Punjab Chief Minister warns against the tyranny of markets.

Harvesting in progress in Punjab

You can feel the anguish when Punjab Chief Minister Prakash Singh Badal talks about the plight of farmers. Recently at a New Delhi conference (See the link here: http://bit.ly/1848rxW) , he spoke about the conspiracy to ‘destabilize Indian agriculture’ and warned policy makers to be doubly cautious of the “advocates of the tyranny of the free market economy.” They will end up destroying India's food self-sufficiency, he warned. 

Food security is no less important than national security, and therefore he wants agriculture to be treated at par with defence services. 

A few days before the New Delhi conference, he was speaking at the Vibrant Gujarat Global Agriculture Summit that Narendra Modi had organized in Ahmedabad. Deviating from the written text, Mr Badal had lashed out at the votaries of the free market economy saying that if agriculture is lost, everything is lost. Amidst a loud applause, he said that many experts are being planted in India to undo the remarkable achievements of the Green Revolution, and once again make the country stand with a begging bowl. 

Several decades back, I remember Mr Badal’s loud warning against the continuous neglect of agriculture and the apathy towards farming. He was addressing a national conference. “This is a sleeping elephant,” I recall his words: “You ignore them at your own risk. Once the elephant wakes up, it will make you all run for cover.” And during the NDA regime when the then Prime Minister Atal Bihari Vajpayee wanted to decentralize foodgrain procurement, Prakash singh Badal led the group of chief ministers who opposed the move vehemently. Mr Vajpayee had to drop the proposal considering the strong opposition from chief ministers of the frontline agricultural states.

The Punjab’s agriculture story is well known. As a student of agriculture, and then as an agricultural journalist, and finally as a policy researcher and analyst, I have had a ring side view of the remarkable strides taken in agriculture. Once the pride of the country, Punjab’s farmers have now turned into a national burden. So much so that the Commission for Agricultural Costs and Prices (CACP) leads a campaign to dismantle the food procurement system that has sustained Punjab’s agriculture ever since the days of the Green Revolution. Under the premise of making agriculture market-friendly, CACP chairman Mr Ashok Gulati, is actually finding fault with the higher and assured procurement prices Punjab farmers get every season.

In its Kharifreport, CACP has even listed States according to its market-friendliness. These are Bihar, Jharkhand, Odisha, West Bengal among others where paddy farmers for instance get a price of not more than Rs 900 per quintal. Punjab is at the bottom of the chart since farmers get an assured procurement price which is relatively high. CACP’s argument is that in a market economy, the assured procurement prices should be withdrawn. This is what has irked Mr Badal, and he has made it clear that any effort to dismantle the procurement system will destroy the very foundations of food self-sufficiency.

Interestingly, while Dr Ashok Gulati has been opposing wheat and paddy procurement prices, he has been advocating introduction of a procurement price for maize so as to shift the acreage from paddy under the recently launched crop diversification programme in Punjab. Intriguing, isn’t it? What is not good for wheat and paddy is being projected as savior for maize farmers.

At a time when it is generally believed that the era of price policy is over, the policy thrust is to move farmers away from the assured income through procurement prices to building entrepreneurship and linking farmers to the markets. This is where Mr Badal has time and again expressed his concerns. And, rightly so. But what I still don’t understand is that despite chief minister’s warning, the State’s agricultural policy is still designed on the same market economy pattern that he finds fault with. The ‘sharks’ in the free market economy will therefore continue to prevail.

I am often asked as to what a land-locked state like Punjab can do to prop up its economy if it does not shift farmers out of agriculture? Farming cannot sustain the economy, nor can the average household incomes go up. Land acquisition for the sake of industry and real estate therefore is being aggressively pursued. Perhaps this is what Mr Badal has been time and again told. But what is not being told is that if a tiny European country like Holland can emerge as the second biggest agricultural exporter in the world, and where average farm household incomes are 265 per cent higher than the national average, why can’t Punjab do the same? I am not advocating the industrial farming model that Holland had once adopted (but is now moving to LEISA -- Low External Input Sustainable Agriculture practices) but certainly Punjab can make suitable modifications to ensure that it doesn't repeat the same mistakes. 

Switzerland too is a small country. It hasn’t adopted the industrial pathway to development. It hasn’t therefore done any irreparable damage to its nature and natural resources. So Punjab certainly can carve a niche for itself by ushering in a sustainable model of development linking environment-friendly agriculture with rural-based industry. 

