MacroScan (Printable Version) - Agrarian Crisis and Distress in Rural India

Rural India is in acute distress. Though the bulk of the population in rural India has always experienced pitiable living conditions yet, their conditions are much worse at this moment than perhaps at any other time since the mid-sixties as there is not enough work, not enough food to eat and not enough water to drink for the rural population.

Those commentators who at all bother to notice the state of affairs, and they are few and far between, attribute this distress to the prevailing conditions of drought, which gives the impression, that it is a transitory phenomenon, and that it is a curse of nature. In reality however, the drought compounds the distress of the rural population as the increasing distress of the past several years has left them without any cushion.

The magnitude of distress can be gauged from the two Tables given below (both taken from Utsa Patnaik, ‘Foodstocks and Hunger’ mimeo.). The 1990s have not only seen a steady decline in the level of per capita food availability in the country as a whole (taking both rural and urban India together); the absolute amount of per capita food availability in the year 2002–03 was even lower than during the years of the Second World War-years that saw the terrible Bengal famine. Since urban India, on average, has not seen any drastic decline in food availability, the actual situation in rural India, it follows, must be even worse than what these figures suggest. And this situation, it must be emphasized, does not take into account the onset of the current drought. The drought has only accentuated a state of distress in rural India that has been growing ever since the 1990s, that is, ever since the country has embarked on the programme of neo-liberal economic reforms.





Apologists for the neo-liberal policies put forward a curious argument to explain the decline in per capita food availability. This decline, they contend, is because of a change in the dietary habits of the people: they have diversified their consumption pattern from foodgrains towards all kinds of less-elemental and more sophisticated commodities. Therefore, according to them, far from its being a symptom of growing distress, the decline in food availability is actually indicative of an improvement in the conditions of the people, including the rural poor. Some have even gone to the extent of suggesting that with the changes occurring in Indian agriculture in terms of the cropping pattern and use of machinery, peasants and workers do not need to put in hard manual labour. Correspondingly, the need for consuming huge amounts of foodgrains no longer arises. Therefore, the rural population now is no longer bound to follow the old consumption pattern; it can afford to sample more up-market goods, including food items, which it is doing with a vengeance.

The dishonesty of this argument is quite appalling. All over the world, and all through history, as people have become better off they have consumed more foodgrains per capita, not less. True, this increase in foodgrain consumption per capita with increasing per capita incomes does not take the form of larger direct consumption of foodgrains; it takes the form of larger indirect consumption, so that taking direct and indirect consumption together the per capita consumption of foodgrains increases with rising incomes. In other words, people do not consume more corn or more cereals per se. They consume, more poultry products, meat and processed foods but the animals in turn consume more foodgrains, so that people, directly and indirectly, consume more foodgrains per capita. Thus in the former Soviet Union the annual per capita consumption of foodgrains, both directly and indirectly, was as much as 1 ton. This does not mean that a Soviet citizen actually consumed 1 ton of foodgrains per year; he or she consumed only a fraction of it directly and the rest via larger animal products and processed foods. Likewise in the US today the annual per capita consumption of foodgrains, both direct and indirect, comes to about 850 kilograms, which is six times the Indian figure of availability (the availability figure for India today is likely to be larger than the consumption figure since the former includes consumption plus additions to private stocks and such additions must be occurring at a time when public foodgrain stocks are burgeoning).

Within India too when we look at cross-section data across states, it is clear that states with higher per capita incomes have higher per capita consumption of foodgrains, that is, foodgrain consumption rises with income. What is true, and is invariably dragged into the argument by neo-liberal apologists, is that, according to NSS data, per capita consumption of foodgrains is declining over time for all income groups, which is supposed to support the ‘changing tastes’ hypothesis. But, in the case of the higher income groups, this finding loses its relevance because indirect consumption of foodgrains via processed foods etc. is systematically underestimated by the NSS. When we bear in mind the additional fact that the per capita calorie intake has gone down drastically for the entire rural population (see Table 3), and hence is likely to have gone down even more drastically for the rural poor, the fact of growing rural distress stands out in bold relief.



