India & Malthus Version II

The Bharatiya Janata Party (BJP) has been getting many nasty shocks of late but none could have been nastier than the march staged by the farmers of Maharashtra protesting against their plight, which is quite terrible. The paradox is that the agricultural economy has been doing very poorly even as output has been increasing. Meanwhile, the industrial parts of the economy are slowly recovering after a bad slump for four years. This is happening in the last year of this government’s life. 

The same thing had happened to the previous National Democratic Alliance (NDA) government (1999-2004) also. Industry had done poorly for the first four years and recovered only in its last year, in 2003. That industrial recovery happened because of the undramatic but highly effective Vajpayee reforms of the previous four years. Now, the undramatic but highly effective Modi reforms are bearing fruit.

However, NDA I was voted out in 2004 because the industrial recovery came too late for the huge number of farmer-voters  to benefit from it by way of new jobs. The same thing is likely to happen now. The problem was that the Vajpayee government had done precious little to raise farmers’ incomes. It had, however, done a lot to improve the productivity of agriculture in the medium term. 

The Modi government seems to have made the same mistake. It has forgotten that for farmers a bird in hand is what matters. Money in the pocket commands a higher premium politically than roads, electricity, cooking gas etc. So it seems quite probable that this time many farmers will not vote for the BJP.

  

Unsolvable problem

And this brings up the perennial question of the Indian economy: What is the matter with agriculture that nothing helps farm incomes grow?

If you ask the scientists they talk about the technology in use. If you ask the politicians they talk about the lack of seeds, fertiliser, irrigation and pesticides. But many of them are selling agents for these things in their areas.

If you ask economists, they say the problem is with structure of agricultural prices and markets. If you ask economic historians they ask: “So what’s new, agriculture always gets screwed, everywhere, and through time.”

Conventional wisdom says there are too many people living off land and that, to make all of them better off, some of them must receive incomes from non-agricultural occupations. Well, folks, here’s some news: In India, even if you somehow manage to shift half of them out, you would still leave at least 400 million people on the farms.

Structuralists say one part of the problem lies in the Hindu Succession Act which gives all progeny of a farmer an equal share in the parents’ property. This leads to sub-division and fragmentation of land and makes farming uneconomic.

Another part of the structuralist argument lies in the now largely forgotten Cobweb Theorem which talks of the inherent mismatch between supply and demand wherein the amount produced must be chosen long before prices become known. That is, this, year’s prices determine next year’s output. Farmers then make mistakes in what they produce and how much.

Lastly, there are the bureaucrats who, if you ask them say they have no idea what to do. Nevertheless, they have placed themselves at the centre of agricultural policy. 

Where to focus?

Successive governments have tried combinations of the answers that flow from the above. Nothing has worked. Farmers not only remain poor; they are getting poorer.

And this trend is likely to continue. So the big question really is where should government policy focus? 

Since they came into existence, the NDA has usually chosen to focus on farms and the UPA on farmers with its subsidies, MSPs and loan write-offs. But as I said, nothing has helped.

If you ask me, this is Malthus II. For him the debate was about food. For us it is about incomes — the NDA has promised to double farm incomes. But the real issue is an excess supply of people engaged in farming. The Europeans, when confronted with this problem in the 19th century, sent them to other continents; China has imprisoned them in its villages about which nothing is known.

What are we going to do?