs of these developments already.

It is not enough merely to bring agriculture centre stage, we need to shift emphasis to the marketing aspect 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. What I state may seem self-evident and obvious. But it is not uncommon to miss the obvious! That is why I do not propose to spell out the specific steps required. Let me use the example of electricity to illustrate how we tend to miss the obvious.

In the early 1990s, what was our response to the power shortage? We went out and set up fast track projects for power generation. For almost a decade, the whole nation was gripped with the gobbledegook of project financing and power purchase agreements while the distribution side was wallowing in inefficiency and apathy. In hindsight, the 90s have been a lost decade for electricity. It is only recently that the delicate task of unravelling the spaghetti of problems on the distribution side has begun.

And this is where the motivational issue lies. In an environment of short term-ism, coalition politics and expediency, the patient task of making agricultural marketing more farmer-friendly seems to have taken backseat for long. Just in the last few days, the government has shown awareness of the problems of agricultural marketing. A Rs 50,000-crore agricultural infrastructure fund was first announced. Then, at a national conference of State agricultural ministers, support was given to the agriculture ministry's model act on agricultural marketing. Perhaps a national commission for agricultural marketing could be set up to plan and execute the model act. It should comprise policy makers, professional marketers and agricultural experts.

The key challenge is to implement actions on the ground, as the problem has festered for too long. We need to restore to the farmer in a calibrated way the decisions on agricultural inputs, production volume, product mix, hedging systems, marketing decisions, market access and so on. It is distortions in these that plagues agriculture, indeed our entire economic system and happiness of society.

References
1.
Encyclopaedia of Indian Cinema by Encyclopaedia Brittanica
2.
India Joins the Convergence Club of Business World, January 5, 2004
3.
Fortune Favours the Bold by Lester Thurow
4.
The Case for India by Will Durant, 1930
5.
The Evolution of Economic Policy in India by P. N. Dhar

Valedictory address by R Gopalakrishnan at the Agricorp-2004 conference of the Bombay Chamber of Commerce & Industry held at Mumbai on January 22, 2004.

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