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The agrarian market constraint in India after fourteen years of economic reforms and trade liberalisation
Utsa Patnaik
a a

Centre for Economic Studies and Planning, Jawaharlal Nehru University Version of record first published: 06 Aug 2006

To cite this article: Utsa Patnaik (2005): The agrarian market constraint in India after fourteen years of economic reforms and trade liberalisation , South Asia: Journal of South Asian Studies, 28:2, 233-247 To link to this article: http://dx.doi.org/10.1080/00856400500189961

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South Asia: Journal of South Asian Studies, n.s., Vol.XXVIII, no.2, August 2005

The Agrarian Market Constraint in India After Fourteen Years of Economic Reforms and Trade Liberalisation
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Utsa Patnaik Centre for Economic Studies and Planning, Jawaharlal Nehru University

The question of markets in developing countries is usually addressed by more developed countries in terms of a standard format of prescriptions. Developing countries are urged to open up to trade through the removal of quantitative trade restrictions and reduction of tariff barriers, to provide market access, to institute policies favourable to direct investment and portfolio ows, and to provide infrastructure suitable for accessing the countrys resources and markets by foreign players. What is completely ignored is the question of the macroeconomic policies which go along with trade liberalisation, and what kind of an impact these policies have on material production and on the growth of the internal market in these countries.

Trade has to be Seen in the Context of Prevalent Deationary Macroeconomic Policies Economic reform policies guided by the Bretton Woods Institutions are always deationary and contractionary and they always go along as a package with trade liberalisation.1 It is unrealistic, therefore, to imagine that trade can be discussed on its own, or to pretend that contractionary macroeconomic policies are not in place, or to assume that they do not impact on questions of markets and of trade. India entered the phase of
This paper was presented at ABARE Outlook 2005 Conference on Pathways to Prot and Future Growth, Canberra, 12 March 2005. 1 See discussions in J. Halevy and Jean-Marc Fontaine (eds), Restoring Demand in the World Economy (Cheltenham, UK: Edward Elgar, 1998); and D. Baker, G. Epstein and R. Pollin (eds), Globalization and Progressive Economic Policy (Cambridge: Cambridge University Press, 1998). ISSN 0085-6401 print; 1479-0270 online/05/020233-15 # 2005 South Asian Studies Association of Australia DOI: 10.1080/00856400500189961

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economic reforms and trade liberalisation fourteen years ago, in 1991, with an Extended Financing Facility from the IMF of $US5 billion following the temporary difculties created by the rst Gulf War. The sum borrowed was small and soon repaid, but it was the entry-point for the complete reversal of the strategy followed up to that date of dirigiste planned development in which the state was a major investor. Under advice from the Bretton Woods Institutions (BWI) immediately there was a sharp cutback of central government investment and development expenditures, a cut-back on subsidies on agricultural inputs, a cut-back on credit, and a 25 percent devaluation of the rupee. The impact was seen in reduced investment and negative growth of per capita GDP in 199192 for the rst time in three decades. The crude death rate rose in some states and the rate of decline of the infant mortality rate slowed down. In the run-up to the 1996 elections there was easing of the contractionary policies.2 Indias experience of these policies closely reects the global paradigm documented by the IMF itself in its analysis of 78 countries following Fund-guided economic reforms in the 1980s (summarised in Table 1). It is clear enough that the impact of the above package of policies is always strongly deationary. Trade liberalisation has a very different meaning and impact when it is carried out in the context of deationary, contractionary policies which reduce investment and growth in the material productive sectors, than when it is accompanied by expansionary scal and monetary policies which are growth-promoting. Deationary policies mean that employment and internal mass markets do not grow, while growth in the upper-income segment of the market occurs mainly through a regressive process of redistribution of incomes towards this segment. The impact of deationary policies has been especially severe in Indias agricultural sector which after 1991 suffered a sharp reduction in public planned development expenditures especially in irrigationvital for maintaining outputemployment generation programmes, special assistance for drought-prone areas, and programmes designed to promote village and small scale rural industry. Of these, the employmentgenerating programmes had become critically important since the drought year of 1987 onwards. During the Seventh Plan period which marked the last pre-reforms phasefrom 1985 to 1990on average a sizeable 11.1 percent of NNP was allocated annually to rural development expenditure (RDE) and infrastructure. From 1991 as contractionary Fund-guided policies started, was cut sharply to below 6 percent by mid decade (as Table 2 shows). This had nothing to do with any objective resource constraint, but simply reected the loan-conditionalities of
2

See P. Patnaik and C.P. Chandrasekhar, The Indian Economy under Structural Adjustment, Economic and Political Weekly (25 Nov. 1995).

