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/

India's economic crisis: Bottom of the pyramid has the answers

At a time when the Indian economy is in doldrums, Prime Minister Manmohan Singh has time and again reassured investors that there will be no going back on economic reforms. As usual, he has blamed the external factors for the slump. The internationally respected weekly The Economist has gone a step ahead. To ensure that the Prime Minister does not retract from the promise of delivering more reforms, it has tried to create a fear psychosis among the policy makers so that they don't budge an inch from the faulty economic track the country has been made to follow for the 9-year period of the UPA Government.

Like the cover story in the Time magazine sometimes back that called Manmohan Singh an 'underachiever' (the underlying idea was to provoke him to open up to FDI in retail and other sectors), The Economist has in a frightening analysis titled "Made outside India" (Aug 10, 2013. econ.st/164nUNE ) tried bravely to build up the argument that if India does not accelerate the growth pace, what ever remains in India (in terms of industrial base) will also move out. It was not only amusing to read the biased argument (biased is a soft expression, it is actually a flawed analysis) but makes me wonder how can a reputed magazine support the frauds in trade and business in the name of economic growth. I am shocked that it sings praises for tax havens like Mauritius, and is also praising the decision by Finance Minister P Chidambaram to defer the General Anti-Avoidance Rules (GAAR) which could have brought curbs on the flow of black money and corruption. (Read my earlier blog: Celebrating the induction of black money: http://devinder-sharma.blogspot.in/2013/01/gaar-deferred-investors-stock-markets.html).

It is true that gambling is illegal in India, except a few places. If Sri Lanka is planning to develop a casino industry to attract weekend travelers (like Nepal has done), does it mean that India should also allow gambling to be developed as an industry? This is like saying that India should allow sex tourism to develop on the lines of Bangkok under the proposed India-Thailand Free Trade Agreement that is being renegotiated. I think there can be nothing more stupid as well as dangerous than this argument.

What is amusing of course is the example of Bollywood films that are being shot abroad. The Economist says: "In 1985 Yash Chopra, an Indian film-maker, led a trend of shooting Bollywood "dream sequences" -- in which the hero and heroine sing amidst meadows and snowy crags -- in Switzerland. The Alps were easier, safer than the more familiar location of Kashmir." This is true. But what is wrong in this? Doesn't the Hollywood industry do the same? It has for late done many a films in India or with Indian participation. Does it mean that the Hollywood industry is moving offshore? In any case what the magazine does not perhaps know is that even that trend of filming abroad has come down lately. Film goers love the films that are shot in countryside locales in India. The latest release Chennai Express shot within the country's lesser known locales has been a record earner.

In essence, The Economist is indirectly trying to tell India to strengthen its service industry, cut down on red tape, and allow dirty and corrupt practices to prevail. This is exactly what India has been trying to focus on since 2004-05, and look at where the economy has plummeted to? I will not try to go into the finer details, but I would surely like to draw the attention of The Economist to an excellent analysis by S Gurumurthy that has been published in the New Indian Express. Titled: Reckless imports put Rupee on a ventilator, Aug 19, 2013. http://www.http://www.readwhere.com/read/c/1505436 ). The article brings out how a flood of imports because of the deliberate destruction of the domestic manufacturing sector has put the Indian Rupee in a crisis. "The 9-year UPA period saw manufactured goods import of $ 50 billion against just $2.3 billion during the NDA regime." 

It was primarily because of destruction of the domestic manufacturing sector that some of the Indian industry has moved out. It is not because of red tape and bureaucratic hurdles but because the Reserve Bank of India changed the rules that allowed companies to take out money to invest abroad. I see no merit in this. If foreign companies bringing Foreign Direct Investment (FDI) in India can do business and still make profits (despite the hurdles), how come the Indians companies are not? Again, it is The Economist all these years that has been drumming up the need to open up the economy to foreign investors. More the FDI more has been the imports of manufactured goods. More the signing of unreasonable FTAs, more has been the deluge of unwanted imports that further destroyed the domestic manufacturing sector.