Unfortunately, while the Chief Minister is concerned, the kind of farm experts the State has are coming from the same school of thought that brought in the crisis in the first instance. Punjab therefore needs experts/leaders/advisors with vision and wisdom rather than free market ideologues. A little more imagination in planning, and a determination to build an agriculture-based economy which does not suck the groundwater dry, does not pollute with chemical pesticides, and which does not lead to farmer suicides is what is desperately needed. # 

Onion prices: It's a homemade, artificial crisis

With the assembly elections nearing, the Centre has finally got cracking. It has directed the states to come down on hoarding that is driving up onion prices. This is perhaps the longest season when onion prices have remained abnormally high — from July to mid-September — and is expected to last until the first week of October.

Knowing that simmering anger among consumers can upset poll calculations, the ministry of consumer affairs, food and public distribution has been forced to act. More so, considering the spike in onion prices has spread to all other vegetables, except the potato. While onion prices have hit Rs. 80/kg, no other vegetable is available at less tha Rs. 40/kg even though we had a more-than-bountiful monsoon.

There is more to onion prices than what meets the eye. First of all, let’s be clear that raging food inflation is a reflection of the market economy: prices of all commodities, across sectors, have been steadily rising. Take the case of housing and real estate. The unprecedented rise in land prices and the phenomenal jump in prices of built residential houses/flats too defy any economic rationale. The cartels operate everywhere. Try making an online purchase of an airline ticket. If you click on a particular route more than three times, the ticket price goes up. But we never complain. We have accepted the hikes, and absorbed them. We only scream when food prices go up.

Here is how the government manipulates inflation data. Knowing that it is invariably food prices that pinch the average consumer, the government had, some years back, quietly modified in its calculations the system of according weights to different products. It reduced the weights for food items, and added more weights for consumer products like refrigerators, air-conditioners etc. Even with these highly distorted parameters, food prices in the wholesale price index for August showed an increase. Interestingly, food inflation as measured by the consumer price index showed a decline in the same period.

Now let us look at the trade. Unlike other vegetables, onions have a longer shelf-life. So the trader knows it pays to manipulate the prices. Reports point to how the wholesale traders have bought onion from growers at approximately Rs. 8/kg in April-May and stacked them at numerous places around the Nasik region, the epicentre of onion production in India. A handful of big wholesale traders, who control the supply side, manage to create an artificial shortage. This is exactly what was done in 2010 when prices had shot up unexpectedly. Production exceeded the demand by about 20% , and yet the onion prices had shot through the roof.

This year too, there is no significant shortfall in production. With production falling by a mere 4% there is no justification for retail prices to go up by upward of 400%. An investigation by a newspaper showed how the traders made a neat Rs. 150-crore in just four days when prices peaked at Rs. 4,500/quintal on August 13.  Even the Agriculture Produce Marketing Committee in Nasik has acknowledged that more than 2.5 lakh tonnes of onion were available with farmers in 66 villages of Lasalgaon.

Onion prices have also remained high in the organised retail chains. These chains were supposed to buy directly from farmers, and so the prices should have been lower. Replacing one set of middlemen with a more sophisticated one is not the solution. Both exploit gullible consumers as well as farmers. What the trade needs is a stern deterrent action. But unfortunately, onion is not among the products which come under the Essential Commodity Act. This allows the trade to go for a killing. Moreover, in a market-based economy, markets are supposed to make a correction. This is a wrong assumption. Markets are not like seasons, these are willfully manipulated.

Source: This is a homemade, artificial crisis. Hindustan Times, New Delhi. Sept 20, 2013.

http://www.hindustantimes.com/editorial-views-on/ColumnsOthers/This-is-a-homemade-artificial-crisis/Article1-1124517.aspx

Pushing farmers out of agriculture is not economic growth.

A few days after the release of the latest census data I happened to be participating in a TV discussion on the continuing distress in agriculture. After all, with nearly 2,500 farmers quitting agriculture every day, and with the number of cultivators owning land declining to less than the number of landless farm labourers for the first time, the question that was asked to me was whether this was good news or bad.

“It certainly is bad news for the country,” I replied, adding: “But it must have come as a great disappointment to India’s planners and policy makers. They were anticipating a bigger shift in population from the rural to urban areas, and it shows that all their efforts to force the farmers to abandon agriculture have not worked so well. They have not been able to meet the economic prescription that the World Bank had prescribed.” Needless to say, the economist on the panel wouldn’t agree.

At a conference organised by M S Swaminathan Research Foundation, in Chennai, way back in 1996, I vividly recall a presentation made by the then Chairman of the Consultative Group on International Agricultural Research (CGIAR) and also a vice chairman of the World Bank, Dr Ismail Serageldin. He said as per World Bank’s estimates the number of people migrating from the rural to urban areas in India in another 20 years – by 2015 – would be equal to twice the combined population of UK, France and Germany. The combined population of these three European countries is around 200 million. So the World Bank had anticipated 400 million people, more than the population of United States, moving out of rural areas in India in the next 20 years.

