People's Democracy

RECENTLY the Anandabazar Patrika, a newspaper published in West Bengal, reported that a renowned non-resident economist had tried hard to persuade leading comrades in that state to give up their opposition to globalisation in general. In particular he advised that they should actively encourage and enlarge the import of cheap rice (from Thailand, mainly) in order to benefit the poor, an import which private traders have already started for their own private profit under the new liberalised trade regime where all quantitative restrictions have been removed. This imported rice is somewhat cheaper than the locally produced rice of the same quality, and it has already started undercutting local producers, whose boro sowings this year, 2001, are likely to have been lower than in the last year. Whatever might be the truth of this report regarding the noted economist's advice might be, the position outlined therein is commonly held by a great many economists, so it would be useful to discuss on what kind of reasoning it is based.

The reported advice is in fact derived from entirely fallacious reasoning, but the ubiquity of this fallacious reasoning among economists and the chorus of advocacy for this line of action among these free traders, makes it all the more necessary to take up this issue explicitly today.

The import of rice, a basic food staple and wage-good, from abroad at a lower price than can be produced for the same quality locally, would benefit all wage earners and net purchasers of foodgrains; this is the main, progressive-sounding ground on which import is advocated. It is quite obvious that the consumers would benefit from cheaper rice, while benefitting the Thai exporters. But the basic assumption of the argument is that no one else suffers from such import; however, what about the producers of rice in Bengal? The moment it is clear that there can be an adverse effect on the indigenous producers of the good in question, the desirability of the outcome comes into question, for then the positive benefit to purchasers has to be set against the negative effect on the producers. Moreover it is not simply the direct negative income effect on the producers --- whose employment and income goes down owing to cheap imports, that has to be considered. There is also the derived or secondary negative income effect on all those who sell goods and services to the producers whose income is going down, that has to be taken into consideration.

To ignore all these factors requires some heroic implicit assumptions; the assumption that there is full employment, as well as the assumption of free mobility between different productive activities. Neither of these assumptions are satisfied in reality. Adverse effects on the producers can be assumed away entirely, only if the competing import of cheap rice is assumed to mean that the local producers of rice can simply switch smoothly to other activities and thereby maintain their earlier levels of employment and incomes. Mainstream economic theorising does in fact operate implicitly with these assumptions of free mobility and full employment, assumptions which appear to us --- and rightly so --- to be wholly unrealistic. Those who argue that cheap rice imports, without limit, is desirable because it leads to a rise in consumption and welfare, are also necessarily assuming free mobility and full employment even if they may not state these assumptions, for they are completely ignoring the adverse effects on the producers.

The characteristic of critical and realistic theory on the other hand, is precisely that it does not operate with these assumptions but explicitly integrates involuntary unemployment into its theorising. In fact, Keynes had suggested that if a country in normal times insists on exporting to another, a good which the latter country already produces at a reasonably low cost, the exporting country is thereby "exporting its unemployment" to the importing country. Moreover, the question of whether times are normal or not, is important. If there happens to be rapid price inflation taking place in the basic staple foodgrain because domestic production is not able to keep up with growing demand, and such price inflation is hitting the wage-earners hard, then imports may become desirable for the duration of the crisis only.

In West Bengal however, there is no crisis of food supply and rapid inflation, quite the contrary is the case. The farmers of that state, after the land reforms of the late seventies which conferred owner-like security on the mass of small tenants, responded with investment on a wider social class basis and achieved the highest rate of growth in value added in agriculture in the whole of India - higher than in Punjab - in the course of the eighties. A conisiderable literature has developed which documents the excellent performance of Bengal's agriculture and relates it to the changes in land relations permitting a wider investment process. Much of the addition to growth of foodgrains production came from the extension of boro rice cultivation while potato output also grew substantially.

The remarkable fact remains that in the whole of India, it is in only two states, West Bengal and Kerala, that the National Sample Survey (NSS) data shows a rise in the per capita consumption of cereals in rural areas as well as urban areas, between the seventies and the nineties. In every other state, the per capita consumption of cereals has declined, save in Orissa which shows a small rise in rural areas only. (See Table 1.)

Kerala has been food deficit in production terms for long owing to its unique resource base favouring non-food commercial exportable crops, and its raising of per head cereal consumption is mainly owing to its success in extending the public distribution system to all rural areas.

Also the NSS consumption data reveals a remakable and related fact that, again, it is only in West Bengal and in Kerala in the whole of India, that the per capita total calorie intake (not just calories from foodgrains) has risen in rural areas over the same period; in all other states it has been either stagnant or has declined. The land reforms, and the broadly correct policies of the governments in these two states for stabilizing mass incomes, are at last showing up in enhanced levels of food security and improved nutrition.

The tragedy is however that the unwise policy of exposing the farmers to cheap imports, a policy adopted at the central level in subservience to external interests, is likely to undermine the achievements of these states. What these states and indeed all states should do is to strongly push for the implementation of adequately high tariffs to prevent an import surge, already under way, from undermining the incomes of their farmers, while at the same time they must strongly resist any further undermining of the public distribution system at the central level.

The distribution of land holdings in Bengal and Kerala, owing to the land reforms, partial though these were given the constraints of working within the federal structure, shows some very distinctive characteristics when compared to other states. In Bengal and Kerala the percentage of the landless among all rural households, has substantially declined in the eighties up to the early nineties for which the data are available, owing to the distribution of ceiling-surplus land and the ease with which the land-poor can obtain seasonal lease of land on reasonably fair rental terms.

The overall degree of concentration of operational holdings as measured by the Gini coefficient, also shows a fall in these states from earlier high levels (though this particular feature is shared also by Assam, Orissa and Andhra Pradesh). In many other states, notably in Punjab the concentration of operated holdings has gone up noticeably and a larger share of marketed output than ever before is contributed by the largest farms. In states like West Bengal and Kerala, it is not just a minority of well-to-do farmers who produce the bulk of the marketed part of foodgrains, but many lakhs of small farmers are also involved in the market, and it is they who will take the worst impact of any unwise policy of permitting larger imports.

ALL - INDIA

Source: NSS Surveys on Consumption Expenditure.