Is India’s Economic Ladder on a Wrong Wall?
Solution - PART II
Continued from Is India’s Economic Ladder on a Wrong Wall? - Part I
Were Indians designing a wrong economic system for all these 75 years? When and where did the design go wrong, and worse still, are Indians caught unaware?
It took a crisis like a COVID pandemic to expose the actual economic strength of India. Ever since the COVID19 lockdown had started in India, the growing concern besides the contagion was also about feeding the poor.
Suddenly there seems to appear economically struggling citizens in huge numbers.
Where lies the solution?
Solution based on Systems Theory:
India needs to feed its population, the largest in the world after China. It is the primary purpose of any government. Since independence, subsequent governments have tried but failed to bring down hunger to zero.
There are millions still in abject poverty for some reason or the other, even in good times.
A country like India can still survive with fewer fancy airports and more straightforward buildings. The level of digitization on urban e-commerce novelty purchases can be lower.
Fewer SUVs or luxury cars per capita is still sustainable. Doesn’t it look like a severely socialist approach? But that is required because without food, running an Indian economy is impossible.
Once the population is well fed and has stable housing, they can be left to pure entrepreneurship to run the economy.
According to the Indian Council for Research on International Economic Relations – (ICRIER) paper, titled ‘Housing For India’s Low-Income Urban Households: A Demand Perspective’, still there are more than 17 lakh homeless Indians.
Moreover, there was an estimated housing shortage of nearly 3 Crore in 2018, which has increased from 1.8 Crore in 2012.
It was the mistake Britain made in the 80s. They brought structural change to their economy in pursuit of a knowledge economy.
In 2020, agriculture contributed around 0.59 percent to the United Kingdom’s GDP, 17.83 percent came from the manufacturing industry, and 70.9 percent from the services sector.
The result is seen in the regional and sector-wise inequality. While the nation’s wealth sits in one square mile of London, Wales, Scotland, and Northern Ireland have lost conventional business.
After 40 years of this transformation, the population is still not ready with the necessary education and entrepreneurial skills to run a knowledge economy.
All countries, big or small, need to feed their population first. The world outside India needs food too. Hence, it is imperative that India not only grows its food but also grows food to export.
The good news is that despite all the severe troubles, the Indian agriculture sector is intact. The expertise has not diminished.
The agricultural exports and allied products grew 17.34% to $41.25 billion by 2021. Generally, it has been $35 Billion for the last 3 years.
Agriculture is recession-proof like defence exports. Even in the worst economic crisis, there will be a demand for food. Therefore, those economists trying to decouple the Indian economy from the monsoon’s success will find that the entire economy can be decoupled from the world’s cyclic economy, too.
Thus, there is a vast potential to make India’s farmers rich like those working in the US defence sector.
Shifting aside and slowing down on the agricultural output will be an economic and social disaster for India. It will be the story of its petroleum usage all over again. India has lots of automobiles but not enough production of domestic oil.
India was the world’s third-largest crude oil importer in 2019, spending Rs 6.6 lakh crore. So most of the current account is consumed in the import of oil. Similarly, if we slip on agriculture, relying on food imports will hit the poor most, and poverty will rise.
https://oec.world/en/profile/country/ind#yearly-imports
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Realigning other sectors of the economy to agriculture is the answer.
So, how can other sectors of the economy realign?
The existing manufacturing capabilities can strengthen and modernize agricultural equipment. India cannot see farms still being ploughed with oxen.
Instead, a farmer can be sitting comfortably in airconditioned all-weather tractors. The power shortage in villages can be a thing of the past. If solar and wind power is also harvested, alongside the farms.
Instead of stock exchanges, there could be more commodity exchanges. According to National Commodity and Derivatives Exchange Limited (NCDEX), 8.83 lakh farmer members comprising 320 farmer producers organizations (FPO) have participated in the futures market.
Of these, about 1/3 (130 FPOs representing 3.20 lakh farmers) have used the commodities futures market to hedge price risk.
