ARTICLES : |
ORIGINATORS OF AGRARIAN DISTRESS
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ABSTRACT: * Successive governments since 1991 should bear direct responsibility for the present debacle because it is their systematic and deliberate implementation of policies adverse to the growth of farming that has led to agrarian distress. |
* In 1994, redefinition of “priority sector” to include large institutional borrowers led to farmers and small producers being denied adequate bank credit. This drove them increasingly into the arms of moneylenders.
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* By 1996, rural development expenditure was reduced as a per cent of Net National Product to 2.6 compared to nearly 4 per cent during the seventh plan.
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* During the pre-reform Seventh Plan. During the NDA period, rapid removal of protection to agriculture between 1996 and 2001 resulted in farmers being exposed to the fury of global price declines.
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* The NDA government exported 22 million tonnes out of stocks during the worst drought period of 2002 and 2003, at a highly subsidised rate for feeding European animals, at a time when the average Indian family was absorbing 120 kg less of grains a year.
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* Nutrition data from the NSS 61st Round (2004-05) show that a person needed to spend Rs.795 in rural and Rs.1,000 in urban India a month to access 2,400 and 2,100 calories respectively, while the severely underestimated official poverty lines for that year are only Rs.356 and Rs.539, half the actual requirement, at which only about 1,800 calories could be accessed. It is easy to claim that poverty has come down simply by reducing the consumption standard but this is a dubious method. |
* The proposal to remove the so-called “above poverty line” persons, who are actually very poor, from the ambit of the PDS will simply worsen the problem of deepening hunger.
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Successive Finance Ministers since 1991 – Manmohan Singh in the P.V. Narasimha Rao government, P. Chidambaram in the United Front government, Yashwant Sinha in the NDA government and again Chidambaram for five budgets in the UPA government – have pressed relentlessly on with deflationism, focusing the attack on the vast unorganised sector, including farmers. This sector is an easy target of misguided expenditure deflation because its very nature makes organisation and resistance difficult. A relatively well-functioning agricultural sector up to the early 1990s has been in a shambles – where food output is stagnant and lakhs of farmers commit suicide – in front of our very eyes. |
Every single one of the persons mentioned bears direct responsibility for the present debacle because it is their systematic and deliberate implementation of policies that has led to the outcome we observe.
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To this day no steps have been taken to reverse the basic policy thrust towards expenditure deflation and trade liberalisation – on the contrary, these are still being touted as the “solution” to the very problems they have created. Why did the farmers’ debts to banks become bad debts in the first place? Are institutional debts (debts to banks and cooperatives) the main form of indebtedness that is still driving farmers to suicide?
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Originators of Agrarian Distress
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The story starts from 1991 when Manmohan Singh as Finance Minister started hounding farmers by reducing the fertilizer subsidy, cutting development expenditures so sharply that per capita GDP actually fell in one year and the death rate rose in one State, virtually doubling the issue prices of foodgrains from the Public Distribution System over three years in order to cut the food subsidy (which predictably boomeranged since the poor were priced out and the first episode of build-up of 32 million tonnes of unsold food stocks took place by 1995). |
By redefining priority sector lending, the M. Narasimhan Committee Report on financial liberalisation marked a continuation of the relentless attack on farmers and small producers.
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After Indira Gandhi’s bold move for bank nationalisation in 1969, agriculture and small-scale industries had been treated as priority sectors, which received institutional credit at easier rates of interest: all that was scrapped in 1994, redefinition of “priority sector” to include large institutional borrowers led to farmers and small producers being denied adequate bank credit. This drove them increasingly into the arms of moneylenders, who charge between Rs.3 and Rs.5 per Rs.100 a month as interest, which resulted in interest exceeding principal in a matter of two to three years. |
By 1996, Manmohan Singh reduced rural development expenditures as a per cent of Net National Product to 2.6 compared to nearly 4 per cent during the pre-reform Seventh Plan. Through multiplier effects, the decline of rural employment and incomes as a result of expenditure deflation, had already been affecting this sector badly. When the United Front was in power for a brief period, it introduced the disastrous policy of targeting the food subsidy by arbitrarily dividing the population into those “above” and “below” poverty line. This excluded millions of the actually poor from access to affordable foodgrains.
