People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 38

September 20, 2009

The Roots of the Agrarian Crisis

Prabhat Patnaik


AGRARIAN crisis is endemic to monopoly capitalism. The reason is obvious. Monopoly capitalism entails the earning of monopoly super profits. These super profits come at the expense of the workers of course; but they also come from the petty producers, especially the peasantry, and even from the non-monopoly small capitalists. The most important mechanism through which these super profits are extracted is the turning of the terms of trade against these other classes by the monopolists, i.e. the prices charged by the monopolists on the commodities they produce rise relative to the prices charged by the peasantry, other petty producers, or even the small capitalists for their produce, and by the workers for their labour-power. As the terms of trade shift against the peasants (and other petty producers) for the (primary) commodities they produce, the profitability of peasant agriculture drops, and even its viability gets threatened.


Two other factors contribute to this. The first is the following. A problem that confronts monopoly capitalism is how to get peasant agriculture to continue selling to it, rather than withdrawing from the market into pure subsistence production, if not wholly then at least partially, in the face of adverse terms of trade and declining profitability from commodity production. In particular, a whole range of tropical agricultural commodities, whose continued supply to the metropolitan centres is essential for the maintenance of the life-styles of the latter, have to be squeezed out from tropical peasant agriculture despite its adverse terms of trade. For this it is necessary that far from withdrawing into subsistence production in the face of adverse terms of trade, tropical peasant agriculture must be made to shift acreage away from producing for its subsistence requirement and towards producing for the metropolitan market despite such an adverse shift in the terms of trade. And for this monopoly capitalism uses the State.




The nature of the bourgeois State as Lenin had pointed out undergoes a shift in the era of monopoly capitalism. It gets more closely integrated with the monopoly strata, and, instead of apparently standing above society and looking after �the interests of all�, it becomes much more exclusively pre-occupied with defending, protecting and promoting the interests of monopoly capital (See Oskar Lange�s The Role of the State under Monopoly Capitalism). And the State under monopoly capitalism is used to ensure appropriate supplies from peasant agriculture for the needs of the monopoly capital-dominated metropolis, despite the adverse terms of trade faced by the peasantry, through the imposition of an �income deflation�. This �income deflation� is imposed upon large segments of the working population, including of course the peasant population itself (for whom this is over and above the adverse terms of trade shift). (See Utsa Patnaik�s The Republic of Hunger and Other Essays).


Since the emergence of monopoly capitalism had originally happened in the context of a colonial world, i.e. since the imperialism of the late nineteenth century had been superimposed on a pre-existing situation of colonialism, this �income deflation� was originally effected through the use of the colonial taxation-cum-�drain� mechanism which reduced domestic food absorption and facilitated the diversion of land from the production of food to cash crops. In more recent �neo-liberal� times, as we shall see, the mechanism of this �income deflation� has been public expenditure cuts in rural areas, which typically reduce the purchasing power in the hands of the working people in these areas. This income deflation, which also affects the peasantry, being superimposed on the adverse terms of trade shift it faces, has a further debilitating effect on peasant viability.


The second aggravating factor is the increase in peasant indebtedness. In the face of the decline in profitability and the loss in purchasing power on account of income deflation, the peasantry gets into debt, which compounds its woes and also leads to land alienation from it, and hence to an increase in landlessness among the agriculture-dependent population. It also leads to the diversion of agricultural land for non-agricultural purposes, whose claim on land for a variety of luxury-linked and speculation-linked uses, increases greatly under monopoly capitalism, as noted by both Hobson and Lenin.


To be sure, the peasantry is not a homogeneous category; it is differentiated into different strata. The incidence of the agrarian crisis differs across these strata and between them on the one hand and the landless labourers on the other, who are a distinct class, separate from the peasantry proper. Besides, the peasantry itself, in particular the rich peasantry, tries to pass on the burden of the agrarian crisis to the shoulders of the agricultural labourers, whose services are required by it (including by even the middle peasantry in particular seasons). Hence, talking of the agrarian crisis affecting the peasantry and the agricultural labourers, must not be taken to mean that all are equally affected by it; but all of them are affected by it.