This growing distress has occurred precisely during the very years when the country has accumulated enormous foodstocks; indeed these two phenomena are the two sides of the same coin. The fact that accumulation of such enormous foodstocks has occurred despite a stagnation (or even a marginal decline) in per capita foodgrain output in the country during the 1990s (see Table 1), suggests that the cause of this accumulation is the absence of adequate purchasing power of the rural population. In other words, the period of neo-liberal reforms has seen a significant curtailment of purchasing power in the hands of the working people, especially in rural India, which has caused growing distress on the one hand and an accumulation of unwanted foodstocks in the hands of the government on the other. The fundamental cause of the growing rural distress is income deflation in rural India.

The most obvious and basic cause of this income deflation is the cut in government expenditure in rural areas. Table 4 gives figures of rural development expenditure as percentage of GDP.



The decline, especially after the mid-nineties is quite drastic. Public expenditure is an important source of employment generation in rural India. A number of well-meaning commentators, seeing that the bulk of public expenditure, including even the expenditure which is meant to benefit the rural poor, gets into the hands of the rural rich, often come to the conclusion that the curtailment of such expenditure would have little adverse effect on the rural poor. This is erroneous. No matter to whom the expenditure accrues in the first instance (and of course it is an exaggeration to say that all of it gets into the hands of the rural rich), its multiplier effects do generate jobs for the rural poor. The cessation of such expenditure therefore negatively affects them. And this is exactly what has happened. Perhaps the most important source of injection of purchasing power into rural areas has dried up under the impact of the neo-liberal economic 'reforms' that have brought in their train acute fiscal crisis of the state. In the miasma of confusion that constitutes the so-called 'State versus Market' debate (as if the pro-market reforms entail a 'withdrawal of the State' as opposed to a harnessing of the State for their own benefit by international finance capital and its local allies), what is particularly striking is the fact that the role of public expenditure in generating employment, especially in rural areas, scarcely ever figures. But that is symptomatic of an even deeper malaise, namely that rural India, especially the rural poor, have completely disappeared from the official economic discourse these days, except in the tendentious statistics about decline in poverty!

The decline in rural development expenditure by the government affects rural employment in two very distinct ways: the first, mentioned earlier, is through its immediate multiplier effects; an injection of purchasing power from outside dries up and this fact has a cumulative effect on employment via an overall reduction of purchasing power that is many times the initial reduction. Additionally however, there is another effect that operates over time. The reduction in public development expenditure has an adverse effect on rural infrastructure, on the availability of irrigation and extension facilities, on the availability of cheap inputs, and so on. All these affect the growth rate of agricultural output, and, through this mechanism, the employment situation. (And if the decline in public development expenditure is accompanied by a drying up of rural credit and a reduction in input subsidies whose impact is borne by the producers, then the effect on agricultural growth rate and employment is even more.)

Table 5 gives figures for gross capital formation in agriculture as percentage of GDP. The first point to note is the abysmally low share of investment in agriculture as a percentage of GDP. Since agriculture accounts for roughly a quarter of the GDP and since GCF accounts for roughly a quarter of the GDP, if GCF in agriculture was to be in accordance with this sector's overall weight, then it should have been 6.25 per cent (a quarter of a quarter). In contrast we find a figure that is no more than a mere 1.6 per cent. What is more, even this has been declining through the 1990s. Within investment moreover, the share of the public sector has declined quite sharply. Now, much of private investment goes into high value crops that have a lower employment intensity than the more commonplace agricultural crops, notably foodgrains, that benefit from public investment on irrigation, infrastructure and such like. It follows that the decline in public investment has had an adverse impact on agricultural employment via lowering growth rate not only of agriculture, but also of the employment-intensive crops within it. This is quite separate from its immediate demand-side effects.



The confirmation for a reduction in the growth rate of the more common crops, including foodgrains, is provided by Table 6.