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Table 1 Policies Followed by 78 Countries under IMF-Guided Reforms

Percentage of total number of countries implementing policy 1. 2. 3. 4. 5. Restraint on Central Government Expenditure Limits on Credit Expansion Reduction in Ratio of Budget Decit to GDP Wage Restraint Exchange Rate Policy 91 99 83 65 54

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Source: Quoted in G.A. Cornia, R. Jolly and F. Stewart (eds), Adjustment with a Human Face Vol.1 (Oxford: Clarendon Press, 1987), p.11.

the BWI which were internalised and sought to be justied by the Indian government. There is no economic rationale for believing that public investment crowds out private investment, which is the common argument put forward for reducing the states role in rural development. Indeed, precisely the contrary has been shown to hold for certain types of investment essential for an irrigation-dependent agriculture like Indias such as irrigation projects of all types. Private tube-well investment is protable only where the water-table remains high as a result of seepage from state-built canal irrigation systems, and where community-integrated watershed management (planting trees and using check-dams) is encouraged with state help. Private over-exploitation of ground water has now reached a crisis point in many states in India, with the Table 2 Reduction in Rural Development Expenditures under Economic Reforms, Selected Years 198590 to 200001
1985 90 average Rural Development Expenditures as Percent of NNP Above plus Infrastructure 3.8 1993 94 2.8 1995 96 2.6 1997 98 2.3 2000 01 1.9

11.1

8.4

6.9

6.4

5.8

Source: Calculated from Reserve Bank of India, Report on Currency and Finance, 19956, Statements 8 and 146; and Government of India, Ministry of Finance, Economic Survey, various issues 200102 to 2003 04. Rural development expenditures include plan outlays on agriculture, rural development, special areas programmes, irrigation and ood control, village and small scale industry. Infrastructure includes power, transport and communications.

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water-table falling rapidly and with even the richest farmers unable to reach water despite investing heavily in deep bore-wells and submersible pumps. Other infrastructure investment such as rural power projects, roads, bridges, school buildings, clinics and so on are never undertaken in India by private investors yet are vital for stimulating development and providing livelihoods, both directly to those employed in building them and through the important multiplier effects of the increased wage incomes being spent on simple consumer goods and services in villages. The net result of the unwise cut-back of public investment and in RDE has been a slowing of the rate of output growth. Both foodgrains and non-foodgrains growth rates almost halved in the 1990s compared to what they had been in the prereform 1980s, and both have also fallen below the population growth rate, even though this, too, is slowing down (Table 3). This has led to declining per capita output during the 1990s for the rst time since the mid-1960s agricultural crisis. The latter, however, was short-lived, whereas per head agricultural output continues to fall today even after a decade. The Agricultural Universities had earlier played a major role in developing and helping to disseminate new crop varieties, and the cut in funding for research in these universitiesby affecting the search for better rainfed crop varietieshas also contributed to the deceleration in the growth of yields. With increasing use of land for commercial and residential purposes, the gross sown area in India has remained static since 1991, so it is only through yield rise that output growth can be maintainedand it is here that the failure is evident. The combination of decline in state RDE and the near halving of agricultural growth has produced a major crisis of rising unemployment. The economic reforms period has seen both fast-growing open unemployment, and a fall in the number of days employed of the workforce. Even with constant labour coefcients (labour days used per unit of crop output) a near halving of employment growth was to be expected, given the decline in crop output growthbut the decline in jobs has been even more, as mechanisation, especially of harvesting, has led to falling labour coefcients. Further, the rural nonfarm employment growth which was robust in the 1980s owing to reasonably high Table 3 Decelerating Growth Rates of Agricultural Output and of Population
Period 1980 81 to 1989 90 1990 91 to 2000 01 Foodgrains 2.85 1.66 Non-Foodgrains 3.77 1.86 All crops 3.19 1.73 Population 2.1 1.9

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Source: Government of India, Ministry of Finance, Economic Survey, 200102, p.189. Note that slowing down of output growth is much steeper than slowing down of population growth, implying falling per head output.