It didn't only end up with massive imports but also destroyed jobs. A Planning Commission sponsored study says that between 2004-05, when Indian economy grew anything between 8.5 to 9.3 per cent, manufacturing sector witnessed a massive job loss. More than 5.3 million people lost jobs in manufacturing. Wrong advise by economists (and also The Economist) had forced the government to bypass manufacturing and follow services in its quest for growth. Remove all the hurdles, and let the markets operate freely is what we have been repeatedly told. But when markets crash, the same set of corporate media advises the government to step in and provide bailout packages.

Markets are always manipulated. There is no such thing as free markets. Whether it is the World Trade organisation (WTO) or the Wall Street, manipulation is the core ability of free trade as well as open markets. So don't get unnecessarily alarmed when the stocks tumble. Just wait and watch. Heavens are not going to fall if the Wall Street crashes completely. This is gambling. Let the gambling rules prevail for those who have willingly put their surplus money in.

I am not sure whether The Economist will ever take my advice. But it will good if they step down from their high pedestal and look at the ground realities more carefully. All that it has been suggesting so far is aimed at creating more wealth. Whether it is through the unhindered capital flows, hedge funds, stock markets, farm land grab,  foreign direct investments etc etc the basic premise is to create more high-net worth individuals. The poor will get the advantage of trickle down. Knowing the economic, environmental and social crisis the world has been pushed into, it is high time to move away from this terribly flawed economic approach. Take the simple case of Hiware bazar village in Maharashtra. Without indulging in all the spoils that neoliberal economists have been tirelessly suggesting and manipulating, this village alone has created 60 millionaires. Imagine if each of the 6.5 lakh villages in India can produce 10 (and not 60 millionaires to begin with), wouldn't the face of India change for ever? And what if the same principle of self-reliance is applied everywhere else in the world?

The solution to the economic ills can be provided by the bottom of the pyramid. Read this: One village, 60 Millionaires. The miracle of Hiware Bazar. bit.ly/15NdWMU 

Why Bhagwati & Co Are Wrong On Reforms.

Some years back, just before the WTO Ministerial Conference was held at Hong Kong in 2005, economist Jagdish Bhagwati commented in the Far Eastern Economic Review (and quoted by the Economist, 23 March 2005): “Agricultural subsidies are certainly undesirable. But the claim that removing them will help the poorest countries is dangerous nonsense and a pernicious fallacy.”

I thought this was outrageous. How could Bhagwati make an economic prescription that would keep the poor countries perpetually standing with a begging bowl? Doesn’t he know that importing food is like importing unemployment, destroying livelihoods? Cheap and heavily subsidised food makes agriculture in developing countries uneconomical, forcing migration to cities.

It was almost at the same time that I did an exhaustive study on the first 10 years of the wto Agreement on Agriculture, which was also circulated widely at the Hong Kong WTO Ministerial Conference. The conclusion was crystal clear. The rich industrialised countries had managed to protect their monumental agricultural subsidies. As a result, of the 149-odd developing countries clubbed in the category of Third World, 105 had become food importing.

Nearly 70 percent of all developing countries are now net food importing. The two major gainers were the two giants on either side of the Atlantic — the United States and the European Union. This was the outcome of the policies perpetuated first through Structural Adjustment Programme and carried through more aggressively under the wto. All aimed at further dividing the world into food factories of the rich industrialised countries; and the other hungry half, always prostrating with a begging bowl in hand. What Bhagwati perceived as “dangerous nonsense” was, and still remains, the biggest threat to mankind.

At stake is not only food security of the importing countries, but also national sovereignty. That is why India’s first Prime Minister Jawaharlal Nehru, while addressing the nation on 15 August 1955, had said: “It is very humiliating for any country to import food. So everything else can wait, but not agriculture.”

Food is the biggest weapon, and those who control food will control the global politics, as well as the economy. That is why the US and the EU have refused to open up their own borders to agricultural imports from the developing countries, but lose no opportunity to arm-twist and force the developing countries to fall in line by providing more market access.

The US has even questioned India’s Food Security Bill, and is threatening to take India to the dispute panel. In turn it wants India to ratify the agreement on trade facilitation, which will ensure developing countries to lay appropriate infrastructure and bring in policy changes that help trading consignments of multinational companies to get a quick entry — nothing more than that.

