September 12, 2017agricultureeconomicshistoryPragati

The Agricultural Crisis is a Jobs Crisis

Ambedkar was right. The only way to save our farmers is to allow jobs for them to be created elsewhere.

This is one of my occasional columns in Pragati in 2017-19

Hey, the prime minister just announced that India will double farmers’ incomes by 2022. How can that be achieved?”

I put this question to a farmer friend a few months ago. His response came instantly:

By reducing the number of farmers by half.”

He might have been flippant, but the underlying logic behind the response is not merely mathematically sound, it is also economically sound. For almost 140 years, it has been clear to India’s policymakers that—as Salil Tripathi put it in an earlier issue of Pragati—“there are too many people pretending to be farmers.” J Krishnamurty quotes the Famine Commission of 1880 noting that in large parts of the country, people greatly in excess for what is really required for the thorough cultivation of land” were occupied with agriculture, and that it was necessary to introduce a diversity of occupations” including manufacturing.

Four decades later in 1918, BR Ambedkar argued that the industrialisation of India is the soundest remedy for the agricultural problems of India.” He was clear that getting people out of agriculture will not only save them from predation, but create economic surpluses in other industries and accumulate capital. Both he and VKRV Rao in 1938 assessed that getting surplus labour out of agriculture would not affect agricultural output but indeed help create surpluses in industry. It was in 1954 that these ideas came into international attention thanks to Arthur Lewis, a Saint Lucian economist, who later won a Nobel Prize for his labours.

So we’ve known what needs to be done for over 140 years. In that period countries such as the United States, Japan, China and Indonesia have managed to substantially reduce the number of people engaged in agriculture and register high economic growth. India has not.

To paraphrase Ambedkar, the agriculture crisis is essentially a jobs crisis. The Indian economy has not created and is not creating enough jobs in industry and services, which means that people have no choice but to remain engaged in agricultural work. There has been some improvement after the 1992 reforms: between 2003 and 2013, the proportion of households whose main income is from agriculture dropped from 63% to 58%. The rural construction sector accounted for much of this shift. Yet to make a substantive difference to outcomes, Neelkanth Mishra estimates that India needs to get around 6 to 7 million people out of farming every year. With an estimated 10 to 12 million people entering the workforce every year, India thus needs to create around 20 million non-agricultural jobs every year, compared to the unconscionable 0.5 million jobs per year right now.

No government can make policies to provide’ that many jobs: the only policy prescription that can work on such a scale is what Kumar Anand advocates: free the farmers. For economic freedom to be actualised, the government must remove the innumerable roadblocks and hurdles: restrictions on sale of agricultural land; on where produce can be sold and traded; costs and corruption in rural areas; and above all, on the administrative and legal webs that create perverse incentives.

This has to be accompanied by structural reforms in the manufacturing, construction and services sectors. How will that happen? It has become fashionable to argue that the China-scale’ mass manufacturing model is over, that automation will anyway replace labour-intensive manufacturing and that the era of globalisation is coming to an end. In a country that still creates regulatory incentives for entrepreneurs to set up 10 separate firms employing 99 people each, such arguments amount to mere apologia and excuses for doing nothing. India is a big economy and its policies have the power to change global trends: labour-intensive mass manufacturing may well enjoy a second wind if India’s governments were to focus on not preventing the creation of 20 million jobs a year.

Read my other Pragati columns here.

From a policy perspective, creating and dealing with the consequences of 40 times more jobs annually go hand in hand. Improving ease of doing business’ by reducing regulatory friction is insufficient—the administrative architecture of the Indian state needs to be recast. Raising MGNREGA allocations and subsiding urban infrastructure won’t cut it—we need 100 new cities. Natural resources cannot be free — they need to be priced to ensure their sustainability. Social harmony can’t become a football to be kicked around to win elections — it needs to be safeguarded with utmost diligence.

If this looks like an agenda for a New India, it’s because that’s what it is.

This is the sixth post in our Brainstorm discussion on The Crisis in Indian Agriculture’. Earlier posts: Intro, 1, 2, 3, 4, 5.

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