Six years ago, American sociologist Salvatore Babones, an associate professor at the University of Sydney in Australia, placed a bet on India, terming it the “most promising economy” in the book Brics or Bust-Escaping the Middle Income Trap that he co-authored.
Babones has lost none of his optimism on the India growth story, relying on macro facts. The naysayers, he says, are those driven by ‘feelings’ on Indian democracy and human rights.
Babones says India’s growth potential can be unleashed through agriculture reforms, bringing in the private sector, consolidating fragmented farm lands and deploying technology to increase productivity, noting that India lags behind other countries. In an interview with Moneycontrol, Babones also said the government needs to enable a shift from growing rice and wheat to edible oils and other lucrative crops.
Prescription for growth
“China stopped growing around 2017--it has been a flat economy. Of the five Brics economies (Brazil, Russia, India, China, South Africa), only India has a dynamic economy that is likely to grow. Whether it will grow beyond the middle-income status, I can’t tell now. But India has all the ingredients to grow to that level, “ Babones said.
“India has all the attributes of a middle-income country except the income--India is a middle-income society but stuck with a poor country’s economy,” he added.
According to the World Bank, India is currently a lower-middle-income country. The average income of an Indian was $1,935 in 2020. According to estimates, India could become an upper-middle-income country by 2047 if it manages to grow consistently above 7-7.5 percent.
The big push for growth, according to Babones, will come from agricultural reforms. India has a very large, but low-productivity agriculture sector. The sector provides employment to over half of India’s population and contributes about 18 percent of India’s Gross Domestic Product (GDP).
“A country needs to find the lowest productivity areas in an economy and increase productivity in that area. If I could talk to the FM/PM for 10 minutes, I would say that the best recipe for growth is to go through levels of labour productivity –choose the lowest one and have a big effort to increase productivity. The main area of lowest productivity will probably be agriculture.”
Shifting from rice and wheat
There are purchase quotas for rice and wheat because of the memory of famine, Babones said.
“Famine is gone. There will never again be a famine in India. So why produce stockpiles of rice and wheat that will simply rot. Instead, Indian agriculture needs to be shifting to higher-value produce–for instance, edible oils. India is a major importer of edible and cooking oils. Why aren’t they produced in India? They could be produced in India, but Indian farmers are incentivised instead to produce wheat and rice to go into stockpiles as against higher-value-added edible oil. This kind of transition-liberalisation of the agriculture sector will increase productivity of the Indian economy as a whole and also reduce the import bill,” Babones said.
In fiscal 2019, India’s labour productivity in agriculture and allied sectors was 6 percent--the lowest since FY 2013-down from between 10 and 15 percent. Modernising agriculture implies social changes--as farmers sell their farms to agri businesses and relocate to the cities.
According to a census conducted by the Department of Agriculture, details of which were published in March 2020, there has been a steady decline in the size of agricultural land holdings in the country. The average size of operational holdings has decreased from 2.28 hectares in 1970-71 to 1.84 hectares in 1980-81 to 1.41 hectares in 1995-96 and to 1.08 hectares in 2015-16.
The government expects the fragmentation of holdings to continue, and there is a direct linkage between the size of land holdings and productivity.
“..many say that farms are a social insurance policy for the farmer. That may be true but in an economy that’s growing at 7-8 percent, people can find jobs, there is always demand for labour. We have never had a country anywhere in the world that has moved to more efficient agriculture, leading to unemployment. We just have to trust that the market will find places for people who move off the land,” observed Babones.
Farm loans
Commenting on the farm law reforms the government had to roll back in November 2021 in the face of protests from farmers, Babones said: “In my analysis, these laws were for the most part positive reforms but they were withdrawn in the face of social opposition and that’s why a bounce-back –taking the lid off and growing –has been slower in India than in China because unlike in China, there is social resistance.”
The three farm laws that faced protests were the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act.
The laws, if implemented would have reduced the role of the middle man in agriculture, would have allowed farmers to market their produce freely and would have freed items such as pulses, edible oils, onions and foodgrains for trade except in extraordinary situations.
While the farm laws would have liberalised the sector, Babones said the government prohibited the export of potatoes to keep prices low, just after it had withdrawn the farm laws in 2021 and such actions are contradictory to ensuring the best prices for farmers.
Liberalising agriculture
“The current government hasn’t been in the right here – just after farm laws, there was a spike in the price of potatoes and the government prohibited the export of potatoes to keep prices low. What Indian farming needs is higher prices –the proper approach would have been to tell urban consumers that we are very sorry potatoes are expensive but farmers need the money more than you do
Liberalisation cuts both ways. It’s not just about lower prices for consumers but also higher prices for farmers. Not forcing farmers off the land, but enticing them off the land by making farms more valuable,” he explains.
“In places like Taiwan and South Korea-that transition to growth in the first half –from being a poor country to a middle-income country was entirely driven by agriculture reform. It was only after they crossed $10,000 per capita (income) that they began to industrialise. But the initial phase of growth was all through agriculture reform. In India, there is nothing wrong with Make in India--these are probably good things to do. But at a macro level, they are not that important,” added Babones.
The government has allocated Rs 1.15 lakh crore to the ministry of agriculture and farmers welfare in FY 2024, with the stress being on access to finance for farmers, promotion of millets and a digital agriculture mission.
You can catch the full interview of Salvatore Babones here:
