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The realities of India’s fields and farms

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India’s economy planners when discussing agriculture are no closer to farm and field realities. That much is clear from a reading of the ‘Review of The Indian Economy 2010-11’, by the Economic Advisory Council to the Prime Minister, released to the public on 2011 February 22.

The document had, I suspect, been finalised and was waiting for the data from the Second Advance Estimates of agricultural production for the 2010-11 year. A cursory analysis of this forms the ‘Agriculture’ section of the ‘Review’ [read the relevant portions of the Review here].

Chairman of the Economic Advisory Council to the Prime Minister, C Rangarajan (centre), flanked by members Suman Bery (right) and Saumitra Chaudhuri releasing the 'Review of the Economy 2010-11' in New Delhi on 21 February 2011. Photo: The Hindu/V V Krishnan

Chairman of the Economic Advisory Council to the Prime Minister, C Rangarajan (centre), flanked by members Suman Bery (right) and Saumitra Chaudhuri releasing the 'Review of the Economy 2010-11' in New Delhi on 21 February 2011. Photo: The Hindu/V V Krishnan

It is in the ‘Concluding Comments’ section concerning agriculture in India that the intent and direction of the current government are underlined. There are a few strong pointers:

* “As against the target of average 4 per cent growth during the Eleventh Plan period, the actual average growth is likely to be slightly less than 3 per cent.” Which only indicates that ‘growth’ in the agricultural sector will continue to be seen as a primary consideration, outweighing the sustainable use of natural resources management. The growth insistence will also mean the continued support of high-input and financially burdensome agricultural methods.

* “Somewhat in parallel, the per capita availability in grams per day has also not gone up in a context where per capita income has been rising quite strongly.” The Economic Advisory Council has not been honest enough to draw the needed connections – between population growth and therefore foodgrain demand, and the need for urgently revisiting the basis for planning agricultural cultivation at the district level.

* “The international prices for grain have been very volatile and much elevated in recent times and therefore higher levels of domestic output is an even more important factor to consider in the context of domestic food security.” This is spot on. Why doesn’t the rest of the Concluding remarks section build on this?

* “Attention must be focused on building rural infrastructure, developing technologies that are appropriate to the region which have to be disseminated – delivered in an efficient fashion. The institutions that are enjoined with this task have to be activated in a more energetic fashion.” The Concluding Remarks does not build on the above point because of such weak, vague and misguided points as this one. ‘Technologies’ and ‘Infrastructure’ for growth at 4%? Or for food security?

* “The liberalization of the economy has benefited the farm sector and as a result the terms of trade for agriculture are no longer adverse.” This is one of the Big Contradictions of the Review. No, the liberalisation of the economy has NOT benefited the farm sector. Has the Government of India and its economic planners so quickly and so completely forgotten that 200,000 farmers have committed suicide over the last decade?

* “Investment in the farm sector has also picked up substantially and capital formation as a percentage of agricultural GDP has more than doubled in the past decade.” To what end? To achieve the 4% growth target which is denominated in ‘technology’ and ‘infrastructure’ in the agri sector? Has there been even 2% annual growth in the incomes of the cultivating households?

Demonstrators shout slogans as they hold steel plates during a protest rally in New Delhi February 23, 2011. Tens of thousands of trade unionists, including those from a group linked to the ruling Congress party, marched through the streets of the capital on Wednesday to protest food prices, piling pressure on a government already under fire over graft. Photo: Reuters/Parivartan Sharma

Demonstrators shout slogans as they hold steel plates during a protest rally in New Delhi February 23, 2011. Tens of thousands of trade unionists, including those from a group linked to the ruling Congress party, marched through the streets of the capital on Wednesday to protest food prices, piling pressure on a government already under fire over graft. Photo: Reuters/Parivartan Sharma

* “There seems to be evidence that better quality seeds and superior cultural practices are available, but the delivery system for translating these to the field are lagging.” This is where the threat in the Review lies. What delivery systems and who owns them?