Not only has there been a remarkable decline in the rate of growth of agricultural output, but this rate of growth, whether of agriculture as a whole or of foodgrains, has fallen well below the rate of growth of population in the 1990s while it had exceeded the rate of growth of population in the 1980s. The 1990s were indeed the first decade since independence when per capita foodgrain output in the country declined in absolute terms. The fact that despite this decline the country still faced a massive accumulation of surplus foodgrain stocks shows the extent of the squeeze on rural purchasing power, a squeeze arising from both decline in growth rate itself and from the reduction in the injection of purchasing power from outside.

Direct evidence on employment is provided in Table 7. While the growth rate of employment has declined in both urban and rural India in the 1990s, the magnitude of decline is much sharper in rural India. What is more, the absolute level of the growth rate of employment in rural India is an abysmal 0.58 percent, which is so far below the rate of growth of rural population that one can safely infer a substantial increase in the rural unemployment rate.





Table 8, taken from the Government's own Economic Survey, shows another startling phenomenon, namely an absolute decline in the employment in agriculture. The NSS figures for the same period show a slightly different picture, namely a 0.18 per cent increase in agricultural employment, but even this is so minuscule an increase that we can conclude quite safely that agricultural employment in the 1990s scarcely grew at all.

The picture of an absolute stagnation in agricultural employment and a near stagnation in total rural employment sum up the situation of acute distress in rural India, precisely during the 1990s when the government-controlled media and economists on the pay-roll of the Bretton Woods institutions celebrated the 'achievements of liberalization’.

But it was not just unemployment that plagued rural, especially agricultural, India. In addition there was a drastic fall in prices of cash crop, which was imported from the world market under the new dispensation of 'liberal trade’. The price-fall in the world market in turn was the result of the stagnation and recession in world capitalism, which arose because, among other things, of the ascendancy of a new form of international finance capital. This made a continuation of Keynesian demand management of the post-war years impossible, and favoured the imposition of deflationary measures, which are always much liked by finance, all over the world. The price declines did not for long remain confined to cash crops alone; even foodgrain producers have seen declining prices in the recent years.

The drought has come on top of all this. Its effect would be a further squeeze in the purchasing power of the rural poor leading to acute distress. The fact of drought affecting the demand side even more sharply than it affects the supply side would appear incredible to anyone familiar with the history of the post-independence Indian economy. In the past, a drought always entailed a rise in prices, affecting the rural (and urban) workers adversely through a price inflation relative to their money wages (or what is called a profit inflation). But now the picture is altogether different. The effect of the drought is much greater on the demand side than on the supply side, as a result of which while the drought brings great hardships these are no longer reflected in the figures of inflation.

Most observers have not yet become accustomed to this phenomenon of income deflation, which has the same effect on the living conditions of the group whose income is being deflated as a profit inflation has, but which is a more silent killer. A person's real earnings can be halved either through a doubling of prices or through a halving of the money earnings. The effect in either case is exactly the same but the former attracts greater notice than the latter. Just a few days ago when the rate of increase of the index of wholesale prices, which is quite low at this moment (though that fact is of little consolation since income deflation is being imposed upon the rural population) climbed up by a couple of decimal points there was a hue and cry that inflation was rearing its ugly head once again! But the much more persistent and drastic income deflation that has been imposed on the rural working people throughout the 1990s, ever since the programme of 'liberalization' was launched, has scarcely been noticed at all.

Whenever this overwhelming evidence, drawn from the government's own statistics, on rural distress is presented, the typical reaction, when all other arguments attempting to refute it fail, is: 'If things are so bad, why aren't people rising up?’ There are to be sure the signs of that peculiar involuted resistance that the peasantry alone is capable of, namely suicides, which now occur on a large scale. In addition however it must be borne in mind that distress also saps the capacity to rise up. Manik Bandyopadhyay in a classic Bengali short story, 'Why didn't they snatch and eat?’, set in the context of the Bengal famine, had pointed to this very fact. The reason why people died of starvation in millions, often in full sight of shops and restaurants full of food, was because they were too weak to snatch and eat. Something of the sort may well be happening in rural India today. It is therefore the duty of the progressive forces to instil hope, anger and the will to resist among the distressed people of rural India.