That is why I have always called WTO the Wrong Trade Organisation.

Take the case of cotton subsidies. Before the Cancun wto Ministerial Conference in 2003, presidents of four western African countries wrote a signed article in the New York Times saying how US cotton subsidies killed their farmers. In 2004-05, the US provided its 20,000 cotton farmers with $4.7 billion in subsidies to produce a crop of $3.9 billion. Such massive subsidisation insulated US cotton farmers from the volatilities of the global markets, resulting in a drastic fall in international prices — as a result of which cotton farmers in western Africa and India were priced out.

Brazil later took the US to the dispute panel on cotton subsidies. The US lost, and to ensure that Brazil didn’t impose countervailing duties, started providing Brazilian farmers with $147 million in subsidies. This is the only case I know where a major economic power is actually bribing another nation. If US can protect its farmers, why can’t India do the same? Why are we ashamed to acknowledge that India can’t sacrifice millions of its farmers at the altar of trade and development?

No one is against trade. But trade has to happen on equal terms and has to be judicious. If it is not, I expect the distinguished economists to stand up and be counted. But it never happened. Both Bhagwati and Arvind Panagariya actually supported the flawed trading regime.

Soon after Independence, public investment in industry, agriculture, infrastructure, defence and administration left little revenues for education and health. So unless you followed the growth-friendly Track-I policies as the writers suggest, there wouldn’t have been a rapid expansion in incomes and revenues.

Recall the time when Lal Bahadur Shastri was the prime minister. That was also the period when India was a major recipient of food aid under the US government’s overseas food assistance programme. India was living under what is called a ‘ship-to-mouth’ existence. Food used to come directly from the foodcarrying ships into the hungry mouths. At that time, an American journalist had asked the prime minister as to what he thought of the war in Vietnam. Shastri replied: “It is an act of aggression”. This small sentence had annoyed the then US President Lyndon Johnson who ordered food aid to be stopped under what is called ‘stop-go’ policy. 

Shastri had asked the nation to fast for a day to ensure that food goes to those who need it most. Subsequently, the Green Revolution that followed was the result of a combination of right kind of policies, technology and approaches. The rest is history. Had India followed Bhagwati’s prescription instead, we would have continued living in misery.

But 45 years after the Green Revolution was ushered in by Indira Gandhi, Finance Minister P Chidambaram is doing exactly that by asking for State agencies to withdraw from grain procurement. The food ministry is toying with the idea of capping grain procurement and letting the Food Corporation of India (FCI) use the grain stocks in future trading. Instead, FDI in multi-brand retail and commodity trading is being pushed as a panacea for all the ills plaguing Indian agriculture.

If this is true, then why is that farmers in the US and the EU have to be given massive doles of direct income support year after year? The US -EU have big box retail giants like Walmart, Tesco, Sainsbury and Metro operating for several decades now. If the big retail (and also commodity trading) had helped in price realisation for farmers, then how come the OECD (Organisation for Economic Cooperation and Development) countries end up providing close to $370 billion every year for farm support?

Now let us turn to the Track-II reforms that Bhagwati and Panagariya propose for India. Let us first begin with America, where they are based. We all know that the American dream has collapsed. What happened? Wasn’t US the Mecca of economic liberalisation? Just a few days back, an Associated Press report (28 July) in its opening paragraph said: “Four out of five US adults struggle with joblessness, near-poverty or reliance on welfare schemes for at least part of their lives, a sign of deteriorating economic security and an elusive American dream.”

At present, 46.2 million Americans — 15 per cent of the population — are living in poverty. Estimates show that by 2030, going by the prevailing rate of inequality, at least 85 per cent of the working population will experience economic disparity.

Hunger has broken all records. Since 2006, hunger or call it ‘food insecurity’, has risen by 30 percent. The US Department of Agriculture estimates 17.4 million families to be ‘food insecure’. One in every four children doesn’t know where the next meal is going to come from. A record number of post-graduates are now using food coupons for subsistence.