* “A major hurdle in agricultural development is the inefficiency of the delivery systems. There is a plethora of institutions in research, extension, credit and marketing. However, efficacy of these institutions to deliver goods and services to the country’s vast small and marginal farms section is quite limited. This is a serious cause for concern.” True. How to support this point and rescue it from the overall contradictions of the Concluding Remarks?

* “There is need therefore, to attune these various institutions to the emerging agrarian structure, which is progressively identified with the small and marginal farmers.” True.

* “A two-fold strategy is indicated for this purpose. One, to encourage farmer’s collaborative efforts as in cooperatives, or more recently in producers companies, and vertical integration of production and marketing by suitable models of contract farming.” Emphatically NO. This is not the answer.

* “Two, at the institutional level, the organizational changes to cut down the cost of transactions (e.g. through a flexible and inclusive business correspondent model) and the use of information technology for the same purpose needs to be encouraged.” True with reservations. Infotech is a means and not an end.

* “In addition both for purposes of ensuring remunerative prices for farmers as well as an anti-inflationary measure, the strengthening of organized retail, as well as use of these outlets for public distribution along with the strengthening of the existing public distribution networks, are measures that need to be tried out seriously.” This is dreadfully ill-advised and apparently motivated by the FDI-seeking stand of the central government. This point of view must be stopped immediately. Dozens of farmers’ cooperatives and small traders have clearly and vociferously rejected FDI-driven organised retail in India. This point holds the back door open for the entry of corporate retail and will be used to legitimise retail control over access to food to vulnerable rural populations.

* “Local procurement by State Government agencies provides an incentive for farmers to grow grain. Coarse cereals are a varied commodity and tastes differ across States. There is also a problem in handling coarse grains.” Yes, yes and no. This point must be supported and rescued from the other corporate-oriented directions of the Review.

[Second Advance Estimates are available from here.]

India’s economy planners when discussing agriculture are no closer to farm and field realities. That

much is clear from a reading of the ‘Review of The Indian Economy 2010-11’, by the Economic

Advisory Council to the Prime Minister, released to the public on 2011 February 22.

The document had, I suspect, been finalised and was waiting for the data from the Second

Advance Estimates of agricultural production for the 2010-11 year. A cursory analysis of this forms

the ‘Agriculture’ section of the ‘Review’ (read the relevant portions of the Review here).

https://makanaka.wordpress.com/agriculture-india-review-2010-11/

It is in the ‘Concluding Comments’ section concerning agriculture in India that the intent and

direction of the current government are underlined. There are a few strong pointers:

* “As against the target of average 4 per cent growth during the Eleventh Plan period, the actual

average growth is likely to be slightly less than 3 per cent.” Which only indicates that ‘growth’ in

the agricultural sector will continue to be seen as a primary consideration, outweighing the

sustainable use of natural resources management. The growth insistence will also mean the

continued support of high-input agricultural methods.

* “Somewhat in parallel, the per capita availability in grams per day has also not gone up in a

context where per capita income has been rising quite strongly.” The Economic Advisory Council

has not been honest enough to draw the needed connections – between population growth and

therefore foodgrain demand, and the need for urgently revisiting the basis for planning agricultural

cultivation at the district level.

* “The international prices for grain have been very volatile and much elevated in recent times and

therefore higher levels of domestic output is an even more important factor to consider in the

context of domestic food security.” This is spot on. Why doesn’t the rest of the Concluding remarks

section build on this?

* “Attention must be focused on building rural infrastructure, developing technologies that are

appropriate to the region which have to be disseminated – delivered in an efficient fashion. The

institutions that are enjoined with this task have to be activated in a more energetic fashion.” The

Concluding Remarks does not build on the above point for the weak, vague and misguided point

here. ‘Technologies’ and ‘Infrastructure’ for growth at 4%? Or for food security?

* “The liberalization of the economy has benefited the farm sector and as a result the terms of

trade for agriculture are no longer adverse.” This is one of the Big Contradictions of the Review. No,

the liberalisation of the economy has NOT benefited the farm sector. Has the Government of India

and its economic planners so quickly and so completely forgotten that 200,000 farmers have

committed suicide over the last decade?

