Why the Northern farmers are the last bastion of central planning

Farmers' protest against the Centre's new farm laws entered 12th day on December 7.

The farmers’ agitation has been used to whip up passions against agribusinesses, who have been accused of all manner of sins, from coveting the poor farmer’s land to paying him a pittance for his crops. That is hardly surprising—smear, innuendo and fake news are the staple diet of politics.

What is interesting, though, is why are people buying the propaganda? Surely farmers are not against private business? Well, it turns out that India is an outlier in its attitude towards private business.

The Economic Survey of 2016-17 cited a World Values Survey that showed, ‘India has distinctly anti-market beliefs relative to others, even compared to peers with relatively low initial GDP per capita levels.’ This was a survey carried out between 2010 and 2012 on global attitudes to the private sector and India ranked a dismal sixth from the bottom.

This is fertile soil for anti-business preaching and it helps explain the horror political parties have of being branded pro-big business.

The Economic Survey called India’s agriculture sector ‘a living legacy of the era of socialism’. Surely this is over the top, simply because farming is completely in the private sector? What they’re referring to is the excessive regulation that pervades the sector.

A few years earlier, the Economic Survey had pointed out that the market for cereals had ‘the most comprehensive central planning’. Input prices for fertiliser, electricity and water are set by the state or subsidised.

Output prices are government-determined and the state also has its own procurement mechanism. Storage is done in state godowns and distribution is also done by the state through the PDS.

Apart from the losses due to leakages and inefficiencies and the huge fiscal costs, there is a bigger economic cost involved, in the misallocation of resources by maintaining a system that had outlived its utility.

We all know the toll—the soil ruined, water table depleted, a glut of cereals and not enough of other crops.

It is this hangover from our ‘socialist’ past that is sought to be defended by those who benefit the most by it. Take the middlemen, for example. The Economic Survey of 2014-15 found that the commission charged by the commission agents at the APMC centres was exorbitant.

It said it’s the politically influential who dominate the market committees and boards and they ‘enjoy a cosy relationship with the licensed commission agents who wield power by exercising monopoly power within the notified area, at times by forming cartels.’

It is this system that the Northern farmers are trying to defend. Those radical young people seeking common cause with these farmers should reflect on the derision BR Ambedkar had for the village, which he said was “a sink of localism, a den of ignorance, narrow mindedness and communalism.”

As for the Marxists, this is what their guru had to say: ‘The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population as compared with the rural, and has thus rescued a considerable part of the population from the idiocy of rural life.”

The Economic Survey called India’s agriculture sector ‘a living legacy of the era of socialism’

A 2008 study titled, ‘The supermarket revolution in developing countries: Policies for competitiveness and inclusiveness’, by Thomas Reardon and Ashok Gulati, found that agrifood businesses in India not only procure output from farmers but also have rural business hubs that offer consumables, farm inputs and technical assistance to them. Their sober conclusion is that it ‘will present opportunities for small farmers who have access to infrastructure and possess needed non-land assets, but it will present a challenge for asset-poor farmers.’

Let’s not pretend that all farmers will be able to benefit from the new system. But then, as I had pointed out here, for most Indian farmers agriculture is in any case an unviable business.

Many of them will continue to live hand to mouth as they are doing now—but many will be able to grab the lifeline thrown to them by the new markets. Indeed, even the middleman will very likely transform himself into an agent for the agrifood corporations, as they know the local community well.

Simply put, the structural transformation of the economy and improvement in agricultural productivity both require the transfer of surplus labour from agriculture to more productive sectors.

Let’s not pretend that all farmers will be able to benefit from the new system

Take the latest World Bank estimates of agriculture’s share in total employment: 3 percent for Japan, 5 percent for South Korea, 25 percent for China, 31 percent for Thailand, 38 percent for Bangladesh and 41 percent for India. India badly needs more manufacturing jobs to absorb its surplus labour—there is no alternative to that.

In the meantime, however, removing some of the distortions in farm policy will free up public resources that can be better utilised elsewhere. If small farmers lose out from the new system, direct subsidies to them will be far less wasteful.

Indeed, one of the Economic Surveys said that the challenge is for policy to change the form of the very generous support from prices and subsidies to less damaging support in the form of direct benefit transfers.

C Peter Timmer, emeritus professor of development studies at Harvard University, has charted the course of agricultural transformation in Asia. In a research paper published in 2005, he said that once the potential of the Green Revolution technologies for wheat and rice had been fully realized, policies turned to supporting farm incomes.

Timmer says, ‘The ‘efficient’ way to do this was through the next structural phase, into diversification and specialization. Bangladesh seems to be moving in this direction. The more advanced regions in China are already well down this road.

The alternative approach, however, is to maintain farm incomes by protecting the rice sector, using subsidies to keep inputs cheap, and thus to slow the diversification process.

Both India and Indonesia are caught in this expensive and distortionary approach. It is impossible to move on to the stage of rapid productivity growth and integration into the overall economy as long as the diversification phase is postponed.’

That is what the confrontation between the farmers and the government is all about.