THE AGRARIAN MARKET CONSTRAINT Table 4 Employment Decline in Rural India

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Growth per annum Year 1983 Rural 1. Population (millions) 2. Labour force (millions) 3. Workforce (millions) 4. Unemployed (millions) (2 minus 3) Year 1993 94 Year 1999 2000 1983 to 1993 94 (%) 1993 94 to 1999 2000 (%)

546.6 204.2 187.9 16.3

658.8 255.4 241.0 14.4

727.5 270.4 250.9 19.5

1.79 2.15 2.40 2 1.19

1.67 0.96 0.67 5.26

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Source: Government of India, Ministry of Finance, Economic Survey, 2002 03, p. 218.

state RDE, had collapsed by the 1990s. So we see not just jobless growth, but job-loss growth. The ratio of labour force to population, or the participation rate, has declined (lower participation rate reects difculty of nding work), and the ratio of workforce to labour force has declined because open unemployment has been growing at over 5 percent annually (Table 4). The elasticity of employment with respect to output was 0.7 from 1983 to 199394 but has declined to 0.01 during the reforms period of 199394 to 19992000. Let no one imagine that unemployed rural workers are migrating and nding employment in industry: there have been massive job losses in manufacturing, too, during the reform period, and the share of the secondary sector in GDP fell during the 1990s from 29 to around 22 percent. In short, India has (again) experienced de-industrialisation. The agricultural depression has reduced the share of agriculture in GDP from about a third at the beginning of the 1990s to just over a fth, but the labour force and population dependent on agriculture has hardly fallen at allwhich means that there has been a decline in per capita incomes. Thus both the material productive sectors have declined. The only sector which has balloonedand in an abnormal manner3is the tertiary or services sector, which now accounts for over half of GDP.
3

A rising contribution of services to GDP from an initial situation of a high share of industry to GDP has been typical for advanced economies. India however is seeing a fast shift to services from a relatively low initial share of manufacturing and mining output, less than 30 percent of GDP, which is now down to about one-fth. This shift to services reects de-industrialisation and worsening income distribution.

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Yet only a small proportion of the services sector comprises IT-enabled high-income services, business process outsourcing, domestic tourism services and the like. The major part is still low-productivity activities in which the rural displaced workers stagnate at low income levels, servicing the requirements of the upper-income urban elites who have been improving their real income position fast. Disposable incomes have risen fast for this segment in part because the neo-liberal reforms have delivered a reduction in direct tax rates. Advanced countries usually have this upper-income minority of India in mind when they demand market access for their manufactures and agricultural products, and no doubt 100 to 150 million people is a large potential market. But the situation of the vast majority of the mainly rural population stagnating at low income levels cannot be ignoredif not on grounds of humanity then at least on narrow grounds of self-interest. The failure to understand and address the problems of worsening livelihoods and access to food which are the direct result of trade liberalisation will merely fuel social and political discontent in the country.

More Trade Leads to More Hunger in Developing Countries Under Global and Local Deationary Conditions More than in most developing countries, the land resources of India have the potential for producing a highly diversied range of productsnot only the crops and fruits grown in the summer season in temperate lands but also the typically tropical crops, which cannot be grown at all in advanced countries located in temperate regions. The crops of our lands have been demanded abroad in advanced countries for two centuries. But historically the growth of exports from tropical agriculture under free trade regimes has always led to a fall in domestic foodgrains output and availability, plunging the mass of the population into deepening under-nutrition and in extreme cases into famine.4 In theory, increased exports is comparable with increased food production for domestic needs, but in practice this can happen only when there is substantial rise in productive investment, for land is a non-producible resource whose supply can only increase if investment leads to increased returns per hectare. The deeply disturbing feature of the current thrust for liberalising trade is that it has been taking place within an investment-reducing, deationary regime. I predicted in 1991 that given the deationary climate, food security would be undermined by trade liberalisation and that is precisely what has happened. As soon as trade was liberalised from 1991, within a few years, 8 million hectares of food-growing land had been converted to
4

I have tried to document some historical and current cases of the inverse relation between primary sector exports and domestic foodgrains absorption. See U. Patnaik, On the Inverse Relation between Primary Exports and Domestic Food Absorption under Liberalized Trade Regimes, in J. Ghosh and C.P. Chandrasekhar (eds), Work and Welfare in the Age of Finance (Delhi: Tulika, 2003).

