| Publications : |
Sixty years on- Five fold increase in income divide between urban and rural India
- K. Ramasubba Reddy |
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: ‘For everyone rupee growth inincome of non- agri sectors, agri sector income grew by just 48 paise during pre-green revolution period, the growth rate in agri income sector has now further steeply declined to a megre 28 paise for every rupee growth of non- agri income sectors’
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The divergence in growth rates between agri and non-agri sectoral GDPs are ever increasing with no signs of convergence thus making inclusive growth for 60% of the population residing in rural Bharat a mirage. Is this what the planning mandarins and policy pundits pursued for the past 60 years?’
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1a. The Eleventh Plan states: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.”
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1b. As agri sector GDP fell year after year since 1950s from 55% to 17% now, per capita income of agri workforce also dwindled sharply. Studies by the planning commission and others show that while the income ratio between agri workers and non-agri workers during 1951 was 1:1.8, it got widened to 1:5.2 by 2004. |
1c. It is estimated by the Centre for Development Economics that whereas agricultural sectoral GDP stood at nearly Rs.3 lakh crore in 2002-03, it will rise to no more than Rs.4 lakh crore (+33%) a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9 lakh crore to around Rs. 20 lakh crore (+120%), further widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6 lakh crore to Rs.16 lakh crore. The disparity between agri and non-agri sectoral GDP is going to increase from 1:3 in 2003 to 1:5 by 2012.
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1d. Thus in India, Rural Urban divide in incomes have widened five fold during the past 60 years. In the three decades since the country’s “opening up”, prosperity has come to urban India, but so has a widening income gap between urban and rural areas. Rural Indians constitute 70% of the population. |
T1. Recent and projected growth rates in income
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| Particulars |
1993-94to 2004-05 |
2004-05 to 11-12 |
2011-12 to 2020-21 |
| *N.N.P at factor cost |
6.85 |
9 |
9 |
| Per Capita Income |
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| Rural |
2.27 |
3.46 |
3.58 |
| Urban |
7.75 |
11.81 |
12.19 |
| Total |
4.97 |
7.57 |
7.81 |
Source: NCAP-Policy Brief 28- *NNP-Net National Product. |
It is assumed that Indian Economy in next 5 to 15 years would grow at average rate of 9%, which implies 7.57% growth in per capita income during 11th Plan and 7.81 percent growth rate beyond that. Growth rate in urban income would be more than 3 times the growth rate in per capita income of rural people. And the income gap between urban and rural people is widening ad infinitum.
So much for inclusive growth (*Please see Note at the end of the article).
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| 2. Deceleration of Growth in Agriculture |
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After mid 1990s growth rate in agricultural output declined sharply. Over the last 50 years, deceleration in the growth of agricultural output was not witnessed for such a long period as seen after 1994-95. Thus decline in agriculture output growth has been a continuing phenomenon for more than a decade.
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Table (1): Growth rate in GDP agriculture and non agriculture sectors in different periods, percent/year |
| Period |
Total economy |
Non-agriculture |
Agriculture |
| I Pre green revolution |
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| 1950/51 to 1964/65 |
3.95 |
5.59 |
2.66 |
| II Green revolution period |
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| 1965/66 to 1979/80 |
3.62 |
4.40 |
2.76 |
| III Wider technology dissemination period |
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| 1980/81 to 1994/95 |
5.37 |
6.56 |
3.33 |
| IV Post reforms |
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| 1995/96 to 2004/05 |
5.81 |
7.07 |
2.00 |
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The ratio of growth rate of agri sector GDP which was nearly half of (0.48%) of non-agri sector during the pre-green revolution period, increased to nearly 2/3rd (63%) during the Green-revolution period, but again went down to half level (0.51%) during the wider tech dissemination period and fell steeply to 1/4th (0.28%) during the Post-reforms period thus greatly widening the divide between the incomes of work force of agri and non-agri sectors.