The agrarian crisis, to recapitulate, consists in an adverse movement in the terms of trade for peasant agriculture; the imposition of an income deflation (on which more later) upon the working population as a whole, including upon the peasants and agricultural labourers; reduced food absorption by all, including by significant sections of peasants and agricultural labourers; a shift from food to cash crops even in the face of the adverse terms of trade shift; reduced profitability in peasant agriculture to a point where even simple reproduction becomes unviable; growing indebtedness of the peasantry; and increasing landlessness. And this crisis is endemic to monopoly capitalism.


To say that this crisis that affects the peasantry and the landless is endemic to monopoly capitalism, is not to suggest by any means that these are the only three elements among the dramatis personae of the agrarian scene. The peasants and the landless labourers are part of an overall agrarian structure dominated by landlords and agricultural capitalists; and monopoly capital is enmeshed with this structure. But the stimulus for this structure�s dynamics, the stimulus that pushes the peasants and the landless labourers into a situation where they have to confront the above-mentioned features that constitute the crisis, comes from the spontaneous tendencies of monopoly capitalism.




Every single one of these above-mentioned features manifested itself in the period between the emergence of monopoly capitalism, which is usually dated to the late nineteenth century, and the beginning of the second world war. Prebisch, Lewis and a host of others have calculated that the terms of trade between primary commodities, including especially tropical primary commodities, and manufactured goods, declined secularly for the former between the late nineteenth century and the beginning of the second world war. There were fluctuations of course, including a rise in relative primary commodity prices in the run-up to the first world war and during the war itself, and a sharp decline during the period of the Great Depression; but through these fluctuations the secular movement was downwards. Michael Kalecki, the renowned economist, and Eric Hobsbawm, the renowned historian, have attributed this shift explicitly to a rise in �the degree of monopoly� (i.e. to the transition from �free competition� to monopoly capitalism).


On top of this was the taxation-based �drain of wealth� from colonies like India, whose impact fell primarily upon the peasantry. Under this twin-burden whose weight increased massively during the Depression of the thirties, the peasantry got deeper into debt and landlessness. The proportion of landless agricultural labourers in the total agricultural population of India and Pakistan around the time of independence was far higher than it had ever been in the past (See S J Patel�s Agricultural Labourers in Modern India and Pakistan). Per capita foodgrain absorption, which was around 200 kilogrammes per year in �British India� at the beginning of the twentieth century, fell to 136 kilogrammes by 1946, just prior to independence. And during this entire period there was a shift from food to cash crops which however resulted in no increase in the per capita income of the agriculture-dependent population at constant product prices, and certainly a fall in terms of per capita command over its consumption bundle (see Daniel and Alice Thorner, Land and Labour in India).


The war changed the situation in one major way and that was the tremendous increase in the prices of all commodities including primary commodities. But the main beneficiaries of the increase in primary commodity prices were the middlemen rather than the peasant producers. But since the peasant producers had to pay higher prices for the manufactured goods they purchased, their condition deteriorated even further. And of course, for the poor peasants and agricultural labourers, who were net buyers of foodgrains and whose income depended on the money wage rate (that fell sharply relative to all prices), the condition of living worsened greatly. In Bengal for instance many of them fell victim to the terrible famine of 1943, in which nearly 4 million people perished. The novels, short stories, and other forms of creative literature, set in this period in almost every Indian language, bring out the misery of the peasantry in the war years. In short, the agrarian crisis did not disappear with the war; on the contrary it got aggravated.