I thought this was a warning. Perhaps the World Bank was telling us to be doubly careful and initiate appropriate policy approaches to restrict the population shift, which is laced with disastrous socio-economic as well as political ramifications.  No, I wasn’t correct. The World Bank was actually spelling out an economic prescription. This becomes apparent when you read the subsequent World Development Reports, annual publications of the World Bank. Reading the 2008 World Development Report, I was shocked to find the bank actually asking India to speed up the population transfer by encouraging land rental markets. 

At the same time, the bank made it abundantly clear that the younger people in rural areas do not know anything but farming. Displacing them from agriculture without teaching them the skills to become industrial workers will only add to the rural workforce. It therefore suggested setting up a network of training centres where these youngsters could be trained to become industrial workers. And no wonder, in the 2009 Budget speech, just before the elections, the then Finance Minister made a budgetary provision for setting up 1,000 industrial training institutes.

I wasn’t therefore surprised when Dr Raghuram Rajan, the new governor of the Reserve Bank of India (RBI), parroted the same economic prescription. In an interview with the New York Times, this is what Rajan had to say:  “In terms of where will growth come from, it doesn’t need to come from fancy stuff like extraordinary innovation of one kind or another. Just getting people from agriculture into services and industry itself is growth.” He has repeated the same solution to the economic woes in a Walk the Talk he had with Shekhar Gupta sometimes ago. And as I said earlier, Rajan too is disappointed. In another interview, he admitted that the exit of people from agriculture has not kept pace with economic growth.

Soon after assuming office, when Rajan said he is not looking for the number of ‘likes’ on the facebook but is contemplating some tough decisions, my impression was actually he wanted to convey was that he will opt for ‘tough love’ – tough for the aam aadmi, and love for the rich -- because this is exactly what the market economy textbooks prescribe. Allow for unbridled privatisation of profits, and when the bubble bursts socialise the costs. It’s the poor who must make sacrifices to keep the wheels of economy churning. This is exactly what happened at the time of the 2008-09 economic melt-down. This is what subsequently led to the Eurozone crisis, and this is what has been at the back of India’s economic downturn.  

Moving people out of agriculture may be the ultimate goal, but there are some ways to prop up the economy in a short-term. Sometimes back, senior journalist and author M J Akbar had in one of his columns given us an excellent idea. He quoted a Russian Finance Minister, who in wake of declining GDP in Russia, actually asked fellow Russians that the least they can do to help the economy grow is to start drinking more vodka. The Economist too has among other things suggested opening up of casinos to ensure that people with surplus money do not flock to Sri Lanka on weekends. As if this is not enough, the Thai have proposed setting up of massage parlours under the Indo-Thai free trade agreement that is being renegotiated. Massage parlours are of course a service industry.

If these are the options available to raise the sagging economy, there is something terribly wrong with the way we perceive economic growth.  But let us first look at the flawed thinking that is aimed at destroying domestic agriculture. The neglect of agriculture is deliberate and part of a bigger design. In a country where roughly 70 per cent of the population lives in the countryside, there can be nothing more disastrous than to plan for a massive population shift in the coming decades. Just because the World Bank/IMF and the American universities have been flouting the crazy hypothesis, does not mean that we should follow it blindly. What India needs therefore are leaders with vision and wisdom and not ideological free market brats who cannot see beyond the G-20 mandate. 

Agriculture provides livelihoods for nearly 600 million people. They are certainly underemployed, and undernourished. The challenge therefore is to make them gainfully employed, and not to uproot them and turn them into agricultural refugees. Like the young graduate from a business school, a farmer is also an entrepreneur. He needs improved skills for which he needs training, and also needs a launching pad. Take the case of a poorest of poor women in a village. When she goes out to buy a goat, she needs microfinance. She eventually ends up paying 24 per cent interest to MFIs, which at weekly repayment plan turns to be 38 per cent. With such a predatory interest, she will perpetually remain in the poverty trap.

If steel tycoon Laxmi Mittal can be advanced Rs 1,250-crore at zero interest for investment in Bathinda refinery, or if Ratan Tata can be provided land at a throwaway price and financial credit at 0.5 per cent rate of interest, I wonder why the poor are penalised. Provide the poor women credit at zero percent, and I bet she would be driving a Nano car at the end of the year. Give the farmer a decent monthly assured income, and make appropriate investments in rural infrastructure, and I can tell you he will not only put the country’s economic growth on a much higher pedestal, but ensure that the gains of economic development are distributed widely and equitably.