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What it means in simple terms is that, ‘for everyone rupee growth in income of non- agri sectors, agri sector income grew by just 48 paise during pre-green revolution period, the growth rate in agri income sector has now further steeply declined to a megre 28 paise for every rupee growth of non- agri income sectors’
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| The output growth rates (Table 2) are lower than the growth rates in rural population and workforce employed in agriculture, clearly implying that per capita income in agriculture is declining. This is one of the major factors explaining rising rural distress in the country. |
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Table (2): Growth rate in output of various sub sectors of agriculture at 1993-94 prices |
| Period |
Crop sector |
Live-stock |
Fishery |
Fruits and vegetables |
Non– horticulture crops |
Cereals |
| 1980/81 to 1989-90 |
2.71 |
4.84 |
5.93 |
2.42 |
2.77 |
3.15 |
| 1990/91 to 1996/97 |
3.22 |
4.12 |
7.41 |
5.92 |
2.59 |
2.23 |
| 1996/97 to 2003/04 |
0.61 |
3.76 |
4.28 |
3.66 |
-0.31 |
-0.11 |
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An indication of slowdown in farm incomes can be obtained by looking at the level and growth of agriculture GDP per agriculture worker (Table-3). During 1970s Value added per worker in agriculture increased annually by 0.7 percent. The growth rate accelerated to 1.18 percent during 1980s. During the last decade agriculture GDP per worker increased merely by 0.29 percent. |
| Table (3): Level and growth in per worker agriculture GDP at 1993-94 prices |
| Period
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GDP agriculture per agriculture worker
( Rs.) |
Growth rate in previous
10 years
(%/year) |
| 1969/70 to 1973/74 |
9049 |
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| 1979/80 to 1983/84 |
9699 |
0.70 |
| 1989/90 to 1993/94 |
10902 |
1.18 |
| 1999/00 to 2003/04 |
11223 |
0.29 |
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That is why the XI five year plan document observes in that: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.”
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| The divergence in growth rates between agri and non-agri sectoral GDPs are ever increasing with no signs of convergence thus making inclusive growth for 60% of the rural population a mirage. Is this what the planning mandarins and policy pundits pursued for the past 60 years? |
b. Another way of measuring change in incomes is to find out how much has the command over a specific bundle of goods, by an average person belonging to the “agriculture-dependent population”, increased over the last decade? As our “benchmark” bundle of goods, let us take that bundle which is actually supposed to be consumed by the average industrial worker according to official statistics. It turns out that between 1994-5 and 2003-04, the per capita command over this bundle of goods by the agriculture-dependent population increased by only 5% in absolute terms, which amounts to virtual stagnation.
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| 3. GDP concept contentious |
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‘The very concept of GDP is itself a contentious concept. Since it includes the tertiary sector, whose “output” can not be independently identified and where therefore the incomes of those engaged are simply taken as “output”. The GDP concept is intrinsically incapable of distinguishing between the production of the economy and the transfers between persons within the economy. An illustration of this point is provided by the fact that GDP went up almost overnight when the fifth and sixth Pay Commission’s awards were implemented without any increase in productivity of the employees.’ |
3b. Does anyone really believe that tertiary sectors like trade (37%), hotels, real estate, finance (17%), community and government services (25%) are so much more productive, relative to real sectors like agri (4.25%) and industrial (15.32%) sectors in the society, that they deserve huge increases in incremental GDP they have received in FY09 (shown in brackets)? |
| The skewed incentives distorted our economy and our society. We confuse means with ends. |
| Our bloated government services sector grew to the point that it accounted for more than 25% of incremental increase in GDP FY 09. |
3e. Per capita income in real terms is estimated at 4.9% in FY 09. Sectorally it works out to per capita income of persons deriving income from in Agri sector to NIL, industry sector to 2% and services sector to 8%. Persons deriving income from COMMUNITY, SOCIAL AND PERSONAL SERVICES SEGMENT GAINED 11%. This segment registered uncommon growth rate, nearly double (13%) compared to previous year (6.8%), fed by Government spending leading to increased fiscal deficit. All other segments showed lesser growth compared to growth rate during the previous year. Such uncommon growth rate in support sector unaccompanied by simultaneous increase in growth rates in real sectors is not healthy and need to be pared else it will have adverse impact on the economic growth in future. Thus highly skewed growth trend was evident, contrary to XI Plan OBJECTIVE OF INCLUSIVE GROWTH. |
Agri sector, which employs 58% of work force, drew a blank thus widening income disparity of workforce in agri and non-agri sectors (read income divide between rural and urban dwellers). |
| 4a. This low growth rate of agriculture is largely due to debilitating policy measures. |
* Expenditure on Rural development declined sharply by half during 1990s.
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* There is an across the- board slowing of output and yield growth since 1991 for the two main groups in Indian crop agriculture. For ‘All Crops' there is slowing of growth in area, production and yield. The period since 1991 marked in time when growth in Indian agriculture was arrested.