* “Investment in the farm sector has also picked up substantially and capital formation as a

percentage of agricultural GDP has more than doubled in the past decade.” To what end? To

achieve the 4% growth target which is denominated in ‘technology’ and ‘infrastructure’ in the agri

sector? Has there been even 2% annual growth in the incomes of the cultivating households?

* “There seems to be evidence that better quality seeds and superior cultural practices are

available, but the delivery system for translating these to the field are lagging.” This is where the

threat lies. What delivery systems and who owns them?

* “A major hurdle in agricultural development is the inefficiency of the delivery systems. There is a

plethora of institutions in research, extension, credit and marketing. However, efficacy of these

institutions to deliver goods and services to the country’s vast small and marginal farms section is

quite limited. This is a serious cause for concern.” True. How to support this point and rescue it

from the overall contradictions of the Concluding Remarks?

* “There is need therefore, to attune these various institutions to the emerging agrarian structure,

which is progressively identified with the small and marginal farmers.” True.

* “A two-fold strategy is indicated for this purpose. One, to encourage farmer’s collaborative

efforts as in cooperatives, or more recently in producers companies, and vertical integration of

production and marketing by suitable models of contract farming.” Emphatically NO. This is not the

answer.

* “Two, at the institutional level, the organizational changes to cut down the cost of transactions

(e.g. through a flexible and inclusive business correspondent model) and the use of information

technology for the same purpose needs to be encouraged.” True with reservations. Infotech is a

means and not an end.

* “In addition both for purposes of ensuring remunerative prices for farmers as well as an

anti-inflationary measure, the strengthening of organized retail, as well as use of these outlets for

public distribution along with the strengthening of the existing public distribution networks, are

measures that need to be tried out seriously.” This is dreadfully ill-advised. This point of view must

be stopped immediately. Dozens of farmers’ cooperatives and small traders have clearly and

vociferously rejected FDI-driven organised retail in India. This point holds the back door open for

the entry of corporate retail.

* “Local procurement by State Government agencies provides an incentive for farmers to grow

grain. Coarse cereals are a varied commodity and tastes differ across States. There is also a

problem in handling coarse grains.” Yes, yes and no. This point must be supported and rescued from

the other corporate-oriented directions of the Review.

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India’s ‘growth’ and the lifting of showboats

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The doctrine of growthism as the best tonic for India has been given new impetus by Jagdish N Bhagwati, Senior Fellow for International Economics at the Council on Foreign Relations, an American think tank.

The CFR has reprinted an article written by Bhagwati titled ‘India’s Reform and Growth Have Lifted All Boats’, originally published by the Financial Times (available here if you have a subscription).

Bhagwati’s paean to an economy judged by whether it does 8% or 9% per quarter is the latest argument in a season of several, from economists and heads of industry, from policymakers and international finance experts.

What is different about Bhagwati’s short article is that it very quickly hits out at those he has called “the reform naysayers” in India. “Such voices present India with a double challenge: they misrepresent the successful way growth has cut India’s poverty, but more importantly their critiques stand in the way of a much needed new wave of reforms, which would further benefit India’s poorest.”

Bhagwati has said that India’s liberal reforms actually pulled 200 million out of poverty, that had these reforms only started earlier more would have been pulled out, that improvements are shared by nearly all underprivileged groups and that, most important for him, “being poor is now seen by India’s underprivileged as a removable condition”.

This trend, typified by Bhagwati’s recent article, of pointing to impressive quarterly growth rates and inferring their impacts on the poor and on wage labour by citing a few studies, needs to be understood and countered.

Writing in People’s Democracy (02 January 2011) C P Chandrasekhar pointed out that “India is a country still plagued by hunger with among the highest rates of malnutrition in the world” (‘Growth for Whom?’). Deprivation in other forms such as lack of access to clean drinking water, sanitation, basic health facilities and school education still afflict a large proportion of the population.

Chandrasekhar has said that the benefits of high growth for the best part of a decade must be accruing to a small minority, resulting in increased inequality. Unfortunately, data of a kind that helps us track inequality is difficult to come by. Surveys of consumption expenditure do not cover the rich and therefore tend to underestimate the extent of inequality.

