Home > Uncategorized > Does India live in its villages?

Does India live in its villages?

The Indian economy appears to be running out of steam as fractious politics and unprecedented corruption combine with policy paralysis to take their toll on growth. Suddenly capital is predatory, industrialists and politicians are crony capitalists if not robber barons, the rich are getting richer and the poor getting poorer. Fossilised minds are busy churning out regurgitated wisdom that never quite left our elites. Predatory capitalism is to blame. Punditry is trotted out that it is perhaps time to turn to ‘inclusive growth’. Never mind that the ‘inclusive growth’ chariot is drawn by a couple of Trojan horses that conceal the old state controls designed to smother enterprise, energies and dreams of a billion plus people. Once again the cry is not to let a thousand flowers bloom but to prove that flowering is a wholly wasteful activity unbecoming of our ideals and culture. Now, as before, such stunted visions hide the self-serving motives of those who are already aboard the gravy train to dissuade the ones not so lucky to stay where they are. Think agriculture.
India lives in its villages, said Mahatma Gandhi. Has anybody asked the villagers if they want to live there? Had we not been keen on keeping the hoi polloi away from our own habitats, we would have noticed a singular disinclination on the part of the villagers to confine their aspirations to the villages. Even when there was no cable TV, villagers sacrificed all to give their progeny an education to escape from the clutches of rural poverty. This shows the aspirations that animate the dreams of our peasants for a brighter future. It is time we treated them as equals and paid attention to them in terms of what they really are rather than in terms of what we wish to believe of them. The simple life of idyllic villages is just a myth that blinds us to reality.
Why must an Indian farmer pay the going international price for steel but receive only one-third the international price of the vegetables he produces? This is not an isolated statistic. It is true of most things across the board whereby we underpay our farmers for their produce but charge them full for products and services they use. We do offer them stupidly designed subsidies on things like water, power and fertiliser. But these together constitute no more than 15 percent of the cost of production to farmers and the subsidy element in them at 33 percent would still amount to no more than 5 percent of the total cost. However, for this 5 percent subsidy, we underpay them 66 percent in terms of the price of vegetables! The old socialistic system we designed after independence is still at work. Working through a system of exchange controls, denial of export markets for agriculture, and direct and indirect price restrictions, it ensured transfer of wealth from the farmers to industry. The model impoverished our villages while we surreptitiously transferred their wealth to industry to fatten our middle class at the expense of farmers. Twenty years into liberalisation, we have barely touched agricultural reforms.
Class wars are not the answers to conflict of interests such as above; creative solutions are. Recall that the cost of daal (pulses) at your kirana (retail) shop is split half-and-half between the cost of production paid to the farmer and a whole group of expenses related to warehousing, processing, interest, wastage, branding, transportation and marketing. Who provides these services to the farmers on the one hand and consumers on the other? We call them middlemen. They are the proverbial bogeymen who eat away all the profits due to farmers. They are small town merchants that buy your daal from farmers and push it to you through kirana shops with varying degrees of value addition. Is this wholesale-cum-retail chain efficient? Can reforms help in releasing hidden values to benefit both farmers and consumers? Consider.
Reforming and opening up trade that moves produce from farms to store shelves is low hanging fruit ready for picking. The existing middlemen are essentially government agencies and small merchants. The existing system provides no feedback to farmers in terms of future prices, what to grow, seeds, agronomic practices that standardise produce, and a host of other inputs needed to make farming less risky and more productive. Existing middlemen have limited warehousing capacity, their best practices are substandard, wastage is high, interest costs usurious and price risk mitigation is unknown. Lack of price hedging makes them charge huge profit margins to compensate for losses in lean years. A reasonably capitalised, professionally managed enterprise with warehousing, processing and retailing services could cut these wasteful expenses to less than half. Further economic gains would accrue to the system as farmers respond to higher and less risky incomes by more investment in their farms. Agricultural marketing firms would expand existing markets and find new ones abroad by investing in logistics to make exports feasible. We have the world’s cheapest labour in agriculture and labour accounts for something close to 40 percent of the costs of agricultural production abroad. That makes us one of the most competitive producers of food. [For a success story, look at soya bean cultivation and exports.] Where we have failed is to build the infrastructure required to capture markets abroad by not letting in the organised sector. We have restrictions in the name of protecting the common man. Common man who? Who do we protect if we rip off our farmers, gyp our consumers and punish the economy with gross waste and inefficiency?
The politics of such a move to throw open the agricultural marketing sector to domestic and foreign capital is interesting. It involves deconstructing a few myths that have been used to blind us to reality. Consider the existing chain of middlemen that move daal from farmers to consumers. When we need a bogeyman to explain inflation, we turn to the despicable middlemen. Miraculously, these very people become small traders and common people as we talk of letting in competition into their business. Over 60 years we have perfected the art of political rhetoric whereby we can be persuaded to diametrically opposite conclusions depending on which cheerleader of what persuasion is leading the discourse. The net effect of the false discourse is that it serves the collective interests of the vocal middle class at the expense of those lower down the food chain. Agricultural marketing is but one example of our intellectual blinkers. Letting in the organised sector has many economic benefits. Equally, it also has the necessary political votes. The trader class in small towns and the kirana store-wallahs are smart, suave and articulate but their numbers are minuscule compared to the farmers in the villages who would benefit the most from reform. Politicians who help bring about the change can expect a political bonanza in the rural areas. Further, there are likely to be enormous benefits to consumers in general in terms of quality and price of agricultural products. Overdue reform in agricultural marketing may help break the logjam in agricultural growth, which in turn could push us to a sustained growth above 10 percent. Imaginative reforms in agriculture can be excellent politics. Ideally, one would combine these reforms with step up in education facilities available in rural areas to provide a visible momentum for change.

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Categories: Uncategorized
  1. August 8, 2011 at 2:32 am

    Already read the article in Daily Times PK that appeared yesterday. It appears the article gives thrust on field crops only. Agriculture covers a lot more. Marketing and so to say packaging industry is an essential part of agriculture which can not be excluded. Agriculture needs to be reinforced with supporting partners like these. Development of infrastructure and application of technology are other areas the agriculture needs to be reformed with.

  2. The Wabbster
    August 8, 2011 at 2:47 am

    What kind of reforms are you suggesting? And do reforms only mean removal of the middleman?

  3. August 8, 2011 at 6:56 am

    If farmers cannot receive irrigation water or electricity when they most need it, are subsidies working?

    Would farmers pay for electricity (for irrigation) if it was available when they needed it? Word on the street is ‘yes.’

  1. November 28, 2011 at 12:44 am

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