Best prices for products can only come through efficient financial transactions.
By the way, securities stock exchanges are used by only 5% of India’s population. Mostly, it’s the corporate and institutional investors.
The rural roads, which are the bottleneck for transporting farm produce and a key factor for farming poverty, can have rural high-speed highways.
According to the Ministry of Rural Development, Government of India. July 2011, there is still 25 lakh km of rural roads that need to be paved and maintained. It is about 30% of the total rural roads in the country. It will facilitate faster delivery to the market and port for quality exports.
https://morth.nic.in/sites/default/files/Annual%20Report%20-%202021%20(English)_compressed.pdf
Instead of fancy multi-storey air-conditioned malls in the cities, there can be an all-weather canal system or refrigerated food & grain storage network.
According to the Ministry of Consumer Affairs, over 1,550 tonnes of food grain was damaged in Food Corporation of India (FCI) storage facilities.
By the government’s calculation, it is equivalent to feeding 43,000 small size families for 12 months. It was worst in 2015-16 when the grains wasted was colossal 3,116 tonnes. Letting buffer stock rot in monsoon or sacrificing it to wild animals is pure criminality.
https://thewire.in/government/food-corporation-of-india-godowns-food-grains-waste
All rivers in India could be linked to give farmers an uninterrupted water supply instead of towering statues and monuments. The area under agricultural coverage can be more significant than it is today.
Only 60.43% of India’s total land is under cultivation. It has been around 60% coverage since independence, even though improvement in agricultural technology and science.
Countries like Nigeria and Bangladesh have grown the agricultural land percentage over time.
https://tradingeconomics.com/india/agricultural-land-percent-of-land-area-wb-data.html
Afforestation will bring stability to the Indian weather system and lower the failed crop losses. For now, no one in any government has worked on this plan.
There is a lot of effort required to stabilize the weather system of India. It is a long-term approach, and multiple governments need to make a consorted effort in this direction.
The financial sector can cater to farming loans, insurances, and products, protecting farming lives, livestock and produce.
In addition, developing hi-tech digitization for crop management and aerial spectrometry to monitor ripening will facilitate just-in-time crop management.
Why can’t all the universities have key departments for agriculture research and management? With over 1000 universities in India, of which 54 are central, and 416 state universities, the Indian Council of Agricultural Research (ICAR) recognizes only 3 Central universities and 63 state agricultural universities.
It makes a dismal 10% universities for a country like India.
https://icar.org.in/content/state-agricultural-universities-0
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Millions of MBAs are just selling packaged peanuts and potatoes today.
Millions of MBAs are just selling packaged peanuts and potatoes today. According to a report, only 10% of business-school graduates are employable.
By that calculation, if India produces 3,00,000 management graduates every year, only 30,000 to 35,000 are employable.
Why can’t those frustrated, underutilized talents be used to make more imaginative innovations in logistics, techniques, inventory management, financing, labour management etc.? If the target is to make farming high-earning professions and reliable profiting, many low hanging fruits are already hanging.
Since this is not the present situation, one can conclude that India, as a socio-economic system, has tragically failed to feed its majority. As evident from this pandemic, millions live on wages that do not last more than a few days.
Agriculturist Capitalism
Though our approach may sound skewed as agriculturist and socialistic today, the world over, the icons of capitalist countries are indulging in socialistic measures.
For example, the US government is looking at disbursing a $1.9 trillion bailout package of social benefit for COVID stricken families and businesses.
All governments have done the same, even though they called themselves purely capitalist, during good times.
It could also be argued that during COVID, capitalism had failed. The reasoning behind this argument lies in market-driven capitalism.
But, as the market was in lockdown, there was no market-driven economy. Instead, the social funding survived through government schemes. So, the rejection of the socialistic approach is unjustified.