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exportable crops, leading to a fall in foodgrains output per head. But farmers did not benet since their exposure to steeply falling global primary prices since mid-decade has plunged them into spiralling farm debt and insolvency. Over ve thousand farmer suicides since 1998 are only the tip of the icebergthere is a pervasive agrarian crisis and foodgrains absorption in India is back to the level prevailing fty years ago. Trade liberalisation and an export thrust make sense when local and global markets are expanding owing to expansionary developmental policies which promote growth in the material productive sectors, rising employment and incomes. But when the opposite is the case, when both globally and in local economies the dominant policy sentiment is strongly deationaryas at presentthen trade liberalisation spells lowered mass welfare in developing countries.5 Indias experience in the last fourteen years provides a good illustration of this. India, a signatory to GATT 1994, removed all quantitative restrictions on trade and converted to tariffs in April 2001, at the same time lowering the average tariff rate (which had been 100 percent for crops and 150 percent for agricultural processed products) to 35 percent. Moreover Indias thrust for trade liberalisation could not have been worse timed, since advanced-country markets were in recession and global primary product prices went into a steep tailspin in the 1990s, suffering a 40 50 percent decline in unit dollar prices (up to 80 percent in the case of some oil crops) as Table 5 shows. Thirdly, as prices fell for Indian producers of export crops, their access to low-cost credit was reduced under nancial sector reforms. After the nationalisation of banks in 1969, agriculture and small-scale industry were treated as priority sectors and offered bank credit at a lower-than-average interest rate. But that ended with nancial reforms, thrusting farmers into dependence on private moneylenders and high-cost credit (at interest rates ranging from 36 to 60 percent annually). At the same time, fourthly, other crucial input prices, including the power tariff, were raised as part of the neo-liberal dicta on reducing subsidies (which were already meagre compared to developed countries). Reduced tariff protection meant that producers of rice, fresh fruit and dairy products faced the undermining of their incomes from inow of usually heavily-subsidised foreign goods. More than four thousand indebted farmers, mainly cotton farmers, have committed suicide in the state of Andhra Pradesh since 1998, when its government, as a consequence of a Structural Adjustment Programme with the World Bank, raised the power
5

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See my discussion in U. Patnaik, Export-Oriented Agriculture and Food Security in Developing Countries and India, in Economic and Political Weekly, Vol.31, nos.3537 (1996), reprinted in The Long TransitionEssays on Political Economy (Delhi: Tulika, 1999); and U. Patnaik, Global Capitalism, Deation and Agrarian Crisis in Developing Countries, Social Policy and Development Programme, Paper Number 13, United Nations Research Institute for Social Development (UNRISD), October 2003.

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Table 5 Prices of Some Important Traded Primary Products, in US Dollars

1988 Wheat (US HW) Wheat (US RSW) Wheat (Argentine) Maize (Argentine) Maize (US) Rice (US) Rice (Thai) Cotton Groundnut Oil Palm Oil Soyabean Oil Soyabean Seed Sorghum Seed Sugar Jute 167 160 145 116 118 265.7 284 63.5 590 464 297 110 10.2 370 1995 216 198 218 160 159 336 98.2 991 437 479 273 156 13.3 366 1997 142 129 129 133 112 439 316 77.5 1010 626 625 262 111 11.4 302 2000 130 102 112 88 97 271 207 66 788 93.5 71.4 199 102 10.2 276 2001 (Jan.) 133 106 118 80 92 291 179 49.1 74.7 178 99 9.2 Percent change 2001 over 1995 2 38.2 2 46.5 45.9 50.0 2 22.0 2 33.7 2 46.7 2 50.0 2 20.5 2 88.1 2 85.1 2 34.8 2 36.5 2 30.8 2 24.6

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The 2004 price data show that sugar, cotton and jute prices continue to remain at at around 2001 levels while the cereals show some rise. Relates to 1999, and percentage change is 1999 compared to 1995. Source: Global Information and Early Warning System on Agriculture, UN Food and Agriculture Organisation, Food Outlook, various issues from 1986 to 2001; and UNCTAD, Monthly Commodity Price Bulletin, 2001. For the cereals, edible oils and seeds the unit is USD per ton, for cotton and sugar, US cents per lb and for jute, USD per metric tonnes.

