Is India’s Economic Ladder on a Wrong Wall?

Discovery from Lockdown - 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.



So, from where did this deluge of lesser means come?

India was in lockdown for good three months and partial ones after that, unprecedented, though. As a result, a vast majority of the population in the country found it difficult to sustain itself.

 Even basic three meals a day became a luxury. Many of them were ‘daily wage earners’, labourers from micro, small and medium businesses.


The central government provided free ration to 55 Crore (5,500 Million) people. In addition, nearly 28 lakh tonnes of food grains were distributed by 34 states and union territories under National Food Security Act, 2013 (NFSA).


https://m.economictimes.com/news/india/covid-relief-package-government-provides-free-ration-to-55-crore-people-in-may/articleshow/83210027.cms 

 



Though the country has moved on since, the situation is still grim if seen from the holistic construct of the country’s well-being. It continues to be catastrophic.

                                    

“ 

What went wrong, India being the 5th largest economy in GDP terms, still has millions of struggling poor?

                                            

A large population of learned economists suggests various theories about income inequality, failed socialism, misaligned politics, corruptions, etc.

My take is more fundamental than these excuses. Here is why.

Important Questions

India accounts for 7.39 per cent of total global agricultural output. It is the largest producer of Milk and Pulses and the second-largest producer of Wheat, Rice, Sugarcane, Groundnut, Vegetables, Fruits, Cotton and the top exporter of Basmati Rice.

 

Largest producers of food commodities

*mmt = million metric tonnes

https://m.statisticstimes.com/economy/country/india-gdp-sectorwise.php

So, why do farmers live on the thin ice of personal savings?

 

Though not the best industry for global peace, we use the US defence industry as an example to support this argument. The US is the largest producer of defence goods in the world. The country spent $725 Billion on national defence in 2020 and is 11% of federal spending.




https://www.pgpf.org/budget-basics/budget-explainer-national-defense

While the minimum wage in the US is $7.25 per hour, the average hourly wage in the defence sector is about 5 times higher at $39.50. The average defence industry salary is $77,000 per year, and the entry-level positions start at $58,875 per year.




https://www.talent.com/salary?job=defense+industry

Can anyone imagine the owners and employees in the US defence industry as poor and committing suicide due to poverty? So why are owners of Indian farms dying?


More than 50% of India’s population derive their income from agriculture and related activities. But agriculture constitutes only 17% of GDP when India is the largest producer of those mentioned agricultural items. 

The majority of that 50% are not well off-either. There are nearly 10,000 farmer suicides every year. The primary cause of farmer suicide is an overwhelming agricultural debt burden. It is not unknown that most of the population in cities are of family members from a poor farming family in the village.

 

https://www.downtoearth.org.in/blog/agriculture/home-truth-of-indian-agriculture-farm-income-declined-in-india-in-7-years-79533

An average Indian farming household earning in 2012 was Rs. 77,124 per year, which translates to Rs 6,427 per month. It increased to about Rs. 10,000. Still, it is deficient and not sufficient enough for sustained living.


It is no brainer to understand that agriculture in villages is not generating enough income. It is minuscule compared to manufacturing, construction labour, or even trivial work in the cities. The difference between farming and city income can leap from poverty to prosperity.

 

If India was a system of 1.3 billion people undertaking an economic activity to create wealth, then agriculture as its sub-system is utterly failing. The knock-on effect is seen in large scale poverty but remains in leadership’s denial.


Nearly 8 Crore, Indians, are living in extreme poverty. Though statistically, it is about 6%, still the numbers are very high. It is more than the population of the United Kingdom. With the COVID19 pandemic, a large population slipped into poverty. It is estimated to be about 11 Crore. In addition, 40 Crore Indians are living in varying degrees of poverty.

 

https://www.downtoearth.org.in/blog/governance/mass-poverty-is-back-in-india-76348

Many of the recent economists have suggested reducing India’s dependence on agriculture and shrinking the agricultural economy. According to CIA Factbook, Indian GDP composition in 2017 was as follows:

Agriculture (15.4%),

Industry (23%), and

Services (61.5%).


https://m.statisticstimes.com/economy/country/india-gdp-sectorwise.php

 

It is a ridiculous solution for solving poverty as if it is due to agriculture. Of course, manufacturing and others are more financially rewarding, but strengthening agriculture could also be a favourable solution.



Flawed Economics

Those strategic arguments about shifting agriculture into a minor economy are flawed right from the start. It would have been correct if the agriculture sector was replaceable, and India could survive without it.


Some countries have taken this path though they are not a success story by any standards. Like the UK changed its economic landscape from manufacturing to the financial sector. But they are struggling after the financial crisis of 2008.


If someone in the economist community is thinking like Switzerland transformation, they might fail in India. Switzerland did shift from being a textile and manufacturing economy to a hi-tech and financial economy. 


But the scale was minuscule compared to India. Still, when 1.3% of the Swiss population is engaged in agriculture, the government’s subsidy is 70%. It is much higher than mandated in the EU’s at 35%. Also, Switzerland is a more socially homogenous and monolithic society than India. So transforming a traditional Indian agriculturist of 1.3 billion is colossal.


                                 

“

In the name of modernization and modern society, aping the western industrialized economic model is suicidal.

                                        

 

On the contrary, it is easier to strengthen the prevailing agricultural instincts in traditional farming as a solution. After all, the Indian farmers do not have a degree in agriculture to be the world’s largest producers.


Where is the economics of agriculture as in Applied System’s theory?

If India as an entity is a primary system, then agriculture is its central sub-system. However, as the economic numbers about farming mentioned above have proven, it is not the failure of agriculture, but a failure of economic principles applied to agriculture. Thus, agriculture and economics are mismatching, and in the future, Indian economics needs to realign with its sub-systems.



Here is an example of alignment. In Saudi Arabia, every economic activity revolves around oil. The petroleum sector accounts for roughly 87% of budget revenues, 42% of GDP, and 90% of export earnings. Its oil reserves and production are primarily managed by the state-owned corporation Saudi Aramco.

 

https://www.economy.com/saudi-arabia/indicators

 

Oil is on top of all Saudi planning. Whether it is transportation, jobs, immigration, construction, financial systems, and geo-politics, they all act as a sub-system to oil. Currently, there are some diversification attempts, though, but oil will remain the core.

 

“

What is oil to Saudi Arabia, it is agriculture to India.

                                   

Similarly, agriculture needs to be the core of the Indian economy. Hence, all other sectors need to derive their scope from agriculture. Sooner than later, this hierarchy should be understood by the Indians.


Many with a modernist approach to the economy would argue against this proposition as it sounds anti-development or too impractical. Though it is not. However, there are solid reasons that India can still be an economic giant with agriculture at its core.

For Solution .... Read PART II


~ Supplementary Research, Akshita Gupta



To Comment: connect@expertx.org

Please indicate if your comments should appear in the next issue



Support Us -  It's advertisement free journalism, unbiased, providing high quality researched  contents.