Let us look at India’s agricultural system from a different perspective. As a comparative example, only if India’s agrarian system were as advanced and innovative as the Indian IT sector wouldn’t India be the world’s food basket? The farm produce would have been reaching nooks and corners of the world.
It would have been competitive and certainly brought prosperity to farmers, who constitute the majority population.
The net multiplier effect on the rest of the people would have made the economy robust. In the same way as the prosperity of millions of IT employees looks like today.
The Indian Information Technology industry has grown leaps and bounds since 1990. It was $100 million then and today stands at $160 billion, employing 35 lakh people.
Indian farmers continued to be paid extremely lowly through the mechanism of minimum support price (MSP).
However, another sector in the US economy is as crucial for their population as agriculture is to India. It is the auto sector in the US. So let’s compare the two to understand where Indian agriculture is going wrong.
Suppose Ford, GM and Toyota were priced so low for making cars that their employees would be committing suicide.
Would the Americans manufacture so many vehicles if an MSP barely met the cost, prosperity and innovation being distant goals? Undoubtedly, the US would have stopped long before, devoid of profit and enthusiasm for innovations.
US auto sector contributes to just 3.5% in GDP while German auto sector contributes 5%. Still, they get suitable attention and focus from the government, even in a free-market economy.
For example, the 2008 financial crisis is where the government bailed out the sector and prevented a complete shutdown.
https://kogod.american.edu/autoindex/2018
Compared to India, a mixed economy, agriculture contributes to 18% of GDP and is still struggling. Indian farmers have been compelled to either bear losses or subject themselves to poverty.
Their resilience to sustain debt burden, poor financing, weather uncertainties is extraordinary while feeding the nation. They must be rewarded by putting the country’s economic ladder on the right wall.
The mistake is in our outlook. All Indian economists have clubbed agriculture alongside other sectors like manufacturing, transportation, services, education, entertainment, etc. As if it is one of them.
This approach of flattening the sectors and ignoring the socio-economic dependency is seriously flawed from the beginning. Instead, agriculture should appear above all other economic activities in India.
This pandemic is a test of the above hypothesis. As evident during the COVID lockdown, all governments, national and states, focusing just on food and its supply chain, after life-saving medical services.
Nothing more came above this priority. Rest everything else in the economic system stood adjourned. Survival, isn’t it?
So, agriculture has been naturally throned higher in the hierarchy than any other sector.
As learning, India will not be wrong to categorize all other parts of the economy as a sub-system of agriculture. The concept of a country will cease to exist if it is not for agriculture.
Migrants as the face of failure
It brings us back to resolving the domestic migrant problem. If farmers were prosperous enough in their farmlands, why would they venture out to cities? Being a migrant is just not about the movement of the poor from villages to cities.
It is also about a fundamental transformation of society, culture, and economics.
In the case of India, it is for the worse. If the migration to cities were creating wealth and prosperity, India would not have witnessed the reverse migration of millions of families at the time of crisis.
Instead, in desperation to survive death due to hunger, young and old, men and women, with children, walked hundreds of kilometres away from cities. Is this not an appropriate measure that migration from farmland to cities is not working for India?
Brighter Future
Post COVID19, India needs to redesign its economic system, which is a sub-system of agriculture. In addition, those 50% population feeding the country should be differently prioritized by the government.
Until 2016, India used to have a separate budget for railways.
There was a vision of Indian Railways then, which came out to be one of the world’s best compared with timeliness, volumes, and travel costs. So railways have been a priority and lifeline of India for the last 175 years.
On similar lines, there needs to be a separate budget and vision for agriculture. Let the subsequent governments share their vision of agriculture and its progress annually.
Let all discuss and debate agriculture with the same passion as the union budget. As it has happened in developed economies, let India not be a story where agriculture becomes so irrelevant that the next generation fails to identify their fruits and vegetable sources.
https://www.bseindia.com/markets/keystatics/KeyStat_ClientStat.aspx?expandable%20=4
~ Supplementary Research, Akshita Gupta
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