tariff ve-fold even as the cotton price fell by half (Table 6). More than a thousand farmer suicides have also taken place in Punjab, again mainly in the cotton belt. The agrarian crisis can be seen as the main reason for the decisive May 2004 electoral defeat of the National Democratic Alliance (NDA) coalition at the Centre and the Telugu Desam Party regime in Andhra Pradesh.6 In recognition of the employment crisis the new United Progressive Alliance (UPA) has promised to implement an Employment Guarantee Act; however the draft legislation leaves much to be desired: it is restricted to those ofcially dened as poor, and lacks a time-frame for implementation. India has exported record volumes of wheat and rice during the last six years, and its share in global exports of rice and wheat has risen quite noticeably. Despite the drastic slowing down of output growth noted in Table 3, India exported 20 million tonnes of
6

The Telugu Desam Party is a regional party which supported and was part of the Bharatiya Janata Party-led NDA coalition.

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Table 6 Suicides of Farmers in Andhra Pradesh by District

No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. District Warangal Ananthapoor Mahaboobnagar Karimnagar Guntur Khammam Medak Adilabad Nalgonda Nizamabad Rangareddy Kurnool Chittoor Krishna Prakasham West Godavari East Godavari Sreekakulam Cuddapah Visakapatnam Unknown Total 1998 77 1 14 31 32 20 15 9 5 9 5 4 3 4 1 1 2 233 1999 7 1 2 10 10 5 3 8 1 1 4 1 3 1 1 58 2000 7 50 25 6 1 3 2 5 10 3 2 1 1 116 2001 28 50 10 30 6 6 8 13 11 11 6 4 2 3 2 5 2 4 1 202 2002 903 10 1220 2 8 457 1 2601 Total 1022 112 51 1297 49 36 28 35 35 478 14 14 5 10 6 6 3 1 4 1 3 3210

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Data up to January 2002, taken from police records as reported by Kisan Sabha (Peasant Union) in February 2002. Partially updated by author by including suicides during 2002 in four districts as reported in The Hindu, Hyderabad edition (6 Jan. 2003). From then until November 2004, about 1,700 additional suicides have taken place for which no district break-up is available as yet, acccording to information supplied by the Andhra Pradesh government to the Commission on Farmers Welfare set up in September 2004, on which the author has served as advisor.

foodgrains during the two years 2002 and 2003, and the share of grain exports in total exports has risen from under one-fth to almost a quarter. Thus higher trade integration is reected in a rising trade GDP ratio. During the severe drought year starting from monsoon 2002, despite grain output being over 30 million tonnes lower than in the previous year, between June 2002 and November 2003, 17 million tonnes of foodgrains were exported by the former NDA government. Supercially it looks as though policies of trade liberalisation have worked. However the crucial fact which is suppressed in ofcial publications and in the writings of pro-reform economistsand this remains true despite the elections and the change in governmentis that the vastly increased grain exports have been

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coming out of more and more empty stomachs, as millions of rural labourers and farmers suffer job loss and income decline. Foodgrains absorption in India today has reached a historic low as a result of the massive decline in the purchasing power of the rural poor which has been brought about by rising unemployment, rising input and credit costs for farmers and exposure to global price declines. And loss of purchasing power is pervasive, affecting both the countrys 158 million wage-dependent workers as well as its 120 million cultivating workers and their families. Targeting the food subsidy from 1997 98 by restricting the supply of cheaper grain to those identied as below the poverty line has also added to the institutional denial of affordable foodgrains, not merely because of the yardstick used, but also because of the gross ofcial underestimation of the numbers of people in poverty, an issue discussed at the end of this paper. The per capita availability or absorption of foodgrains in India has declined alarminglyto only 155 kg annually taking the three year average ending in 2002 03. This current level is the same as it was fty years ago during the First Plan period, and it bears comparison with the situation during 1937 41 under colonialism. After Independence in 1947, the per capita foodgrains availability climbed slowly from 155 kg to 177 kgan achievement not only of Green Revolution technologies but of expansionary policies that slowly raised mass incomes and demand without exacerbating already high inequalities. As the economic reform policies from 1991 eroded mass employment and incomes, we nd a decline to 174 kg by the triennium ending in 1998, and a very steep fall after that to the current abysmally low level of 155 kg. Forty year of effort to raise food availability has been wiped out in a single decadewith over four-fths of this decline coming in the last six years.7 Availability is calculated from the hardest data we have, on net output adjusted only for changes in public stocks and in trade, so by denition it has to cover all nal usesdirect use for consumption as grain and its products, use as feed for converting to animal products (a part of this is exported), and industrial use. Per head availability/absorption (the two are used as synonyms) is now one of the lowest in the world, with only sub-Saharan Africa and some least developed countries registering lower absorption than India. Since urban India has been increasing its average absorption and calorie intake, it is in rural India thay the fall has been steepest. Although grain output per head fell by about 6 kg over the last six years ending in 2002 03, as may be checked from Table 7, the per head absorption has fallen
7

