While services and manufacturing sectors of the Indian economy have seen sharp increases in their respective growth rates since 1991, the agricultural sector — employing over 60% of those in the labour force — is languishing. Since the 1990s, there has been a significant slowdown in output growth — with an average growth rate of less than 2% per annum between 1991 and 2005.
This is much lower than the growth rate during the 1980s, when agricultural output grew at a rate of 3.5% per annum. The accompanying deterioration in livelihood has not been experienced evenly in the sector. There is a higher share of marginal farmers and agricultural labourers in the rural population and it is precisely these poorer groups which have been the worst affected. Consumption growth has been the lowest for these groups while large farmers have seen the highest consumption growth after 1991.
This pattern reverses the progressive trend of the 1980s. Real wages for agricultural labourers actually declined in some states and grew sluggishly in others (with few notable exceptions) in the first decade of reforms. The most severe manifestation of the distress being experienced by unprotected groups in the country has been the spate of farmer suicides, largely among small cultivators across disparate regions of the country.
What can account for this disturbing state of affairs? While a full explanation cannot be detailed for reasons of space, we think that changed technology, altered conditions of exchange, and a state policy that has combined liberalisation with feeble strategies to address the needs of the rural poor are the major contributors to the noticeable malaise in rural India.
The slowdown in output growth rates owes partly to decreasing returns to Green Revolution technologies over time, and partly to the liberalisation policy framework that was adopted towards agriculture. Since the 1980s, Green Revolution technologies have had less impact on growth, evidence of which is seen in declining yields per acre of cultivation. Lower levels of public investment (as part of the reforms) have not been matched by increases in private investment and have further led to less than adequate levels of irrigation and output.
Finally, greater market orientation has led to convergence of output prices with lower international prices which, in turn, are heavily determined by the subsidies given to first world farmers and agribusinesses. Equally, input costs have risen, and as a result, farmers’ profits have been squeezed. Another critical feature of the 1990s story has been that institutional credit has not kept pace with the growing credit needs of small and marginal farmers. This is mainly a result of the withdrawal of the state from social banking.
As a result, farmers (especially small farmers) have become much more dependent on informal sources of credit since the reforms began. That is they now depend more on moneylenders and on networks of market intermediaries who work in rural markets who typically charge much higher interest rates for credit. The net result has been sharply increased debt burdens among the poorer rural groups and increased distress.
Is there a way out of this crisis? While not all the problems facing agriculture can be easily remedied, there are certainly some steps which can be taken. First, it is important to increase public investment in agriculture, especially in providing irrigation to small and marginal farmers. Second, it is important to restore and even increase institutional credit at the same growth rate as the increasing costs of inputs into agriculture.
This will help farmers escape the clutches of moneylenders and other forms of burdensome credit structures. Third, the state should provide support structures to small and marginal farmers (regardless of how unpopular this is with economic orthodoxy). These could range from subsidies to agricultural extension services that farmers desperately need during times of intense commercialisation.
Fourth, since Indian markets are linked to the world, it is important to continue to pressure the developed world to reduce their unfair agricultural subsidies so that farmers across the developing world are not faced with the destruction of their livelihoods.
Finally, it is important to consider institutional alternatives to the existing structures. Small farmer cooperatives that allow farmers to produce separately on their plots, and cooperate in their market mediation processes could potentially provide strong economic support while also allowing farmers to retain their autonomy and self-reliance. However, implementing these policy alternatives requires a genuine belief in the notion of inclusive growth and the strong will of the government.
This is much lower than the growth rate during the 1980s, when agricultural output grew at a rate of 3.5% per annum. The accompanying deterioration in livelihood has not been experienced evenly in the sector. There is a higher share of marginal farmers and agricultural labourers in the rural population and it is precisely these poorer groups which have been the worst affected. Consumption growth has been the lowest for these groups while large farmers have seen the highest consumption growth after 1991.
This pattern reverses the progressive trend of the 1980s. Real wages for agricultural labourers actually declined in some states and grew sluggishly in others (with few notable exceptions) in the first decade of reforms. The most severe manifestation of the distress being experienced by unprotected groups in the country has been the spate of farmer suicides, largely among small cultivators across disparate regions of the country.
What can account for this disturbing state of affairs? While a full explanation cannot be detailed for reasons of space, we think that changed technology, altered conditions of exchange, and a state policy that has combined liberalisation with feeble strategies to address the needs of the rural poor are the major contributors to the noticeable malaise in rural India.
The slowdown in output growth rates owes partly to decreasing returns to Green Revolution technologies over time, and partly to the liberalisation policy framework that was adopted towards agriculture. Since the 1980s, Green Revolution technologies have had less impact on growth, evidence of which is seen in declining yields per acre of cultivation. Lower levels of public investment (as part of the reforms) have not been matched by increases in private investment and have further led to less than adequate levels of irrigation and output.
Finally, greater market orientation has led to convergence of output prices with lower international prices which, in turn, are heavily determined by the subsidies given to first world farmers and agribusinesses. Equally, input costs have risen, and as a result, farmers’ profits have been squeezed. Another critical feature of the 1990s story has been that institutional credit has not kept pace with the growing credit needs of small and marginal farmers. This is mainly a result of the withdrawal of the state from social banking.
As a result, farmers (especially small farmers) have become much more dependent on informal sources of credit since the reforms began. That is they now depend more on moneylenders and on networks of market intermediaries who work in rural markets who typically charge much higher interest rates for credit. The net result has been sharply increased debt burdens among the poorer rural groups and increased distress.
Is there a way out of this crisis? While not all the problems facing agriculture can be easily remedied, there are certainly some steps which can be taken. First, it is important to increase public investment in agriculture, especially in providing irrigation to small and marginal farmers. Second, it is important to restore and even increase institutional credit at the same growth rate as the increasing costs of inputs into agriculture.
This will help farmers escape the clutches of moneylenders and other forms of burdensome credit structures. Third, the state should provide support structures to small and marginal farmers (regardless of how unpopular this is with economic orthodoxy). These could range from subsidies to agricultural extension services that farmers desperately need during times of intense commercialisation.
Fourth, since Indian markets are linked to the world, it is important to continue to pressure the developed world to reduce their unfair agricultural subsidies so that farmers across the developing world are not faced with the destruction of their livelihoods.
Finally, it is important to consider institutional alternatives to the existing structures. Small farmer cooperatives that allow farmers to produce separately on their plots, and cooperate in their market mediation processes could potentially provide strong economic support while also allowing farmers to retain their autonomy and self-reliance. However, implementing these policy alternatives requires a genuine belief in the notion of inclusive growth and the strong will of the government.
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