Probably
the most interesting feature of the forthcoming elections is that the
ruling coalition has decided to contest them less on basis of new promises
or vision for the future and much more on the claim that things have
never been better. Whether in the jingles of 'India Shining' or 'Bharat
Uday' or in their more partisan claim of 'more in the last six years
than in the past fifty', the stance is confident and borders on the
audacious. If the NDA does win absolute majority as opinion polls predict,
it will not only claim endorsement for its policies but also popular
approval of the trajectory that the nation's polity and economy have
actually taken since 1996 when the Congress last ruled or at least since
1998 when the NDA finally came to power.
The opposition has of course attempted to refute these claims. The outrage
in Gujarat, the continuing threats to minorities by various factions
of the Sangh parivar and the misuse of POTA were all highlighted in
the political effort to form a secular front to restore communal and
social harmony. But this effort has succeeded only partially. Since
the ruling alliance has posed the choice as one of personality, with
the current prime minister projected as both moderate and with a vision
on development, it is the credibility of NDA claims about the economy
that may well be the deciding factor.
On this some political parties, e.g. the left, have a clear position.
And, to her credit, Sonia Gandhi has concentrated on unemployment and
the plight of farmers in her election speeches. But many others in the
Congress sing a different tune. By claiming the present to be consequence
of economic policies that the Congress initiated in 1991 but which the
BJP 'stole', they provide credence to claims of 'shining' and simultaneously
indicate that the trajectory is unlikely to change whatever the election
outcome. Along with media hype, whether on cricket, on persons entering
politics, or on quarterly GDP figures, such implicit acceptance of 'feel
good' is far more effective in spreading the government message than
those expensive advertisements that have now stopped.
The
first point to note, therefore, is that there is a vocal constituency
that does believe that the economy is doing well. More importantly,
this cuts across most party lines and involves belief that the 'reforms'
of 1991 served them well. The BJP not only wants to appropriate ownership
of this with its 'shining' campaign but also imbue it with the celebration
and aggressiveness that had succeeded on Hindutva. Implicit in this
is that just as with Hindutva, there are inhibitions in this constituency
which if turned from apology to assertion can cut the ground from the
feet of the Congress. Having gone from opposing economic 'reforms' of
the Congress in the last elections to taking it on wholesale in office,
the strategy clearly is to take the winners on board triumphantly while
leaving the opposition struggling to recapture those who lost.
The second point which follows from the above is that benefits of 'reform'
have been uneven. This is, of course, quite well known to laypeople
as also to politicians who need to judge pros and cons before taking
definite positions. However, politicians seek guidance on economic magnitudes
just as they do psephological help. And 'reform' ideologues among economists,
whether in media, business, academia or government, have always nudged
policy judgement by employing spin to discount the downside and magnify
gains. Moreover, since almost all of them believe in 'reform' to the
point of being insensitive to its outcome, their barrage has been remarkably
consistent on economics although fickle on politics.
This
means that, although more confident and aggressive in presentation,
the NDA's 'shining' campaign is built on economic inputs no different
from those which were received by Congress and United Front when they
contested unsuccessfully to retain office. If anything, the main lesson
that 'reform' enthusiasts seem to have learnt from those defeats was
that the data available should not demoralise decision-makers on matters
that might be politically sensitive.
For example, with yield growth slowing down sharply, there was clear
evidence from available data that all was not well with agriculture
when the Congress and UF had gone to polls. Also, the National Sample
Survey (NSS) had shown higher rural poverty in all its nine rounds from
1990-91 to 1998 than in 1989-90. But ingenious 'reformers' had sorted
out such inconvenient detail by 1999. National Accounts Statistics (NAS)
of 1998 had shown GDP growth in agriculture down from 3.5% per annum
during the 1980s to only 2.8% during 1990-91 to 1996-97. But in 1999
a new National Accounts series was released showing 1990-97 growth of
agricultural GDP to be 3.6% per annum. The 53rd round of the NSS conducted
in 1997 had shown 35.5% of rural people in poverty, up from 33.7% in
1989-90. But the NSS round conducted in 1999-00 came up with only 27.1%
rural poverty.
From almost the beginning of their term of office, it has been dinned
into NDA ministers that things have really been rather good on such
matters after 'reforms', and certainly not as bad as they might have
thought while in opposition. 'Shining' is thus as much an outcome of
the skill of 'reformers' to package facts attractively as it is of BJP
audacity. A resulting problem though is that no one really knows the
extent of 'feel good' and, even more, that NDA leaders may be going
to polls actually believing such official statistics. Since agricultural
production and the extent of rural poverty are among the most basic
determinants of rural 'feel good', it is worth discussing the nature
of available data on these, beginning with agricultural production consisting
of crops and livestock.
Data on area and yield of 43 'forecast' crops are collected annually
on a scientific basis and are used to compile the official Index of
Agricultural Production (IAP). Firm livestock data are available only
every five years from the Livestock Census and annual estimates of livestock
products are based on interpolations from these using various ratios
and assumptions regarding produce per animal. But virtually no reliable
data is collected on actual production of many minor crops, including
most fruits and vegetables. For these, production estimates are carried
forward from some assumed base using information on area, seed distribution
and arrivals in major markets. Farm income estimates require further
assumptions regarding inputs, price spreads and losses between the farmer
and final markets.
