When the Doha global trade negotiations collapsed in July, many countries shared the blame. But one of the more surprising culprits was India. Indian consumers have suffered during the recent food crisis, with inflation over 12 per cent for some commodities. Removing agricultural trade barriers would surely have helped get cheaper food to India's many millions of poor citizens.
Yet Indian trade minister Kamal Nath declined to open India further to farm imports, claiming he had to protect the "livelihood of millions of farmers" in India. What was behind this decision? Double-digit inflation often sounds the death knell for Indian governments. Elections are due by next May, and the governing coalition barely survived a recent confidence vote.
Essentially, India's politicians fear that liberalising agriculture will expose their farmers to catastrophe if food prices collapse in the future. India has some efficient farmers who would gain from a boost in trade. But vast areas of the agricultural sector are hugely inefficient. Land holdings are small, productivity is low, mechanisation is minimal and big business faces restrictions in consolidating farming. And there is also a humanitarian problem. Over 100,000 Indian farmers have committed suicide in the past decade. Many reasons are cited for this: crop failure, bad monsoons, mounting debts and alcoholism. The government's response has been to award 100,000 rupees compensation to the families of farmers who have taken their own lives.
In an effort to strengthen the agricultural sector earlier this year, India announced a major bailout for farmers, amounting to £7.5bn so far. The money will go towards granting fresh credit to farmers and writing off their old debts. But the bailout is a bad idea for several reasons. While a decade and a half of economic growth has created the illusion that India is a rich country, it is not and it cannot afford this package. And, as economists have argued, financial relief without strings will destroy India's emerging credit culture. It penalises those who repay loans on time and rewards those who do not.
It is already apparent that throwing money at the suicide problem has not solved the crisis. In fact, far from reducing suicides, the relatively high amount of compensation may have created a perverse incentive. Desperate farmers could calculate that their families would be financially better off if they commit suicide than if they live, and some may have taken their lives accordingly. Other reports in the media suggest that in some instances murders are being committed, then passed off as suicides to get the compensation.
But the fundamental problem is that many of India's farmers will never make a proper living on the land that they have. Plots may be too small to be economically viable—even before they are divided up among each farmer's sons with every successive generation. (Daughters have legal rights, but they have to fight to assert them in more traditional areas) The land may not be fertile enough to yield crops. Often it is poorly irrigated, if at all, and vulnerable to the monsoons. And, for any farmer to be able to sell his crop at the right price, he needs labour, transport, roads and a market. The small marginal farmer has access to none of these. Most farmers are hardworking. But not everyone can be the entrepreneur that he is presently required to be.
Indian agricultural policies fail to recognise this, assuming instead that farmers will always remain farmers. These policies serve to imprison people on their land, where they are unlikely to ever improve their prospects. A shift in policy thinking is urgently required.
India's politicians forget that their economy is not static. Thanks to economic reforms, 100m Indians have been lifted out of absolute poverty since 1991. And their fortunes were not transformed by agriculture, which represents barely a fifth of India's GDP, even though two thirds of Indians call themselves farmers. It is urban India that is booming, with jobs in call centres and in manufacturing. According to surveys, some 40 per cent of India's farmers would prefer to earn their living doing something else. Why not devise policies to encourage that?
For those who will keep working on the land, there are other solutions. The technology, investment, capital and infrastructure that Indian farmers need cannot be provided on a small scale. Indian agriculture needs to embrace agribusiness—it is the only way to substantially increase farm productivity. This will mean farmers become employees of others, helping till the land and harvest, sort and package the crop. It will also mean some farmers become part of ancillary industries. The model to follow here is China's town-and-village enterprises (TVEs), which offer better jobs to surplus labour from the farms. Yes, working for others will lose farmers some of their autonomy. But waged labour is a better guarantor of income than marginal farming.
Better agricultural policies could transform the lives of India's poorest farmers. Their sons and daughters could aspire to be software engineers, or join other white-collar professions. And the benefits could reach outside the country's borders. India already produces the largest volume of certain pulses and milk in the world. With the right approach, perhaps it could become a granary for the world too.
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