It is such shortcomings in our ability to measure patterns of consumption that allow the trend, displayed by Bhagwati, to prosper. However, there are signs enough of increased inequality in India.

The first is that the high growth of the last few years has been accompanied by a sharp rise in the gross savings rate, Chandrasekhar has said, of 5.5 percentage points to 29.1 per cent between 2001-02 and 2004-05. The rate rose by another 4.2 percentage points between 2004-05 and 2007-08. “Since it is the richer sections that have incomes that are substantially in excess of their consumption needs which can be saved, this sharp rise in the savings rate points to an increase in incomes among the richer classes.”

This is but one among the many substantial realities whcih the proponents of growthism for India cannot reconcile with their arguments for more reform.

The luxury auto madness of Aurangabad and Kolhapur

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Aurangabad city's Shahganj area: the wide and clear avenues, spacious squares, well-regulated traffic and absence of pesky pedestrians and vendors make it a pleasurable drive for the privileged BMW/Mercedes owner.

Aurangabad and Kolhapur, both cities in the state of Maharashtra, western India, have begun an alarming new trend in conspicuous consumption which is extraordinary even by the profligate standards of India’s new urban rich. Groups of residents in both cities have banded together to set records for the number of luxury cars – BMW and Mercedes Benz – ordered in a single day!

In October 2010, a group of wealthy Aurangabad residents took delivery of 150 Mercedes Benz saloons, in a deal worth an estimated 650 million rupees for the auto brand and its regional dealer (based in the city of Pune, Maharashtra). Also in October 2010, a group of wealthy Kolhapur residents decided that if there is to be a mass purchase of luxury cars, their city should be second to none. In early December 2010, according to news reports, the group had swelled to 180 and they were aiming for 200, each of whom would place an order for a Mercedes Benz. Meanwhile, the wealthy residents of Aurangabad decided now to make a mass order of 101 BMW saloons (a deal worth an estimated 400 million rupees), which they expect to take delivery of in January 2011.

Aurangabad is a city of around 900,000 residents (2001 Census) while Kolhapur is home to around 500,000 residents (2001 Census). Until 15 years ago, both cities were centres of trade in agricultural produce, cotton and sugarcane being the respective dominant crops. The economic ‘liberalisation’ in India has clearly brought about the transformation whose effect we are seeing in the mass booking of luxury saloons. Why do these residents think their action is important?

Kolhapur city's Kasba Gate area: the wide and clear avenues, spacious squares, well-regulated traffic and absence of pesky pedestrians and vendors make it a pleasurable drive for the privileged BMW/Mercedes owner.

Sacheen Mulay is the president of the Aurangabad Chamber of Commerce and Industry and a Mercedes Benz owner. He is reported as saying that the group of car buyers wanted to change the image of Aurangabad as a backward, sleepy destination. “Buying a 150 Mercedes is not a joke,” Mulay insisted. “We wanted recognition in the world. Aurangabad is not a small place. We are potential buyers and there are very upcoming entrepreneurs in Aurangabad.” Reportage on the Aurangabad mass buyers also mentioned that a huge shopping mall that opened last month has quickly become popular with residents, who are asking for more luxury brands, a bowling alley, and a nightclub.

Anand Mane, president of the Kolhapur Chamber of Commerce, is the point person for his city’s group of mass luxury saloon buyers. “More than 180 people have already registered their names with us. After the models are displayed in the city, we expect more than 200 people to buy the car. This car is a status symbol and hence, the demand for the vehicle is higher compared to other cars,” said Mane. Kolhapur district has a number of sugar mills and industrial estates. The estimate is that the city already has a population of over 1o0 Mercedes Benz cars, but their owners have to send the vehicles to Pune to get them vehicles serviced. With the big order, Mercedes Benz has started building its first service station in Kolhapur.

If the wealthy Kolhapur residents reach their target of 200 for the Mercedes Benz mass purchase, that deal will be worth about 870 million rupees and together, the luxury auto-obsessed groups in Aurangabad and Kolhapur will have given the Pune-based dealers of Mercedes Benz and BMW business worth 1,920 million rupees. Who are the people who have made these purchase decisions in the name of collective status? Businessmen, young entrepreneurs, politicians, lawyers, doctors and other professionals, say the news reports. [That there is a powerful ‘status’ logic at work in these two cities has been touched upon in an earlier post on the subject of automobiles in India.]