I have discussed this in more detail in U. Patnaik, Food Stocks and HungerCauses of Agrarian Distress, in Social Scientist, Vol.31, nos.78 (JulyAug. 2003); and U. Patnaik, The Republic of Hunger, in Social Scientist, Vol.32, nos.910 (Sept.Oct. 2004).

Table 7 Summary of Annual per capita Foodgrains Output and Availability in India in the 1990s (Three Year Average)
Net availability per head

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Average net output per head Three-year period ending 1991 92 1994 95 1997 98 2000 01 Individual Year 2000 01 2001 02 2002 03 Average for Years 2000 01 & 2001 02 Population (millions) 850.70 901.02 953.07 1008.14 1027.03 1046.44 1066.22 1036.74 Cereals (kg) 163.43 166.74 162.98 164.84 157.79 165.40 140.54 161.63 Foodgrains (kg) 178.77 181.59 176.81 177.71 167.43 177.01 150.09 173.30 Cereals (kg) 162.8 160.8 161.6 151.7 141.42 146.76 148.14 144.51 Pulses (kg) 14.2 13.5 12.6 11.5 9.64 11.61 9.55 10.64

Foodgrains

(kg/yr) 177.0 174.3 174.2 163.2 151.06 158.37 157.69 155.15 2 1.6 2 10.9 2 12.3

(gm/day) 485 478 477 447 414 434 427 425

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Change in Per Capita Availability of Foodgrains Triennium ending 1991 92 to Triennium ending 1997 98 Triennium ending 1997 98 to Biennium ending 2001 02 Total Change, 1991 92 to 2001 02

IN INDIA

200203 was a severe drought year. Source: Government of India, Ministry of Finance, Economic Survey, various years. Population growth rate calculated as 1.89 percent using census population totals of 1991 and 2001. The population gure for 2001 used above is the March 2001 Census total of 1027 million which is 6 million less than the mid-2001 gure of 1033.3 million used in the Economic Survey, 200203 in its Table S-21. Population for 2002 and 2003 in the table above is obtained by applying the growth rate of 1.89 percent to this March 2001 Census gure. The underestimation of population here is deliberate. The reader can check that actual availability per head would be lower by about 1 kg in each year from 2001 using the ofcial population gures.

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much moreby nearly 20 kg over the same period. The average Indian family of four members is now absorbing 77 kg less than it did a mere six years ago, and since in urban India absorption has risen (calorie intake has also risen), it is the rural family which is absorbing much less. This abnormal fall is owing to the loss of purchasing power for reasons already discussed, and it was reected in a massive build-up of unsold public food stocks, reaching 63 million tonnes by July 2002 (40 million tonnes in excess of the normal stocks for that time of year). Rather than starting large-scale food-for-work schemes to restore lost work and incomes, over 17 million tonnes of foodgrains stocks were got rid of by the NDA government at subsidised prices. It went mainly to feed European cattle and Japanese pigs.
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There can be two very different ways that such huge food stocks can be built up: demand growth is normal but output increases much faster; or alternatively output increases normally, but demand is reduced very fast. In both cases, supply exceeds demandbut for very different reasons. As already shown, output growth has actually gone down, but so too has absorption, and to a much greater extent. So it is the second reason, not the rst, which accounts for the present paradox of increasing rural hunger and record grain exports. If rural demand had been maintained even at 1991 levels (forget about any increase) the absorption of foodgrains today would be 25 million tonnes higher than it is, and India would be a net importer. Instead of rural per capita calorie intake declining to below the urban average, the energy intake of rural people would have been maintained. The ofcial position is that there has been a voluntary reduction in foodgrains intake which has led to over-productiona position not supported by the facts. The falling share of food expenditure in total expenditure for almost every expenditure group is cited as proof of every income segment diversifying diets and becoming better off. However the argument is fallacious, for it contains a confusion between necessary and sufcient conditions for improvement.8 These ofcial efforts to re-invent hunger as free choice are also buttressed by spurious estimates of the proportion of the population in poverty. Applying the ofcial denition of the poor, namely all those whose monthly per capita expenditure was lower than the level required to furnish an intake of 2400 calories, we nd from the National Sample Survey data for 1993 94 and 1999 2000, that about 75 percent of the rural population was poor at both dates.
A falling share of food expenditure in total expenditure is a necessary, but not a sufcient, index of the consumer becoming better off. The food spending share can fall when a person is getting worse off because income is falling, and some food expenditure has to be sacriced to buy fuel (which is jointly demanded with foodgrains), incur transport costs in search of work, and so on. Data for sub-Saharan African countries show dietary diversication i.e. falling share of calories from cereals and rising share from animal products, when absolute calorie intake is declining. See Patnaik, Food Stocks and HungerCauses of Agrarian Distress, for a discussion.
8

