People's Democracy

 Behind the Agrarian Crisis of the 1990s

C P Chandrasekhar

TWO related features of agricultural performance during the 1990s reveal the impasse in agricultural growth during the years of globalisation and economic liberalisation. To start with, despite evidence of the persistence of mass poverty and a deceleration in the rate of reduction of rural poverty, the late 1990s saw the accumulation of huge ‘surplus’ foodgrain stocks with government agencies. Second, the huge accumulation of stocks occurred despite a fall in per capita foodgrain production and apparent food consumption. Agricultural growth was clearly constrained from the demand side.

It barely needs stating that the demand for food depends in the final analysis on the availability of adequate purchasing power in the hands of the poor, since they are the principal source of such demand. The growth of purchasing power among these sections depends on increases in employment, real wages and earnings. Such increases in employment depend in turn on: (i) the pace of agricultural growth; (ii) the pattern of agricultural growth, which affects the responsiveness of rural employment to increases in agricultural growth; and (iii) the pace of expansion of rural non-agricultural employment. What has been the trend in these aspects of rural growth during the 1990s as compared with the 1980s?

AGRICULTURAL GROWTH TRENDS

A munificent monsoon promises to significantly raise agricultural production in 2003-04 relative to the previous year. But this should not divert attention from the long-term crisis that seems to afflict the agricultural sector. To start with, even the monsoon-induced recovery is not remarkable. Agricultural marketing year 2002-03 saw a sharp fall in kharif output from 112 to 91 million tonnes and in rabi production from 101 to 92 million tonnes. A poor monsoon during June-September 2002, when rainfall was 19 per cent below normal, was obviously the principal explanatory factor. Rainfall figures point to a gradual end to the drought starting October 2002. And the monsoon during June-September 2003 was extremely good, with excess rainfall in more than 90 per cent of the subdivisions. Yet, the revival in kharif production in 2003-04 by 20 per cent to a projected 108.5 million tonnes still keeps it below the level of production attained in the 2001-02 kharif season.

This apparent sluggishness in output increase in a good monsoon year highlights the long-term loss of dynamism in this sector. During the 1990s as a whole, a slowdown in growth is clearly evident in the agricultural sector. The growth rate in the production of food grains in particular has declined sharply. For several decades before this, the Indian economy had experienced a secular growth rate of foodgrain production of around 2.5 per cent per annum, which was a little higher than the population growth rate. Over the decade of the 1980s, taking three-year averages and estimating compound rates of growth, there was an acceleration of the growth in output, with all foodgrains except coarse cereals showing relatively high rates of growth, led by yield increases rather than acreage expansion. The output of oilseeds also increased very rapidly, and even cotton production showed a healthy expansion.  

However, the subsequent period has shown a decline in rate of output growth for every single one of the major crop categories. Over the 1990s, the growth rate of foodgrain production dropped to 1.75 per cent per annum, which was lower than the population growth rate of 1.9 per cent in the same period. This was not only the lowest average rate since the mid-1950s, but also a very dramatic drop compared to the earlier decades.

It is no doubt true that different sources of agricultural production data offer a differing picture of the pace of growth of agriculture during the 1980s and 1990s. But, according to Sen (2002), on the basis of an assessment of all available data it appears that overall agricultural production probably grew at around 3.5 and 2.0 per cent per annum during the 1980s and 1990s respectively, and real incomes grew by around 4.5 and 2.5 per cent per annum during these two periods. This implies that annual growth rates of income and output per person in rural India were less than 1 and 0.5 per cent respectively during the 1990s. In particular there has been virtually no growth in per capita agricultural output and incomes after 1996-97 even if the 1993-94 base GDP series is accepted. In sum, per capita agricultural real incomes have actually declined after 1996-97 due both to very low yield growth for most crops and a significant terms-of-trade loss for non-cereals crops.

The state-wise distribution of growth can be gleaned from the figures on GDP in agriculture as reflected in state domestic product estimates. An assessment of the figures at constant 1993-94 prices indicates that the deceleration during the 1990s afflicted most states, with only the Southern states of Karnataka, Kerala and Tamilnadu managing to avoid that trend. Moreover in five states, Andhra Pradesh, Bihar, Gujarat, Orissa and Uttar Pradesh, which together account for more than half the population, growth during the 1990s was clearly below the rate of growth of rural population.