The car-buying groups are using their business skills to pressure the dealers and banks to giving them concessional terms for their record-breaking purchases. “We are negotiating with the dealers to find out what incentives they can give us,” Kolhapur businessman Yogesh Kulkarni told news media. “An insurance company has promised to insure the car at 50% of the normal rate. Some banks are also ready to give loans at discounted interest rates.”

Mercedes Benz and BMW dealers are being asked for discounts of 10-20%, the groups are negotiating with the State Bank of India (a nationalised scheduled commercial bank) to get a loan for seven years (against the normal five years) at 7% interest (well under the 10-11% effective rural rate of inflation), and an insurance company is said to be offering motor insurance at a 50% discount.

“We want to show the world that Aurangabad is no more backward but ahead of metropolitan cities,” said Pankaj Agrawal, an Aurangabad businessman and one of the mass purchase group. What do Agrawal, Mulay and Mane consider as being “backward”? The news reports don’t tell us. We also don’t know how the expense of 1.9 billion rupees on 450 luxury automobiles is seen as a step out of “backwardness” and a step ahead of the metropolitan cities.

How do these purchases compare with living conditions in Maharashtra? Annual median household income in rural Maharashtra is 24,700 rupees (2005 data from the India Human Development Survey – this will have not in my view changed substantially given the debt shocks, agricultural stagnation and overall conditions of employment and from 2007 onwards) while in urban Maharashtra it is 64,600 rupees. Thus the total amount spent in this period of 2010-11 by the wealthy luxury auto-obsessed groups in Aurangabad and Kolhapur is equivalent to the combined annual incomes of 29,721 households in urban Maharashtra and to the combined annual incomes of 77,732 households in rural Maharashtra.

In an extraordinary meeting, FAO sizes up the turmoil in world cereal markets

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The FAO’s Committee on Commodity Problems has just concluded its Extraordinary Joint Intersessional Meeting of the Intergovernmental Group on Grains and the Intergovernmental Group on Rice (held in Rome, 24 September 2010). The Food and Agriculture Organization of the UN does not, it appears, want to cause any alarm bells to be rung in countries already worried by food inflation, and that is why its overall advise is at odds with the details highlighted during the day-long consultations.

Here are the main points of an advisory titled ‘Turmoil in Global Cereal Markets: Outlook for 2010-11, Short-Term Risks & Uncertainties’:

La Nina (colder-than-normal sea-surface temperatures in the Pacific Ocean) often results in drier periods in Argentina and southern Brazil but wetter weather in Asia. It may strengthen through January
Any downgrading of wheat crops in southern hemisphere countries before harvest this year- Western Australia not so good
The final maize harvest in the USA (and China) – production may end up lower
Adverse growing conditions affecting secondary rice crops in Asia and main crops in southern hemisphere
Drought in Russia and delayed winter grain sowing (down 20%) – but some rains have arrived
Crop damage in Pakistan: implications for next season
Faster/slower economic recovery influencing demand prospects for feed and fuel: tightening maize supplies in the US if demand for ethanol rise faster than predicted
Larger than currently expected import purchases, maize by China for example
Trade measures, in particular further exports restrictions
Developments in outside markets such as currency (US Dollar), equity, energy and other commodity markets

UN Millennium Development Goals Report 2010 / UNICEF Photo

UN Millennium Development Goals Report 2010 / UNICEF Photo

The rhetorical question is asked – “Are we ready?” – and the points supplied are: (1) We are not in a food crisis and grain prices may even come down a bit, (2) But all indications point to still high prices and volatile markets with many uncertainties lying ahead, (3) Food security under growing market instability and price volatility: Are we ready?

The extraordinary joint meeting briefly explained what it meant by “Increased volatility & speculation” with the following points: Markets liberalisation, decline of price supports; Deregulation of the financial service sectorl Declining margins in securities tradingl Rising demand for food in emerging marketsl Under-investment in agriculture; Lack of price transmission to producers; Sudden governmental interventions in export marketl Ease of access to electronic market place; Exchanges restructured today as for-profit corporations.