Themes > Features	10.06.2003


Agrarian Crisis and Distress in Rural India

Utsa Patnaik

Rural India is in acute distress. Though the bulk of the population in rural India has always experienced pitiable living conditions yet, their conditions are much worse at this moment than perhaps at any other time since the mid-sixties as there is not enough work, not enough food to eat and not enough water to drink for the rural population. Those commentators who at all bother to notice the state of affairs, and they are few and far between, attribute this distress to the prevailing conditions of drought, which gives the impression, that it is a transitory phenomenon, and that it is a curse of nature. In reality however, the drought compounds the distress of the rural population as the increasing distress of the past several years has left them without any cushion. The magnitude of distress can be gauged from the two Tables given below (both taken from Utsa Patnaik, ‘Foodstocks and Hunger’ mimeo.). The 1990s have not only seen a steady decline in the level of per capita food availability in the country as a whole (taking both rural and urban India together); the absolute amount of per capita food availability in the year 2002–03 was even lower than during the years of the Second World War-years that saw the terrible Bengal famine. Since urban India, on average, has not seen any drastic decline in food availability, the actual situation in rural India, it follows, must be even worse than what these figures suggest. And this situation, it must be emphasized, does not take into account the onset of the current drought. The drought has only accentuated a state of distress in rural India that has been growing ever since the 1990s, that is, ever since the country has embarked on the programme of neo-liberal economic reforms. Apologists for the neo-liberal policies put forward a curious argument to explain the decline in per capita food availability. This decline, they contend, is because of a change in the dietary habits of the people: they have diversified their consumption pattern from foodgrains towards all kinds of less-elemental and more sophisticated commodities. Therefore, according to them, far from its being a symptom of growing distress, the decline in food availability is actually indicative of an improvement in the conditions of the people, including the rural poor. Some have even gone to the extent of suggesting that with the changes occurring in Indian agriculture in terms of the cropping pattern and use of machinery, peasants and workers do not need to put in hard manual labour. Correspondingly, the need for consuming huge amounts of foodgrains no longer arises. Therefore, the rural population now is no longer bound to follow the old consumption pattern; it can afford to sample more up-market goods, including food items, which it is doing with a vengeance. The dishonesty of this argument is quite appalling. All over the world, and all through history, as people have become better off they have consumed more foodgrains per capita, not less. True, this increase in foodgrain consumption per capita with increasing per capita incomes does not take the form of larger direct consumption of foodgrains; it takes the form of larger indirect consumption, so that taking direct and indirect consumption together the per capita consumption of foodgrains increases with rising incomes. In other words, people do not consume more corn or more cereals per se. They consume, more poultry products, meat and processed foods but the animals in turn consume more foodgrains, so that people, directly and indirectly, consume more foodgrains per capita. Thus in the former Soviet Union the annual per capita consumption of foodgrains, both directly and indirectly, was as much as 1 ton. This does not mean that a Soviet citizen actually consumed 1 ton of foodgrains per year; he or she consumed only a fraction of it directly and the rest via larger animal products and processed foods. Likewise in the US today the annual per capita consumption of foodgrains, both direct and indirect, comes to about 850 kilograms, which is six times the Indian figure of availability (the availability figure for India today is likely to be larger than the consumption figure since the former includes consumption plus additions to private stocks and such additions must be occurring at a time when public foodgrain stocks are burgeoning). Within India too when we look at cross-section data across states, it is clear that states with higher per capita incomes have higher per capita consumption of foodgrains, that is, foodgrain consumption rises with income. What is true, and is invariably dragged into the argument by neo-liberal apologists, is that, according to NSS data, per capita consumption of foodgrains is declining over time for all income groups, which is supposed to support the ‘changing tastes’ hypothesis. But, in the case of the higher income groups, this finding loses its relevance because indirect consumption of foodgrains via processed foods etc. is systematically underestimated by the NSS. When we bear in mind the additional fact that the per capita calorie intake has gone down drastically for the entire rural population (see Table 3), and hence is likely to have gone down even more drastically for the rural poor, the fact of growing rural