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| * There is significant increase in the share of holdings in the smallest category, and a definite decline in the share of holdings of larger size. |
| * Nineteen nineties was marked by low investment in agriculture affecting the rate of growth of output. |
| * Growth in coverage of irrigated area in all the main crop categories has slowed in the nineties |
| * Deficiency in planning, implementation and management point towards poor governance. |
*Research institutions are not delivering the results expected of them.
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| * Funding of publicly-provided 'research and extension' expenditure has not kept pace with the increasing need for such support. |
| * The rate of growth of expenditure on extension services has declined three-fold since the nineties. Investment is insufficient in research for agriculture |
| * Growth of credit to agriculture was only 12 per cent during 1986-87 to 1994-95 as against target of 18%. |
The quantum of flow of financial resources to agriculture continue to be inadequate. The flow of investment credit to agriculture is declining. Small holders having major share in the land holdings receive much less credit than their requirements. |
*. Of the total number of suicide cases reported, 76 per cent of the victims were dependent on rain-fed agriculture and 78 per cent was small and marginal farmers. Furthermore, 76 to 82 per cent of the victim households have reported borrowings from non-institutional sources and the interest rates charged on such debts ranged from 24 to 36 per cent. |
* Stagnant public investment for almost a quarter of a century, a slowing of irrigation expansion since 1991 and a downscaling of production due to farm fragmentation are the main causes for deceleration in agricultural during 1990s. |
* Liberal trade policies in vegetable oils, stagnating productivity and ineffective domestic support price for rainfed crops post 1996. Terms of trade turned against agriculture from 1999-2000 to 2004-05 and sharply reduced profitability of farming. |
| *Fixation of un-remunerative prices for agri produce resulting in losses for farmers. |
* Implementation is the key to agricultural growth.
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| 4b.Causes for fall of agricultural growth |
Public and private investment in infrastructure, including irrigation, technological change, diversification and fertiliser are the four major sources of agriculture growth in India. The progress on these fronts slowed down since the 1990s. |
| Rural Infrastructure
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Increasing farm subsidies are impinging upon the government’s ability to invest in key areas. Even a one-fourth reduction in these subsidies could enable the government to nearly double its investments in critical areas like irrigation and other infrastructure.
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Apart from their misuse and leakages, subsidies in several cases are doing more harm than good through the over-use of irrigation water and imbalances in the use of plant nutrients resulting in wastage and inefficiency.
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Degradation of Natural Resources :
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The main reasons for degradation of natural resources are the increasing pressure of human and animal population on natural resources, policies like free power for irrigation leading to the overexploitation of water resources and the lack of participatory management of natural resources. Fertilizer subsidy has distorted prices in favour of nitrogenous fertilizer causing nutritional imbalances in many areas, adversely affecting land productivity. |
| Failures in Conservation and Improvement of Rain-fed Land : |
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Watershed development is a major strategy to make sustainable use of natural resources in rain-fed areas. But projects are mostly planned and implemented by government departments in a piecemeal and fragmented manner without actively involving the beneficiary communities. |
| Technology Development and Dissemination
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Highly centralized, hierarchical and bureaucratic set-up of ICAR has not responded to the need for change. The available resources have not been optimally utilized for lack of clearly stated strategy and rational prioritization of research agenda. |
Frontline demonstrations by various departments provide clinching evidence of large gaps between what can be attained at farmers’ fields with improved technology and what is obtained with the existing practices, clearly pointing to the large potential for raising output through the effective dissemination of technology, especially in the eastern Gangetic Plains. But this is not happening because of the absence or weak Research-Extension-Farmer linkages. Also, realization of demonstration trials yields at farmers’ fields on a large scale would require technologies adaptable to wider regional variations.
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The flow of improved varieties and production technology for rain-fed crops and regions with relatively low rainfall has been uneven. Research has tended to focus mostly on breeding varieties of individual crops for increasing the yield potential by more intensive use of water and bio-chemical inputs, to the neglect of cropping systems and practices for prudent, efficient and sustainable use of land, water and chemical inputs.