The dangers, current and expected, are set out in the briefing paper on ‘Agricultural Futures: Strengthening market signals for global price discovery’. This said:

Volatility in commodity foodstuffs is a result of both fundamental factors and speculative inflows of managed money. Sharply differing opinions exist on how institutional money flows have changed the nature of the markets, particularly since the expansion of limits. While financial firms argue that they add volume and liquidity to the market, others maintain that large order size creates volatility and jagged price swings. In the August 2010 price hike of wheat, the CME wheat price moved up limit and down limit within two consecutive days. High frequency trading is also a controversial issue – one that a CFTC editorial recently stated needed “reining in,” commenting that “parasitical trading does not truly contribute to fundamental market functions.”

Global undernourishment (image: Nature)Much debated also is the effect of passive fund money (index funds and swaps dealers), with experts on both sides arguing whether they have caused chronic price elevation and steep contango in some futures contracts. In its 2009 Trade and Development Report, UNCTAD contends that the massive inflow of fund money has caused commodity futures markets to fail the “efficient market” hypothesis, since the purchase and sale of commodity futures by swap dealers and index funds is entirely unrelated to market supply and demand fundamentals, but depends rather on the funds’ ability to attract subscribers. Despite the risk transfer nature of futures trading, in which gains and losses are equally offset, passive funds have successfully packaged and sold futures contracts as an alternative investment class to institutional investors. However, most would agree that these passive funds do not affect volatility levels since their only trading activity is a forward “roll” of their positions and the timings of these rolls are announced in their prospectus.

This is worrying because the FAO is now being a great deal clearer about the same problem it tried to describe in 2007-08,

Finally, Olivier de Schutter, the United Nations Special Rapporteur on the Right To Food, has released a briefing paper entitled ‘Food Commodities Speculation and Food Price Crises: Regulation to reduce the risks of price volatility’. His recommendations:

1. Given the numerous linkages between agriculture, oil, and other financial markets demonstrated above, comprehensive reform of all derivatives trading is necessary. The very first step would be to require registration, as well as clearing to the maximum extent possible of OTC derivatives, so that there is real time reporting of all transactions made, without information privileges for OTC traders, and in order to allow for effective supervision. The small minority of derivatives that cannot be cleared must nevertheless be reported without a time lag.

Islamabad Water Carrier

Islamabad Water Carrier: World Water Day was just another Monday for Nasir Ali, who was photographed on March 22 hauling water to his home in an Islamabad slum. Water shortages have become common for many people in the capital who must gather their daily water from government tankers or private trucks—when the precious resource is available at all. The nation’s acute rainfall shortage has also cut water supplies at hydroelectric dams, exacerbating disruptive power shortages and forcing officials to implement some rather dramatic solutions. Photograph by Aamir Qureshi, AFP/Getty Images

2. Regulatory bodies should carefully study and acquire expertise in commodity markets, instead of regulating commodity derivatives and financial derivatives as if they were the same class of assets. It may be appropriate to assign the task of regulating commodity derivatives to a specific institution staffed with experts in commodity regulation, rather than have a single body regulating both financial and commodity derivatives.

3. Access to commodities futures markets should be restricted as far as possible to qualified and knowledgeable investors and traders who are genuinely concerned about the underlying agricultural commodities. A significant contributory cause of the price spike was speculation by institutional investors who did not have any expertise or interest in agricultural commodities, and who invested in commodities index funds because other financial markets had dried up, or in order to hedge speculative bets made on those markets.

4. Spot markets should be strengthened in order to reduce the uncertainty about future prices that creates the need for speculation. However, these markets must also be regulated in order to prevent hoarding. Spot markets must be transparent, and holdings should be subject to strict limits in order to prevent market manipulation.

5. Physical grain reserves should be established for the purpose of countering extreme fluctuations in food price, managing risk in agricultural derivatives contracts, and discouraging excess speculation, as well as meeting emergency needs. Such measures and the abovementioned reform of commodity derivatives markets should be seen as complementary.