While Panagariya wants India to adopt cash transfers and education vouchers, a California-based organisation ‘Eat, Drink Politics’ has come out with startling revelations providing insight into how the hunger programme adds to the profits of some of the big corporations and banks.

Several corporations like Coca-Cola, General Mills, Walmart and banks like JP Morgan Chase have reaped windfalls from the food programme. Accordingly, Walmart received $33 million for nine supermarket centres in the State of Massachusetts, which is four times the money spent on farmer markets across the country under the same programme. JP Morgan Chase has a five-year contract worth $83 million in Florida alone.

Another argument is that revenues must be redistributed to the beneficiaries through cash, school vouchers and health insurance, allowing them to decide whether they want to buy food, education and health from private or public providers. Well, let’s take the case of US again as far as privatisation of health services is concerned. According to a report by the US-based Institute of Medicine (IOM), the US is the sickest country in the developed world. “This disadvantage has been getting worse for three decades, especially among women.”

In any case, the economic disparity is so glaring that the private wealth of 300 individuals across the world equals the wealth of three billion poor people. And this disparity is worsening with every passing year. If this is the situation, why do we need to import a flawed economic model?

Not only the US, Europe too faces hardship. At a time when millions of workers in Europe have taken to streets time again to protest against spending cuts that have aggravated recession and led to mass unemployment, how can any sensible person, least of all an economist or policymaker, defend this paradox — millions go jobless while private companies sit over massive cash reserves. Says a 2012 CNBC report: “Amid a lacklustre earning season that has featured many companies missing sales expectations, cash balances have swelled 14 percent and are on track towards $1.5 trillion for the Standard and Poor’s 500.” Apple alone sat on a cash reserve of $117 billion.

In Europe, Ernst & Young estimates that corporates hold over €2 trillion. US corporates alone hold more than $2 trillion in the UK. In India too, at a time when the current account deficit situation has become more pronounced, India Inc in 2012 was sitting comfortably over Rs 9.3 lakh crores or $166 billion, and is refusing to invest it within the country.

In India too, even between 2004-05 and 2008-09 when the economy grew at a record 8-9 percent, a Planning Commission report shows that 14 million people were driven out of agriculture, and another 5.3 million suffered job loss in the manufacturing sector. High growth, therefore, has not translated into increased employment.

Regarding the vanishing poverty trick, economist Utsa Patnaik has in her analysis ‘The dishonesty in counting the poor’ (The Hindu, 30 July) ripped apart the spurious claims. In fact, the tendency to hide poverty and hunger is not only confined to India. Economists all over the world are bending backwards to show how poverty is coming down in an era of market reforms.

The illusion of growth has not spelled happiness. Since 2004-05, India Inc has received nearly Rs 32,00,000 crore by way of tax exemptions. If such heavy subsidisation has not resulted in increased employment, pushed up industry and manufacturing output, or helped increase exports, isn’t it a waste of resources? Don’t these subsidies add to fiscal deficit? And yet, despite these subsidies, explicit as well as implicit, industrial growth remains sluggish.

The subsidisation of the industry does not end here. Privatisation of health and education through the public-private partnership (PPP) mode is essentially a subsidy. Acquiring land at throwaway prices for Special Economic Zones (SEZs), industrial estates, malls and real estate is a huge subsidy. Providing interest-free loans and tax holidays is also a subsidy. In fact, the industry thrives on subsidies. The difference being, these subsidies are called ‘incentives for growth’. But, strangely, it is always subsidies for the poor that come under the scanner.

Often I am asked if I am questioning economic liberalisation and whether I want the country to go back to the old days of the Hindu rate of growth. If I point to the glaring inequalities and injustices being pushed down the throat of developing countries, it does not mean that I am against trade. 

The near collapse of the economic growth model after the 2008 economic meltdown should make us rethink. The economic pathway to happiness can be a combination of the good from the neoliberal era as well as the so-called socialist era. It is time to move ahead by redrawing the new economic pathway. 

Source: Tehelka, Aug 10, 2013, Issue 32, Vol 10. 

http://www.tehelka.com/the-economic-debate-why-bhagwati-and-co-are-wrong/