A V Rajwade: The economics of agriculture

WORLD MONEY

When will the political class realise that govt freebies offer no lasting solution?

I owe my first job to the paucity of rural credit in India. The Rural Credit Survey Committee Report was the basis for change in ownership of the Imperial Bank of India into its new avatar, State Bank of India in 1955. It was SBI's expansion, aimed at reducing the dependence of agriculturists on money-lenders, which required recruitment, and that is how I got my job. My next perspective on rural credit occurred about a decade later "" in a training program addressed by an IIMA professor. His point was that if the bank has to grow, it just cannot afford not to lend to the agricultural sector because it forms such a large segment of the economic activity in the country. The figure mentioned was 40 or 50 per cent: agricultural lending should not be considered as an imposition, but as an opportunity to grow. The drop in the contribution of agriculture to GDP, to perhaps a third of what it then was, even as the number of people dependent for their living on that sector has not gone down anywhere near proportionately, is an indicator of how the "terms of trade" have worsened against agriculture.

Coming to the loan write-off of Rs 60,000 crore, several different perspectives need to be kept in view:

The mechanism for paying banks. My memory is that AR Antulay, when he was chief minister of Maharashtra, back in the 1980s, had announced a similar write-off of agriculture loans. A quarter century later, the banks involved are still fighting cases as they have not got the money from the Maharashtra government. One hopes the recent decision would be implemented far more efficiently although there is little clarity about how exactly banks will be compensated.

The moral hazard. Last Monday I heard an agriculturist, Bhosale (I did not get his first name) interviewed on NDTV. Bhosale was very unhappy with the budget announcement "" he had repaid his loan just a couple of weeks before. But a wiser Bhosale said that next time he would not do such a foolish thing and would wait for the next loan write-off. In any case, the loan write-off will not help those who have borrowed from private money lenders.

No full stops in India. The Constitution, with BR Ambedkar as the architect, had envisaged that reservations in education institutions for scheduled caste would be a temporary phenomenon (10 years). In the last 50 years they have continued to grow by leaps and bounds on caste and religious classifications, and extended to jobs. One wonders whether loan write-offs would become a periodical feature of the economy, in pre-election years. After all, we keep "regularising" illegal occupation of public lands, illegal construction, and so on. In Mumbai, for example, every election sees the cut-off date for "regularisation" of illegal occupation of public land being advanced, no matter that the big beneficiaries are often the slumlords. But this apart, political leaders from central ministers like Lalu Prasad and Saifuddin Soz to chief ministers like Mayawati are vying with each other to increase the write-off net. One of these days, it should not be surprising if an imaginative politician offers Nano cars free "" if the DMK offered colour TV sets, why not cars?

One thing, however, is clear. Farmers deserve the help far more than the bureaucrats will get from the Pay Commission "" after all, the former make a positive contribution to the economy, while too many of the latter subtract value far more than their salaries, through corruption, delays, sloth, bureaucratic unconcern of objectives, and so on.

Whatever the merits and demerits of the loan write-offs, it is most unlikely that rural poverty can be reduced on a lasting basis without a sharp improvement in output per acre (China seems to be well ahead of us); reducing the gap between the price the producer gets and the consumer pays; significant drop in the percentage of agriculture output that is spoilt or rots because of poor roads, lack of refrigerated transport and storage; and a sharp reduction in the number of people dependent on agriculture. Depending on the bureaucracy and the public sector to bring about the improvements is an unrealistic proposition "" on the other hand, organised retail, contract farming, and others, remain anathema to the accepted political theology. Our minister for agriculture has brought about a sea change in the rural economy of his home district. Would he put his huge abilities to improving the basic economics of agriculture? The timing is right: with no significant breakthrough in output, and a rising population and demand, agricultural prices will continue to go up globally. Let the Indian farmer benefit: the loan write-off, by itself, is not a lasting solution.

avrajwade@gmail.com