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The government arrives at much lower gures37 percent and 27 percent in 199394 and 19992000only because it has quietly given up its own denition of poverty, and de-linked its estimates from any energy intake norm. On the spurious assumption that the thirty-year-old consumption basket has not changed, it has simply applied a price index to the 197374 poverty line.9 It does not inform the public that its poverty estimates for 199394 and 19992000 correspond to maximum energy intake levels of 1970 calories and 1890 calories respectively, far below the RDA (required daily allowance) of 2400 calories recommended by the Indian Council for Medical Research which has been the basis of poverty studies. Further, one cannot make a valid comparison over time when the consumption standard is being lowered (see Table 8). The actual expenditure required is higher by seven-tenths than the ofcial poverty line. The ofcial rural monthly poverty line expenditure for year 2004 was Rs344 or Rs11.3 daily, equivalent to 25 US cents at the then-prevailing exchange rate. This paltry amount will actually buy, at most, one bottle of waterbut it is supposed to cover all expenditure on food, fuel, clothing, shelter, transport, health and educationin short all daily spending on goods and services for one person! Estimates of Indian poverty by some individual academics like A. Deaton are even lower, and imply a poverty line of 20 US cents expenditure per day, or one-fth of the World Banks dollar-a-day measure.10 Of course, it is not difcult to adjust poverty gures downwards when the consumption level embodied in the poverty line is depressed to such sub-human levels, for few people can actually survive long below these levelsthose who are there today are on their way to an early death. Chinas ofcial rural poverty line is also absurdly low at 800 yuan per year or 2.2 yuan per day, almost identical to the Indian one. Both Chinas and Indias poverty line expenditure work out to about 90 US dollars per year, less than a quarter of the ad hoc one-dollar-a-day measure of the World Bank. Targeting the food subsidy and targeting employment generation schemes using these ofcial measures leaves out 300 million people in rural India who are genuinely poor. In fact, targeting make no sense in India where actually three-quarters of the rural population is living in poverty. Targeting the food subsidy since 1998 has amounted in practice to the institutional denial of affordable food to the poor.11
9

See R. Nayyar, Rural Poverty in India (Oxford University Press, 1991); and J. Mehta and S. Venkataraman, Poverty StatisticsBermicides Feast, in Economic and Political Weekly, Vol.35 (1 July 2000) for critiques of the ofcial method. 10 See A. Deaton, Adjusted Poverty Estimates for 19992000, in Economic and Political Weekly, Vol.38 (2531 Jan. 2003); and A. Deaton, Prices and Poverty 19872000 in Economic and Political Weekly, Vol.38 (2531 Jan. 2003). 11 See M. Swaminathan, Excluding the NeedyThe Public Provisioning Of Food in India, in Social Scientist, Vol.30, nos.34 (Mar.Apr. 2002).

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Table 8 The Rural Poor as Percentage of Rural Population in India

MPCE (Rupees) 1973 74 (%) Applying Ofcial Denition (those with less than MPCE giving 2400 calories) Ofcial Estimates Corresponding Calorie Intake 56.4 1993 94 (%) 74.5 1999 2000 (%) 74.5 1973/74 49 1993/94 325 1999/2000 570

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56.4 2400

37.4 1970

27.4 1890

49

206

328

Source: Calculated from NSS Reports on Consumer Expenditure, 50th Round 19934 and 55th Round 199900. MPCE is Monthly Per Capita Expenditure.