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Market Infrastructure and Regulation |
| In low productivity regions having a large potential, e.g. Bihar, East Uttar Pradesh, Orissa, Assam, Chattisgarh and West Bengal, marketing infrastructure is underdeveloped and private trade is exploitative. As such, the incentives for the adoption of new technology are very weak. On the other hand, the potential of private sector to contribute to agriculture growth and benefit farmers through participation in marketing and processing remained largely unrealized because of various types of restrictions and regulations. |
| Imperfections in Land Market and the Plight of Small Farmers : |
| The small farmers genuinely interested in cultivation do not have resources to purchase land. Land that is leased out is on oral tenancy for short periods which discourages productive investments in land by the tenants. This is harming equity as well as efficiency. |
| Source: Steering Committee on Agriculture-2007 |
4c. These agri debilitating policy measures adopted started the process of gradual decay of Indian agriculture.
The mid-term appraisal of the Tenth Plan says: “The failure in agriculture is a major factor underlying rural distress which has been visible in rural areas and also the slower growth of economy as a whole.” But in fact it is the faulty planning and policies which resulted in the failure of agriculture resulting in rural ruination. |
5. Things were actually even worse for the rural segment of the population. Its virtually stagnant per capita command over “private goods” was accompanied by a decline in the quality of the public services provided to it. The decline of public health facilities, the decline in public education facilities in rural areas, the worsening state of rural infrastructure, and the progressive reduction in the availability of electricity in the countryside, are all well-attested phenomena of this period. This is not just a stagnation but perhaps even a decline in the average living standard of the agriculture-dependent population. |
| 6. ‘Benefits of growth unequally distributed’ |
The benefits of the growth have been unequally distributed across the population, with the rural segment constituting the relatively deprived component; there is also usually an underlying suggestion that the government’s economic policies can and should be accompanied by specific measures promoting a more equitable distribution of the fruits of growth. Why should inequalities suddenly increase so dramatically that sixty percent of the population has on average an unchanged real income even when India allegedly has been “shining”? The crisis of the countryside is intimately linked to the planning and policies themselves. |
| 7. Immediate measures to be initiated |
among several others (Please see Note 3 at the end of the article), are to invest massively in agri infrastructure development such as major and minor irrigation, rural power roads, storage and marketing facilities and rapidly drought proof agriculture with special attention in the development of rainfed areas (RADP)*.Miniscule allotment of a few hundred crore for rural infra development and RADP will not do. Rainfed areas are neglected for long and its development does not brook any further delay. The nation’s food security can not be compromised. |
(*For a profile of rainfed farming and measures needed to improve productivity of rainfed farms, please read the article titled “THE FORESAKEN DRYLAND FARMERS”)
KRSR/021109 |
| *NOTE1: Faulty planning & policies real reason for rural ruination |
a. During the 60 years of Planning between 1950-51 and 2008-09, the share of agriculture in GDP has fallen by more than two third from 55% to 17%, whereas the share of industry has increased from 15% to 20% and the share of services has more than doubled from 30% to 64%. |
| T2.Sectoral GDP Growth since 1950s |
Gross Domestic Product—Sector wise at 1993-94 prices
(%)) |
| Year |
Agriculture |
Industry |
Services |
GDP |
| 1950-51 |
(55) |
(15) |
(30) |
100 |
| 1960-61 |
(51) |
(19) |
(30) |
100 |
| 1970-71 |
(44) |
(23) |
(33) |
100 |
| 1980-81 |
(38) |
(24) |
(38) |
100 |
| 1990-91 |
(31) |
(26) |
(43) |
100 |
| 2000-01 |
(24) |
(20) |
(56) |
100 |
| 2004-05 |
(20) |
(20) |
(60) |
100 |
| Note: Figures in brackets show the GDP of the three sectors as % of total GDP |
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| T3. Sectoral Composition of Gross Domestic Product at Factor Cost during 2000s (Percent) |
| Sector |
2000-01 |
01-02 |
02-03 |
03-04 |
04-05 |
05-06 |
06-07 p |
07-08 Q |
08-09R |
| Agri |
23.9 |
20.4 |
21.4 |
21.7 |
20.2 |
19.5 |
18.5 |
17.8 |
17.0 |
| Ind |
20.0 |
19.3 |
19.9 |
19.4 |
19.6 |
19.4 |
19.5 |
19.2 |
18.5 |
| Services |
56.1 |
56.7 |
58.9 |
58.9 |
60.2 |
61.1 |
62.0 |
63.0 |
64.5 |
| CSMS |
15 |
14.7 |
14.3 |
14.3 |
14.2 |
13.9 |
13.4 |
13.1 |
13.9 |
| GDP@FC |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
Source: Central Statistical Organisation |