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Removal of protection to Agriculture : |
During the NDA period, rapid removal of protection to agriculture between 1996 and 2001 – before the deadline set by the World Trade Organisation, resulted in farmers being exposed to the fury of global price declines. Between 1996 and 2001, prices of all primary products (cotton, jute, food grains and sugar) fell by 40 to 60 per cent and farmers who had contracted private debts in particular, became insolvent. The syndrome of hopelessly-indebted farmers committing suicides in Andhra Pradesh and Punjab started in 1998 and rapidly spread to other areas where cultivation of cash and export crop was predominant. The crash in pepper, coffee and tea prices came a few years later after 1998 and farmer suicides in Kerala and insolvency of tea estates in West Bengal date from around 2002.
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The UPA government has also exacerbated the problems of export crop producers by entering into regional trade agreements without consulting the States that would be most affected by those agreements. The RTA with Sri Lanka, for example, has meant coffee and coconut products pouring in from Indonesia and Vietnam through the open door of Sri Lanka. |
In the meantime, falling rural incomes meant a sharp reduction in aggregate demand for basic foodgrains. As the purchasing power of the masses fell, the second episode of build-up of unsold public food stocks occurred, this by July 2002 was a massive 64 million tonnes.
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The NDA government exported 22 million tonnes out of stocks during the worst drought period of 2002 and 2003, at a highly subsidised rate for feeding European animals, at a time when the average Indian family was absorbing 120 kg less of grains a year. It is hardly surprising that the 61st Round NSS data show a steep rise in the proportion of undernourished people not only in rural areas but also in urban India compared to 1993-94.
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Most alarming is the situation of the Scheduled Castes and Tribes, among whom extreme poverty has increased dramatically during the reform decade, with over three-fifths moving under the lowest level of intake, 1800 calories, by 2004-05 in urban India. |
Statistical trickery : |
How committed the government is to food security can be judged by the fact that it has been systematically running down the PDS, and cutting the allocation of grains from the Central pool to the States. The theoretical basis for allocation cuts is the claim that poverty, both rural and urban, has declined. But this claim itself is based on statistical trickery and has no grounding in reality. On the contrary, poverty has risen steeply between 1993-94 and 2004-05. |
The Planning Commission procedure for poverty estimation is unacceptable because it has abandoned its own nutrition norms for measuring poverty. It used these norms only once, over three decades ago in 1973-74, to fix the poverty lines of Rs.49 and Rs.56 (consumption expenditure) for rural and urban India. All the data from the NSS every five years, showing the actual current cost of accessing the nutrition norms, have been completely ignored for 30 years. Instead, the poverty line determined in 1973-74 are simply updated using price indices, which means multiplying those lines by a factor lying between seven and 10 respectively to give Rs.356 and Rs.539 as the official poverty lines for rural and urban areas by 2004-05. This method does not capture the actual change in the cost of accessing minimum nutrition; nor does the government or the Finance Commission ever use only price index adjustment for fixing the salaries of public employees. |
Nutrition data from the NSS 61st Round (2004-05) show that a person needed to spend Rs.795 in rural and Rs.1,000 in urban India a month to access 2,400 and 2,100 calories respectively, while the severely underestimated official poverty lines for that year are only Rs.356 and Rs.539, half the actual requirement, at which only about 1,800 calories could be accessed. It is easy to claim that poverty has come down simply by reducing the consumption standard but this is a dubious method. |
This is similar to claiming that academic performance has improved because the percentage of failures in university examinations has gone down, say, from one-third to nil over 30 years after lowering the pass mark from 40 to 10 over the same period. Most bizarre is the claim by some academics that “extreme poverty” defined as persons spending below half the official poverty line, has disappeared by 1999-2000. Looking at the data we find that no households could survive at spending levels that give only around 1,000 calories or less daily – just as there would be zero failures in examinations if the pass mark is lowered to zero. |
Given the reality of deepening undernutrition, the Budget should have faced up to this reality and made provisions for an increase in the food subsidy to expand the operations of the PDS. Instead, precisely the opposite steps have been taken. In real terms, the food subsidy is stagnant, and the proposal to remove the so-called “above poverty line” persons, who are actually very poor, from the ambit of the PDS will simply worsen the problem of deepening hunger. UTSA PATNAIK |
Courtesy-FRONT LINE- V25/6 MAR, 15-28, 2008 (Condensed) |