EXPLAINING THE DECELERATION IN GROWTH

As has been repeatedly observed the failure of the Indian state to abolish landlordism and break land monopoly has meant that agriculture has had little “inner dynamism”. Given the resulting incidence of poverty and the insecure conditions of tenure, the majority of cultivators had neither the means nor the incentive to invest in land. And given the high returns obtained by the rural rich from their participation in the interlinked markets for land lease at rack rates of rent, for lending at usurious interest and for access to labour at low costs, they too had no incentive to invest in land.

Agricultural growth was sustained in the early Green Revolution years because of the intervention of the state from “outside” through investments in irrigation, provision of subsidised inputs and procurement at a “remunerative” floor price. This allowed yields to rise in certain crops to neutralise the dampening effects of the loss of opportunities for expansion of acreage through extension of cultivation into hitherto uncultivated lands. In addition, it allowed for the gradual spread of the Green Revolution to new areas, especially in the Eastern region, in the 1980s, though with all the gradualism characteristic of backward agriculture.

The reason why these trends could not be sustained during the 1990s was the drastic decline in real public investment that has occurred in agriculture, as a result of the deflationary/contractionary fiscal and monetary stance of the government during the years of neo-liberal economic reform. Investment in assets or Gross Fixed Capital Formation in agriculture, which stood at around 2.75 per cent of GDP at the beginning of the 1980s had fallen to an average of about 2 per cent by the early 1990s. It then registered a further decline to touch an average of less than 1.7 per cent by the end of the 1990s.

The principal factor underlying the decline in capital formation in agriculture was the decline in public capital formation which in constant 1993-94 prices fell by 18 per cent from around Rs 5500 crore in 1994-95 to below Rs 4500 crore in 1998-99. An examination of the trends in public sector plan outlay for three rural sectors, viz., agriculture and allied services, rural development and special area programmes, and irrigation and flood control indicates that their combined share in GDP fell from 3.14 per cent in 1986-87 to 2.26 per cent in 1991-92 and just 1.72 per cent in 2000-01.

It is indeed true, that during the 1990s the share of the public sector in total capital formation in agriculture fell from 34 to 28 per cent, indicating a rise in the private sector’s share. However, the increase in the private sector’s share in capital formation in agriculture did not imply any significant increase in private investment in real terms. Private capital formation, which stood at Rs 11000 crore at 1993-94 prices in 1995-96, touched a mere Rs 11600 crore in 1998-99. This is not surprising since the experience has been that, even more than elsewhere, public investment in rural India leads private investment.

Thus the evidence suggests that the deceleration in investment had started during the 1980s, but the 1990s have witnessed an intensification of that trend. As a result the rate of growth of food grains production has decelerated. There was an absolute decline in the production of coarse grains, from which much land has shifted towards export crops like sunflower and other oilseeds. And in rice a deceleration is evident: the rate of growth of output halved from an annual rate of 3.84 per cent in the 1980s to 1.87 per cent in the 1990s. This is symptomatic of a relative decline in interest in the cultivation of traditional food crops.

In sum, the waning of the external stimulus provided by government investment combined with the persisting lack of inner dynamism in the agricultural sector has, at a time when the threat of global competition is increasing, resulted in a deceleration of growth.

IMPACT ON EMPLOYMENT

What is more crucial from the point of view of overall economic dynamism is the effects this has had on employment and incomes. Data from the quinquennial large sample rounds on employment and unemployment point to a collapse in the rate of growth of agricultural employment in recent years. The rate of growth of usual status (principal and subsidiary) employment in agriculture in the rural areas fell from 1.45 per cent during 1977/78-1983 to 0.33 per cent during 1983-1987/88 rose to 2.17 per cent during 1987/88 to 1993/94 and then collapsed to 0.18 per cent during 1993/94-1999/00. What this implies is that along with the deceleration in agricultural growth, there has been a reduction in the responsiveness of agricultural employment to increases in production.

In fact, the Census of India 2001 and the 55th Round of the NSS, both show a dramatic slowdown (and in some states, actual decline) of employment in agriculture. The NSS data suggest that the employment elasticity of agricultural output (the rate of change of employment per unit change of GDP in agriculture) has fallen from 0.7 in the period 1987–88 to 1993–94, to only 0.1 in the period 1993–94 to 1999–2000. This sharp fall means that the employment elasticity is among the lowest yet observed in Indian agriculture since such data began to be collected.

In sum, a range of factors varying from the collapse of public expenditure and the reduced flow of rural credit post-liberalisation, together with a deceleration of employment growth have combined to generate the crisis in agriculture reflected in persisting poverty in a period when India’s granaries are full and food is being sold at rock bottom prices in world markets.