distress stands out in bold relief. This growing distress has occurred precisely during the very years when the country has accumulated enormous foodstocks; indeed these two phenomena are the two sides of the same coin. The fact that accumulation of such enormous foodstocks has occurred despite a stagnation (or even a marginal decline) in per capita foodgrain output in the country during the 1990s (see Table 1), suggests that the cause of this accumulation is the absence of adequate purchasing power of the rural population. In other words, the period of neo-liberal reforms has seen a significant curtailment of purchasing power in the hands of the working people, especially in rural India, which has caused growing distress on the one hand and an accumulation of unwanted foodstocks in the hands of the government on the other. The fundamental cause of the growing rural distress is income deflation in rural India. The most obvious and basic cause of this income deflation is the cut in government expenditure in rural areas. Table 4 gives figures of rural development expenditure as percentage of GDP. The decline, especially after the mid-nineties is quite drastic. Public expenditure is an important source of employment generation in rural India. A number of well-meaning commentators, seeing that the bulk of public expenditure, including even the expenditure which is meant to benefit the rural poor, gets into the hands of the rural rich, often come to the conclusion that the curtailment of such expenditure would have little adverse effect on the rural poor. This is erroneous. No matter to whom the expenditure accrues in the first instance (and of course it is an exaggeration to say that all of it gets into the hands of the rural rich), its multiplier effects do generate jobs for the rural poor. The cessation of such expenditure therefore negatively affects them. And this is exactly what has happened. Perhaps the most important source of injection of purchasing power into rural areas has dried up under the impact of the neo-liberal economic 'reforms' that have brought in their train acute fiscal crisis of the state. In the miasma of confusion that constitutes the so-called 'State versus Market' debate (as if the pro-market reforms entail a 'withdrawal of the State' as opposed to a harnessing of the State for their own benefit by international finance capital and its local allies), what is particularly striking is the fact that the role of public expenditure in generating employment, especially in rural areas, scarcely ever figures. But that is symptomatic of an even deeper malaise, namely that rural India, especially the rural poor, have completely disappeared from the official economic discourse these days, except in the tendentious statistics about decline in poverty! The decline in rural development expenditure by the government affects rural employment in two very distinct ways: the first, mentioned earlier, is through its immediate multiplier effects; an injection of purchasing power from outside dries up and this fact has a cumulative effect on employment via an overall reduction of purchasing power that is many times the initial reduction. Additionally however, there is another effect that operates over time. The reduction in public development expenditure has an adverse effect on rural infrastructure, on the availability of irrigation and extension facilities, on the availability of cheap inputs, and so on. All these affect the growth rate of agricultural output, and, through this mechanism, the employment situation. (And if the decline in public development expenditure is accompanied by a drying up of rural credit and a reduction in input subsidies whose impact is borne by the producers, then the effect on agricultural growth rate and employment is even more.) Table 5 gives figures for gross capital formation in agriculture as percentage of GDP. The first point to note is the abysmally low share of investment in agriculture as a percentage of GDP. Since agriculture accounts for roughly a quarter of the GDP and since GCF accounts for roughly a quarter of the GDP, if GCF in agriculture was to be in accordance with this sector's overall weight, then it should have been 6.25 per cent (a quarter of a quarter). In contrast we find a figure that is no more than a mere 1.6 per cent. What is more, even this has been declining through the 1990s. Within investment moreover, the share of the public sector has declined quite sharply. Now, much of private investment goes into high value crops that have a lower employment intensity than the more commonplace agricultural crops, notably foodgrains, that benefit from public investment on irrigation, infrastructure and such like. It follows that the decline in public investment has had an adverse impact on agricultural employment via lowering growth rate not only of agriculture, but also of the employment-intensive crops within it. This is quite separate from its immediate demand-side effects. The confirmation for a reduction in the growth rate of the more common crops, including foodgrains, is provided by Table 6. Not only has there been a remarkable decline in the rate of growth of agricultural output, but this rate of growth, whether of agriculture as a whole or of foodgrains, has fallen well below the rate of growth of population in the 1990s while it had