vagyakartha

It is almost impossible these days to read any financial or economic publication without finding a lengthy article on the Indian economy’s glowing growth rate. Eight percent growth is passé and double-digit growth rate is discussed nonchalantly. All these accolades are fully deserved, particularly by the chief architect of such growth, Dr. Manmohan Singh.

Pretty as this picture genuinely is, it hides more than it reveals. In economic terms, India is really two countries – one boasts a per capita, purchasing-power-parity GDP above that of the Philippines, while the other is poorer than Ethiopia. In terms of the number of people involved in and dependent on it, the broadly defined agricultural sector is India’s dominant sector. It is the poor India. The non-agricultural sector, representing about 35% of the population, has a per capita domestic product that is over six times that of the Ag-Sector. Further, while the per capita output of the non-Ag-Sector is growing at around 8% annually, that of the Ag-Sector is struggling to stagnate, as miserly growth is offset by increasing population. With these differential growth rates, per capita output in the non-Ag-Sector will be more than twelve times that of the Ag-Sector in nine years. If the differential persists, as seems likely, the economic disparity between the two India’s will widen, within four or five electoral terms, to resemble that between the developed world and sub-Saharan Africa. Poor-India will be flush with votes, Rich-India with money. This is a prescription for an eruption, of Vesuvian proportions.

This isn’t going unnoticed by our stellar economic team. Attention is being turned to the Ag-Sector and a growth rate of 4% (2% per capita) is being targeted. Such refocusing of effort is absolutely essential, but grossly inadequate. We have been focusing on productivity per acre, which has improved by 70% since 1980. However, foodgrains production per cultivator/labourer has stagnated at 0.9 tonnes, while prices inexorably decline in real terms. Without assistance, our farmers’ quagmire will turn into quicksand.

Poor-India’s problem is one of inverted proportions; 65 people, whose sole livelihood is from feeding 35 others, will forever be condemned to poverty, regardless of how wealthy the other 35 become. Food consumption does not increase linearly with wealth – India consumed 167.4 kilograms of foodgrains per capita in 1963. In 2003, when we were far wealthier, we consumed 165.3 kilograms. Also, increasing the production of perishable commodities beyond consumption merely causes prices to collapse – as production increases, revenue drops. Exports aren’t the answer, since competing countries are far more productive.

We urgently need to start working on reversing the proportion, 35 must feed 65, and we must keep tilting it further. The effort involved will be gargantuan and span decades, hence the urgency in starting now. Massive programmes must be launched to:

Build infrastructure in selected rural districts to make them sensible candidates for industrial investment,
Educate and train the younger rural population, boys and girls, young men and women, for employment in the non-Ag-Sector,
Aggressively promote investment in labour intensive industries in such rural districts,
Facilitate the purchase of agricultural land for such purposes,
Promote and finance the consolidation of agricultural land holdings,
Focus on and dramatically improve productivity per farmer, not just per acre.

Just how gargantuan is this task? Transferring five million workers from the Ag-Sector (about 2% of that workforce) to the non-Ag-Sector annually, will require annual investment of the order of Rs. 250,000 crores, or 30% of India’s total capital formation. We cannot generate such additional savings on our own. If we raise foreign direct investment from under $10 billion to over $40 billion, that will provide for over half the increase. Redirecting, through incentives, current non-agricultural investment to rural districts - along the peripheries of district and taluk headquarters, close to good highways – can provide a big chunk of the rest. Increased savings will have to account for what is left. This will not be an exercise in tweaking our economy, but one designed to transform our economy, one where all of India can flourish, not just Rich-India.

We need have no fear of food shortages as we transfer agricultural land to non-agricultural use. Since the non-Ag-Sector makes far, far more efficient use of land in creating remunerative employment than the Ag-Sector, less than 5% of total agricultural land will have to be so transferred and there is no reason at all for it to be prime agricultural land. Increasing productivity per acre will handily make up for this transfer.

Given the enormity of the undertaking, it will fail unless all major political parties and states vigorously support it. Going on hunger strikes whenever land is acquired, even at above market prices, for employment generating development will ensure that our poor farmers stay poor. We can either start an apolitical, national effort to help our farmers and landless farm labourers, or we can sing paeans to our agrarian heritage while a colossal, social time-bomb ticks away relentlessly.