The data revisions on agricultural GDP in 1999 involved fruits and vegetables.
Till then, although production of these was estimated to have grown
faster than other crops, their small estimated share of only 11-15%
of total crop production meant that there was no significant difference
between the trend of agricultural GDP and that of IAP, based on firm
production data. However, taking advantage of some concern that fruits
and vegetables production was being underestimated, the 'reformers'
persuaded the NAS to revise estimates very sharply upward – almost double
for 1996-97. Also, since then fruits and vegetables production has been
shown growing at about 4.5% per annum.
The implication of this revision, carried out with no reliable data
at all, has been rather dramatic on how agricultural incomes and Indian
diets are now viewed officially. Till the revision, the value of fruits
and vegetables output was assumed to be only a third of that from foodgrains
production. But latest GDP estimates imply that, although grown on less
than a sixth of the area, fruits and vegetables now account for about
the same farm revenue as foodgrains. Further, the National Accounts
Statistics (NAS) also imply that farmers receive about 70% of total
consumer spending, i.e. traders' margins, losses in transit and costs
of transport on fruits and vegetables all add up to only 30% of what
consumers pay.
If all this were true, growing fruits and vegetables now fetches well
over an average of lakh rupees per hectare, and things must indeed be
shining for growers. In fact, based on such understanding, the official
effort today is more on exhorting farmers to diversify than to restore
yield growth in crops such as cereals, pulses, oil-seeds and fibres.
However, although it is true that some horticulturists are doing rather
well, NDA campaigners might be advised not to make too much of this.
Not only do farmers know how much they grow and exactly what price they
get, Indian consumers might be shocked to learn that the NAS now assumes
that they spend three times as much on fruits and vegetables as they
themselves report to NSS consumption surveys.
But what should really worry the NDA is that despite the creative national
accounting, GDP from agriculture and allied activities has hardly grown
during its period in office. At 1993-94 prices, latest NAS estimates
place this at Rs 2861 billion in 1998-99, 2870 billion in 1999-00, 2859
billion in 2000-01, 3053 billion in 2001-02, 2894 billion in 2002-03
and 3158 billion in 2003-04. The 9% growth in the current year is impressive.
But this is from last year's drought, and growth over the five years
is only 10.4%. Since population has meanwhile increased by over 9%,
per capita agricultural GDP this year is placed not even 2% higher than
in 1998-99.
And, of course, matters are much worse considering only those crops
whose data is firm. Although current estimates of foodgrain production
for 2003-04 are a whopping 19% higher than in 2002-03, this is only
4% higher than in 1998-99; and the overall Index of Agricultural Production
(IAP) has increased less than 3% between 1998-99 and 2003-04. The IAP
per capita of rural population is thus actually down 6% from 1998-99
while per capita foodgrains output is down 5%.
Moreover, this is not all. The feature that distinguishes the last five
years, and worries farmers most, is that farm prices have drifted relatively
lower despite low output growth. With agricultural GDP at current prices
shown 27.3% higher in 2003-04 than in 1998-99 against 10.4% increase
at constant prices, agricultural prices increased 15.4%. But during
the same period, non-agricultural GDP is estimated to have increased
39.2% in constant prices and 69.1% in current prices, implying 21.5%
increase in non-agricultural prices. The GDP estimates imply at least
5% terms of trade loss for agriculture over 1998-2004.
Again, matters might be worse since official terms of trade indices
from the Ministry of Agriculture had already shown 5% decline during
1998-2002, when terms of trade from GDP estimates had shown only 2%
decline. But in any case, taking terms of trade into account, the purchasing
power of agricultural incomes has actually declined in per capita terms
during 1998-2004 even by the optimistic NAS figures; and this decline
is by more than 10% if one combines official Indices of Agricultural
Production and Terms of Trade. Thus, despite some diversification, overall
agricultural outcomes have been poor, both on output and prices.
As far as output is concerned, this is because rates of growth of yields
per acre have declined very sharply for almost all major crops. Considering
all the crops covered in the IAP, yield growth had averaged 2.5% per
annum during the 1980s, dropped to around 1.5% by 1998-99, and has averaged
only about 0.5% during the last five years. Underlying this are some
long-term trends, e.g. the plateau reached by ‘green revolution' technology
and inadequate public investment since the 1980s. But matters have worsened
recently on these and other fronts, such as extension and cooperative
credit, because the Fifth Pay Commission bankrupted state governments.
Of course, some states have done better than others on output growth
and the private sector has begun extension activities for some crops
in some regions. But, with very few winners and many losers, agricultural
production performance is not an aspect in which India is shining. However,
the political fallout is not entirely clear since, with most states
opposition ruled, the blame-game will be about Centre-state responsibility
and response. And the debate is likely to be on whose incumbency hurt
more, not what is to be done in the future.