exceeded the rate of growth of population in the 1980s. The 1990s were indeed the first decade since independence when per capita foodgrain output in the country declined in absolute terms. The fact that despite this decline the country still faced a massive accumulation of surplus foodgrain stocks shows the extent of the squeeze on rural purchasing power, a squeeze arising from both decline in growth rate itself and from the reduction in the injection of purchasing power from outside. Direct evidence on employment is provided in Table 7. While the growth rate of employment has declined in both urban and rural India in the 1990s, the magnitude of decline is much sharper in rural India. What is more, the absolute level of the growth rate of employment in rural India is an abysmal 0.58 percent, which is so far below the rate of growth of rural population that one can safely infer a substantial increase in the rural unemployment rate. Table 8, taken from the Government's own Economic Survey, shows another startling phenomenon, namely an absolute decline in the employment in agriculture. The NSS figures for the same period show a slightly different picture, namely a 0.18 per cent increase in agricultural employment, but even this is so minuscule an increase that we can conclude quite safely that agricultural employment in the 1990s scarcely grew at all. The picture of an absolute stagnation in agricultural employment and a near stagnation in total rural employment sum up the situation of acute distress in rural India, precisely during the 1990s when the government-controlled media and economists on the pay-roll of the Bretton Woods institutions celebrated the 'achievements of liberalization’. But it was not just unemployment that plagued rural, especially agricultural, India. In addition there was a drastic fall in prices of cash crop, which was imported from the world market under the new dispensation of 'liberal trade’. The price-fall in the world market in turn was the result of the stagnation and recession in world capitalism, which arose because, among other things, of the ascendancy of a new form of international finance capital. This made a continuation of Keynesian demand management of the post-war years impossible, and favoured the imposition of deflationary measures, which are always much liked by finance, all over the world. The price declines did not for long remain confined to cash crops alone; even foodgrain producers have seen declining prices in the recent years. The drought has come on top of all this. Its effect would be a further squeeze in the purchasing power of the rural poor leading to acute distress. The fact of drought affecting the demand side even more sharply than it affects the supply side would appear incredible to anyone familiar with the history of the post-independence Indian economy. In the past, a drought always entailed a rise in prices, affecting the rural (and urban) workers adversely through a price inflation relative to their money wages (or what is called a profit inflation). But now the picture is altogether different. The effect of the drought is much greater on the demand side than on the supply side, as a result of which while the drought brings great hardships these are no longer reflected in the figures of inflation. Most observers have not yet become accustomed to this phenomenon of income deflation, which has the same effect on the living conditions of the group whose income is being deflated as a profit inflation has, but which is a more silent killer. A person's real earnings can be halved either through a doubling of prices or through a halving of the money earnings. The effect in either case is exactly the same but the former attracts greater notice than the latter. Just a few days ago when the rate of increase of the index of wholesale prices, which is quite low at this moment (though that fact is of little consolation since income deflation is being imposed upon the rural population) climbed up by a couple of decimal points there was a hue and cry that inflation was rearing its ugly head once again! But the much more persistent and drastic income deflation that has been imposed on the rural working people throughout the 1990s, ever since the programme of 'liberalization' was launched, has scarcely been noticed at all. Whenever this overwhelming evidence, drawn from the government's own statistics, on rural distress is presented, the typical reaction, when all other arguments attempting to refute it fail, is: 'If things are so bad, why aren't people rising up?’ There are to be sure the signs of that peculiar involuted resistance that the peasantry alone is capable of, namely suicides, which now occur on a large scale. In addition however it must be borne in mind that distress also saps the capacity to rise up. Manik Bandyopadhyay in a classic Bengali short story, 'Why didn't they snatch and eat?’, set in the context of the Bengal famine, had pointed to this very fact. The reason why people died of starvation in millions, often in full sight of shops and restaurants full of food, was because they were too weak to snatch and eat. Something of the sort may well be happening in rural India today. It is therefore the duty of the progressive forces to instil hope, anger and the will to resist among the distressed people of rural India.



© MACROSCAN 2003