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| Agricultural growth | | Road map needed for major crops | |
by Yoginder K. Alagh
THE Dutch disease is known to economists as a fall in agricultural profitability as a consequence of macro developments. The name came from the literature on colonial agriculture attributed to Dutch economist Boeke. This is with apologies from econometricians to our guru Tinbergen and from development economists to our friend Jan Pronk, both Dutch.
By now it is generally understood that the Asian meltdown had a negative impact on most Asian economies and perhaps China and India were the least hurt. We had argued in Chandigarh earlier that the trend towards diversification, which was strong in India in the eighties, was reversed not only in India, but also more severely in most Asian agricultural economies in the second half of the nineties and the Dutch disease followed the Thai collapse in exchange rates and its contagion effects.
Non-foodgrain crops grew slower and animal husbandry sectors also suffered. The growth of crop economies on an average slowed down by around 43 per cent. The middle-level “commercial” farmers, in most Asian economies still small, suffered the most.
I believe that to a large extent this affected the outcome at Cancun. The G 20 and later the G33 stuck together because they had suffered. As Kamal Nath and India successfully led the phalanx at Hong Kong and beyond, it is useful to recognise the context in which we were placed in the Five Interested Parties at the forefront of the negotiations. The argument now is that it is always wise to stay ahead.
The worst of the agricultural cycle of the late part of the nineties is over and Asia is booming again with commodities are overheating. It will be business as usual and tough bargaining is ahead. This is now the time not to be intransigent, but to cooperate. However, I do get worried with the Janus face of statements by official economists.
The approach paper says all the right things on diagnosis, falling profitability, unintended imports of agriculture, falling investments and agriculture as the crucible of the next plan. But simultaneously we see senior economic advisers talking of agricultural imports as the panacea for fighting inflation.
Since most prices in India are below world prices and exports are not easily possible in a distorted global economy, this means subsidising imports at home, even when they are subsidised abroad.
Sometimes this is explicit as in wheat and at other times by policy as in sugar. Anyway, senior macro economists must know that inflation has to be fought with macro strategies, with sharing of sacrifices by all and not only at the expense of agriculture.
Going through Korea and China, I could see that the concern for agriculture is still real. When you read “profitability of agricultural production has declined”, “income diversification, which presents the best possibilities for many farmers to obtain higher incomes, has proceeded only slowly”, “the per capita incomes of some regions actually fell during 1998-2002,” “while poverty among these farming households has diminished rapidly over the past decade, agriculture has also fallen behind relative to the urban sector. In 2003, while urban poverty had fallen to a quarter of its 1993 level, rural poverty was still over half its previous level. Among ethnic minority households in remote and mountainous areas, the level of poverty remained at 80 per cent of its 1993 level. The proportion of the country’s poor living in rural areas has risen”, you think you are in India, but this is from a very respected report in and on Vietnam, the fastest growing and most reforming economy of Asia.
In China, helping out the Rajiv Gandhi Institutes meeting on Indo Chinese trade facilitation, the underlying tension in macro policy was there and for example the interests within the government supporting the cotton farmers were reportedly asking for a 40 per cent tariff protection for their clients which must have led to some hysteria with the macro economic policy-makers, coping with the new textile situation and it will be interesting to see how things get resolved.
In the larger context the time for flag-waving is over. Kamal Nath has eminently succeeded in making the OECD countries to come off their pedestals and make an effort at rationalising subsidies. This did not happen at Hong Kong and beyond, but has to happen. The pressure will then be on us. The golden age is over. For too long our policy makers have been mouthing the old slogans of we tax agriculture.
Remember in Chandigarh, Ashok Gulati and depending on him Sharad Joshi and Punjab agriculture experts getting very angry at me for saying that this wasn’t true for the last decade and more, but now Gulati has resiled from his factually incorrect position. Punjab, I always argue, has to lead in thinking through our global agricultural strategies.
The OECD correctly argue that explicit subsidies are lower than what we say they are, but then they put in a lot of money in many different ways. We have just not learnt those skills. When some of us argue that it is possible to work with tariff, monetary and technology policies or in supporting market infrastructure as originally argued in my Dharam Narain lecture in the early years of this decade, it is not as exciting as making noise on the MSP, or saying “open up India’s agricultural economy and go home”.
If we argue in government reports in Delhi or elsewhere, in spite of all the talk on freedom of information, the argument is bottled up. We need a policy road map for major crops. This is not there and the Planning Commission has to go from diagnosing the problem as in the approach paper to solving it.
On seeds, on fertilizers, on extension and on markets, a lot can be done which will be compatible with the forthcoming WTO regime. No one likes to debate that, since the argument moves away from “ I am your Sarkari Saviour” or “ You Sarkar is the Problem” to real choices.
This way India will neither solve its own problems nor help the developing world to face the pressures which are going to inevitably arise. It has the experience, the skills and has built up the goodwill to do so, but the growth game, particularly in a market economy, requires you to stay ahead in strategies.
It would be a shame if we are found wanting, for attending a meeting of Asia’s best agricultural experts in the very very Far East I found that the admiration for India and what it has done is genuine. It warms the cockles of your heart to be told that your country has done well for the last quarter century, particularly when you were pretty close to the centre of action. Come on Punjab and India, we will do it again.
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