The agrarian crisis, especially when it reached its most acute form in the Great Depression of the 1930s, played a major role in radicalising the peasantry and agricultural labourers and bringing them into the ambit of the freedom struggle in large numbers. The promise of the freedom struggle in turn was �land to the tiller� and support for the peasantry by the independent Indian State. While �land to the tiller� was a promise on which the new Indian State reneged, it did extend support to the peasantry in various ways that marked a radical departure from the colonial era. It was a bourgeois-landlord State that did not break land concentration (only the Left, where it was in power, carried through land redistribution); and its objective was to promote capitalism, both landlord and peasant capitalism, in agriculture. But even to achieve this latter end, it became essential for it to alter the agrarian regime inherited from the colonial period; and this alteration was of benefit not only to the actual agricultural capitalists, or proto agricultural capitalists, but to the wider segment of the peasantry.


Agriculture got protection, and hence insulation from world market price movements, through quantitative restrictions on trade. It witnessed an enormous spread of government extension services. It witnessed a significant step up of public investment including especially on irrigation, as a result of which the area under irrigation increased substantially, making possible multiple cropping and yield increases. It witnessed increased agricultural research, with the result that several high-yielding varieties of seeds came into existence and ushered in the so-called �Green Revolution�. After the mid-sixties, a system of procurement at fixed prices was introduced for a number of crops. On the basis of this, a system of public distribution of foodgrains and certain other essential items was introduced on a such a scale that India became the country with the largest public distribution system anywhere in the world outside the socialist countries. Agricultural inputs were subsidised, including fertilisers and power. After bank nationalisation, institutional credit was made available to agriculture at subsidised rates. Under the impact of all these measures, agricultural output expanded, and the stasis in foodgrain production was broken: per capita food absorption that had fallen to 136 kilogrammes per year by 1946, moved up to about 180 kilogrammes by the end of the 1980s. This was still below the figure at the beginning of the century, but entailed a trend reversal nonetheless.


Again, the distribution of gains was uneven across the different peasant strata and between the peasantry on the one hand and the landless labourers on the other. But the universal deterioration that had been witnessed in the living standards of the peasants and landless labourers in the last half-century or more before independence, was not only stalled but even reversed. The measures adopted by the dirigiste post-independence regime put a brake on the agrarian crisis of the pre-independence period.


But this happened precisely because it was a dirigiste regime which had a degree of relative autonomy vis-a-vis imperialism, which, even while promoting capitalism, and that too under the aegis of the domestic monopoly bourgeoisie, promoted a relatively autonomous capitalism, behind protectionist walls, spearheaded by a public (or State capitalist) sector, and with the national economy as its domain. The regime attempted to broad-base itself by enlisting the support not just of the newly emerging capitalists in the agricultural sector but of wider segments of the peasantry as well. In other words, precisely because the dirigiste regime, like other such post-colonial regimes all over the third world, de-linked itself to a certain extent from metropolitan capitalism, for which it was much criticised by the World Bank and other imperialist agencies, it could overcome, as long as it lasted, the spontaneous tendencies of monopoly capitalism to produce an agrarian crisis.



The spontaneous tendencies of monopoly capitalism, however, reasserted themselves, not by recreating an agrarian crisis within the dirigiste regime, but by overthrowing the dirigiste regime itself, as a consequence of the carrying forward of the process of centralisation of capital in the world economy, to a point where a new form of international finance capital emerged. This new form of international finance capital made all  capitalist dirigisme unsustainable, by undermining the intervention capacity of the nation-State, through the imposition of a regime of more or less free global financial flows. Finance, as is well-known, is opposed to any State activism except that which is directed to serving its own interests; and when finance is globalised and the State is a nation-State, the latter willy-nilly has to bow to the caprices of finance, to prevent it from fleeing en masse and precipitating a foreign exchange crisis. The new regime of neo-liberalism, which conforms to the caprices of finance, expresses and carries forward the spontaneous tendencies of monopoly capitalism. Not surprisingly, it has brought back to India the agrarian crisis that is endemic to monopoly capitalism.