India therefore provides a unique opportunity for neoliberal breed of economists like Raghuram Rajan to de-learn and un-graduate. As someone said, that’s the only way we will learn to challenge all that we have accepted as time-tested truths. Move away from the growth fetish, remove the IMF/World Bank cap, and start looking afresh at economics as if people mattered. If a non-descript village like Hiware Bazaar in Maharashtra can boast of 60 millionaires, and that too without any forcible land acquisitions under public-private partnership or sucking the state exchequer dry with tax sops and tax holidays, each of the nearly 6.4 lakh villages that dot the country can do the same.

What India needs is a production system by the masses, and not for the masses. That’s what Mahatma Gandhi said. And he wasn’t wrong. #   

Source: Tehelka, Vol 10 Issue 38, Sept 21, 2013.

 http://www.tehelka.com/forsaking-agriculture-is-not-the-right-answer/

What went wrong with Indian economy

Addressing the UN General assembly in Sept 2011, Prime Minister Manmohan Singh had said: “Till a few years ago the world had taken for granted the benefits of globalisation and global interdependence. Today, we are being called upon to cope with the negative dimensions of those very phenomena.”

“The shoots of recovery which were visible after the economic crisis of 2008 have yet to blossom,” he said, adding:” In many respects the crisis has deepened further.” If the Prime Minister knew what was coming, the question that needs to be asked is then why did he allow the Indian economy to take the same route towards self-destruction? The rupee has been on a free fall, the current account deficit – the difference between export and imports – have surged to the pre-1991 levels, and the fiscal deficit shows no visible signs of reduction.

Prime Minister should have known it much better. Even at the peak of the economic growth period, between 2005 and 2009 when economy grew at 8 to 9 per cent, the high economic growth did not result in job creation. According to a Planning Commission study, 14 million people were pushed out of agriculture, and another 5.3 million jobs were lost in the manufacturing sector in the same period. If growth was not translating into additional jobs, and instead was leading to increased joblessness, there was something going wrong.

In the 9 years since Manmohan Singh took over, India has been flooded with cheaper manufactured goods, the imports touching $ 50 billion (Rs 3 lakh crore). Nearly 54 of the imports have come in from China alone. Much of the imports were of consumer goods that could have been easily manufactured within the country. As if this is not enough, India is now having talks with China to sign a free trade agreement. In any case, India has been on a fast-track mode to sign bilateral trade agreements with some 34 countries. The result: imports have far exceeded the exports from India, which means the trade agreements had not benefited the country. 

Prime Minister cannot blame anyone. He himself has been pushing for bilateral trade agreements despite the warnings that the imports are surging.

Take the case of the proposed India-European Union trade agreement in the offing. The EU is insisting that India opens up by reducing import duties on wines and spirits, and also drastically cut back import tariffs on milk imports, from the present level of 60 per cent to 10 per cent. This will bring a flood of milk imports into India which ironically is the biggest producer of milk in the world. Importing cheap and highly subsidised agricultural commodities as well as manufactured goods is like importing unemployment. Because of the reduction in import duties of edible oil from 300 per cent to zero percent, for instance, India is now importing edible oils worth Rs 60,000-crores every year.

While economists are hammering the Rs 1.25-lakh-crore food security bill saying that such massive public outgo will add on to the fiscal deficit, no mention is ever made of the Rs 30-lakh-crore that has been doled out the industry since 2005-06 in the form of tax concessions. But despite the huge subsidy, the industrial output had been steadily on a decline. In May 2013 it stood at minus 1.6 per cent, exports have remained subdued, manufacturing has been almost killed. So wasn’t the tax exemptions a wasteful expenditure? If recovered, the tax exemption alone could have wiped out the country’s entire fiscal deficit.

Had the massive tax concessions to India Inc., which is clubbed under the category of ‘revenue foregone’, were instead invested within the country, it could have created millions of jobs. While industrial production remained dipped, equally shocking is the massive hoarding of cash that the private sector has been stacking. By Mar 2012, India Inc was sitting over cash reserves of Rs 10-lakh-crore. There is no need for India to bend backwards to attract foreign direct investments when its own corporate were sitting over a mountain of cash. Forking it out could have created investor’s confidence and improved the business sentiments.

On top of it, a Credit Swiss report shows that the top ten big corporate groups in India have shown a six-fold increase in external commercial borrowings to reach a staggering Rs 6,30,000-crore. But these massive borrowings did not result in adequate returns thereby increasing the external debt. With so much of external borrowings and with cash reserves growing, what prompted the Govt to provide hefty tax concessions year after year needs to be investigated. In the last two years alone, Rs 11-lakh-crore has been doled out. 

  

Sadly, all this was allowed to happen when the Prime Minster knew that free market policies and deregulation were behind the economic woes. Instead of taking appropriate corrective steps he allowed the Indian economy to dither and slide. This is where he faltered. In fact, the solutions that are being proposed to prop up the ailing economy are the same that initially led to the economic downturn. More of the same, will only add to the crisis.