On the price situation, however, the NDA is much more vulnerable. After
all, it was the Centre that caved in at WTO and dismantled quotas prematurely,
exposing Indian agriculture to the international price volatility that
many farmers blame for their woes. And, although attractive support
prices were announced, farmers in most regions did not actually get
any price support. Moreover, contrary to recommendations of some committees
to extend support operations, there are plans to halt support purchases
altogether and link support prices to insurance – a misguided alternative
already being piloted in some districts where Rabi arrivals will coincide
with elections.
Turning to rural poverty, can this have reduced given the poor agricultural
outcomes? Also, given the near vacuum on policy initiatives on agricultural
production and price instability, what are the ideas to deal with this?
The important aspect that needs noting in this context is that rural
incomes are not all from agriculture and that fall in crop prices, although
this hurts farmers, can improve conditions for those who buy food.
The ‘shining' campaign has put particular emphasis on the achievement
on roads and thus of rural connectivity. And available NSS data does
show fairly massive rebound (by over 40%) in rural non-agricultural
employment, particularly construction, transport and trade, during 1997
to 2001-02, after a collapse during 1990-91 to 1997. Moreover, available
data on wages and prices show that the consumer price index for rural
labour increased less than other price indices after 1998-99 and that
real wage rates have increased. Further, rural non-food consumption
is increasing whether one goes by NSS or independent data. Thus, there
are clear signs of rural dynamism if one goes beyond agriculture.
However, paralleling the poor agricultural performance, there is also
evidence of stagnation in agricultural employment while the number of
rural workers dependent on wage employment has increased very sharply
(over 45% since 1991). NSS data in fact show a doubling of current unemployment
among usual rural workers over the period 1997 to 2001-02. Furthermore,
although the ‘shining' campaign has correctly identified the fairly
large antyodaya grain supplies as a major achievement of the NDA, overall
per capita cereals consumption (whether measured by availability or
from NSS consumption estimates) has declined.
This coexistence of some dynamism in rural non-agriculture alongside
declining agriculture makes it difficult to identify exactly what is
happening to overall rural well-being. This is compounded because the
only reliable source of information on this, the NSS consumption expenditure
surveys, have become non-comparable. Pressure from ‘reformers', stung
by NSS results that showed increased rural poverty from 1990-91 to 1998,
caused a change in the nature of the questions asked in these surveys.
Some experimental surveys had shown that asking 365 day, rather than
30 day, questions on items such as clothing and durable goods throws
up improved distribution and that asking 7 day questions on food returns
30% higher food consumption than 30 day questions. So, instead of the
uniform 30 day recall used previously, the 1999-00 NSS questionnaire
was changed to only 365 day for clothing and so on and both 7 and 30
day questions for food. Not surprisingly, this led to much lower measured
rural poverty, by almost 50 million.
Since then much has been written on comparability of subsequent NSS
data, and it is sufficient to note that it is now agreed that rural
poverty did not decrease by anything like 50 million and that, although
the proportion of poor is likely to have declined somewhat, the number
of poor may actually have gone up. More importantly, it is now agreed
that, properly interpreted, NSS data from 1993-94 onward show very large
increase in inequalities (see chart) – across states, between rural
and urban, and within urban areas. Moreover, although evidence on inequalities
within rural areas is less clear, the trend towards lesser inequality
that had begun in the mid-1970s with rural development programmes and
extended public distribution has clearly halted.
But, consistent with the divergent indications on agriculture and rural
non-agriculture discussed above, the most interesting indication from
NSS data from 1993-94 to 2001-02 is that although cultivators and agricultural
labourers have done badly, and the self-employed in non-agriculture
have also not done well, those employed for wages or salary in non-agriculture
have done much better. In fact, salaried employment, proximity to urban
growth, and the ability to migrate emerge as main determinants, not
only of the ability to avoid poverty but also as sources of relative
affluence. Although cultivators still dominate among the richest 20%
in rural areas, the proportion among the rural rich of affluent non-cultivators
with urban connections has increased rapidly.
This should interest those attempting to guess political outcomes. Although
caste and religion continue to dominate networks of patronage, the combination
of poor agricultural outcomes and rapid urban growth in recent years
has shifted the rural balance from traditional elites towards those
who can offer urban access. It is here that the BJP, traditionally much
weaker in rural than urban areas, can be the biggest gainer. Rural India
is definitely not ‘shining'. But access to the shine that exists, which
the ‘shining' campaign has made even more apparent, is now through networks
where that party is stronger. The moot question is whether this shift
in balance merely affects how people tell outsiders how they will vote
or whether this is so deep that it will actually show up in how they
finally vote?
On this, NDA strategists might like to mull over the following about
rural India. It remains overwhelmingly agricultural, is about to go
into elections in a year after severe drought, and is being bombarded
with celebrations of ‘shining' without any solution being offered for
what is definitely a longer-run crisis. There have in the past been
only four years before the current one when national income has grown
more than 8%: 1967-68, 1975-76, 1988-89 and 1996-97. These have all
followed a year of drought and all except 1975-76, when Indira Gandhi
declared an Emergency, were election years. The ruling party suffered
losses every time.