To summarise, Indias agrarian crisis is the product of misguided public policy. Ill thought out neo-liberal reforms induced the crisis by hitting farmers with higher credit and input costs even as output prices were falling. And having initiated this crisis of falling demand, the economic policy-makers of the new governmentso attached are they to their neo-liberal dogmasagainst all common sense and all logic are busily re-inventing the drastic fall in foodgrains demand as one of voluntary restraint in response to an over-production of foodgrains. They infer that cereals output has to be cut back; and have initiated a freeze on procurement price, further hitting the beleaguered farmers. Now they propose to deliver the coup de grace to Indias farmers by abolishing whatever small subsidies remain, by dropping open-ended state procurement, and by initiating contract farming of commercial crops by domestic and foreign agribusiness concerns in the name of diversication. Of course, these proposed policies are contested (not by the far Right opposition but by those supporting the government) and it remains to be seen whether they are implemented. The policy stance in favour of further liberalisation may seem to be good news for those countries which, though they produce at much higher cost, subsidise their crops heavily and would like to export foodgrains to India displacing the Indian farmer on home ground.12 The same applies to exports of fruits and dairy products. But it would amount to something like a beggar-my-neighbour policy which is infructuous in the longer run. As Keynes had once remarked, if any country deliberately
India produces cereals and cotton at the lowest unit cost of production after China, and could easily out-compete advanced-country producers on global markets if the latters agriculture was not subsidised.
12

THE AGRARIAN MARKET CONSTRAINT

IN INDIA

247

pushes goods to another country which already produces those goods, it amounts to the export of domestic unemployment abroad. How much more unemployment and income loss the Indian farmer and labourer can absorb without an upheaval which rends the social fabric of the country, is a question that those eager to access Indian markets through unfair trade should ask themselves. If people who are already at rock-bottom levels of living are pushed too hard, if their legitimate quest for livelihoods is undermined, if their very right to food is compromised, this is liable to have destabilising consequences. We can do without a deation-obsessed Bruning13 in India today to pave the way to a possible re-ascendancy of Fascist forces.
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The rational solution lies in following expansionary policies to restore purchasing power and revive demand. This is the only solution which is consistent with both humanism and with sound economic theory. When an economy is demandconstrained, when there is high unemployment of labour, unutilised capacity in industry, and food stocks stay unsold while people become hungry, then the logical course is to generate employment through a large-scale revival of development expenditurethrough a universal, and not targeted, employment guarantee scheme. Given the extent of unemployed resources in the country this would not be inationary and would immediately expand particularly rural purchasing power and markets, stimulating the growth of trade. Trade growth under such conditions is quite different from that trade growth which immiserises the poorest of the population. Such expansionary policies will no doubt attract the ire of the international nancial institutions whose economic theory is always illogically deationist no matter how high actual unemployment is. They will ignore all unemployment, farmer suicides and distress, and will put forward the same spurious arguments that public expenditure will crowd out private investment (which to be true requires the assumption of full employment, as nancial interests have been doing since the 1920s).14 But the humbug of nance which Keynes rst attacked,15 cannot be allowed to dictate a continuation of policies which have led to more trade only at the expense of more hunger.
See C.P. Kindelberger, The World in Depression 19291939 (Pelican Books, 1987) for the deationary policies welcomed by international creditors which were followed by Bruning, Germanys Hunger Chancellor, in the face of rising unemployment in the early 1930s, which discredited the Weimar Republic. 14 See R.F. Kahn, The Relation of Home Investment to Employment in Economic Journal, Vol.41, no.2 (1931), pp.193 8; and Kindelberger, The World in Depression 19291939. For an application to Indian policies see P. Patnaik, The Humbug of Finance, Chintan Memorial Lecture delivered 8 Jan. 2000 at Chennai, India [www. macroscan.org], and also published as Swayed by the Humbug Of Finance: Economic Policy Under the BJP-Led Government, in South Asia, Vol.XXV, no.3 (Dec. 2002), pp.13146, and in P. Patnaik, The Retreat to UnfreedomEssays on the Emerging World Order (Delhi: Tulika, 2003). 15 J.V. Robinson, Economic Philosophy (London: C.A. Watts & Co., 1962), p.45.
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