Central to neo-liberalism is a change in the role of the State where the State acts increasingly and explicitly in the exclusive interests of the big bourgeoisie, rather than appearing to stand above all classes as a benign arbiter, and justifies such action on the grounds that the interest of the big bourgeoisie and the �financial class� is synonymous with the interest of the �nation�. This ideology, as we saw earlier, characterises monopoly capitalism; a neo-liberal regime re-propagates it, acts upon it, and thereby recreates all those features that are endemic to monopoly capitalism, including the agrarian crisis. The �withdrawal of the State� that neo-liberalism is supposed to entail, is really a withdrawal of the State from some activities in order to be more deeply involved in others.

On August 22, for instance, prime minister Manmohan Singh suggested that the warring Ambani brothers should come together in the �nation�s interest� and offered even to mediate between the two to effect a reconciliation! His remarks illuminate two aspects of neo-liberalism: one, that under neo-liberalism the big bourgeoisie�s interests (in this case of the Ambanis) are passed off as the �nation�s�; and, two, the State under neo-liberalism does not withdraw in general; even while withdrawing from certain activities, it gets enmeshed in others, to the point of even micro-managing the affairs of individual big bourgeois houses.




One area where it does withdraw is in extending support to peasants and petty producers, which is exactly what has happened in India. Government extension activities in agriculture have virtually come to a stop, throwing the peasants into a direct relationship with multinational corporations who now freely roam India�s countryside. Agriculture is no longer insulated from world price movements: quantitative restrictions were not just removed, they were removed even before they need have been under the new dispensation; tariffs are invariably below even the �bound rates� and are being further reduced through the spate of Free Trade Agreements being signed. The marketing function of the Commodity Boards which helped to stabilise the prices obtained by peasant producers of export crops like tea, coffee and rubber, has been stopped. The procurement system has been in the process of being wound up, though the recent upsurge in prices has put a temporary halt to this endeavour; but since MNCs are roaming the countryside buying up grain, the capacity of the procurement system, whether to give price support to the peasantry or to garner enough foodgrains for the public distribution system, is being undermined: the whittling down of the PDS, envisaged ironically in the proposed Right to Food legislation, portends a reduction in public procurement. A variety of input subsidies have been withdrawn, and more are going to be (which explains the Punjab farmers� ongoing agitation against the World Bank-inspired central government proposal for a trifurcation of the power sector and privatisation of crucial segments of it). Institutional credit to agriculture has come down sharply from the level reached on the eve of liberalisation, so that both the weight of moneylender credit and the overall cost of credit have gone up; and even institutional credit is increasingly sought to be channelled through a group of �facilitators�, who are mere middlemen that constitute de facto a class of modern moneylenders, but whose operations have been sanctioned by the Reserve Bank of India itself. Public investment in agriculture was on the decline even before liberalisation; this decline has only been accentuated by liberalisation.


And on top of all these measures there is massive �income deflation�, a very important form of which is the reduction in public development expenditure in the countryside. Rural Development Expenditure (meaning actual plan outlays by the centre, states and union territories, taken together, under five heads: agriculture, rural development, village and small scale industry, irrigation and flood control, and special area programme) as a proportion of GDP at market prices went down from 3.1 per cent over 1985-90 (average) to 1.4 per cent in 2000-01; if we include infrastructure (energy, transport and communication) in addition (though only a part of it is spent in rural areas) the figures are 8.9 and 4.4 respectively. There was some increase thereafter but the figure remained below the 1980-85 average for all subsequent years for which we have data. The role that taxation of the peasants in the colonial period (underlying the �drain of wealth�) had played in keeping down domestic absorption, has been played in the neo-liberal era by the cut in government expenditure.




A consequence of all this has been a general stagnation in agricultural incomes, reduced per capita absorption of foodgrains in the country as a whole, a decline in the area under food-crops, an adverse movement in the terms of trade for agriculture, an increase in agricultural debt, and growing landlessness. If we take the agriculture-dependent population as a whole and ask the question, how much has the per capita command of this population over a bundle of goods, say the same bundle of goods as is supposed to be consumed by an average industrial worker, increased, we find that during the period 1996-7 to 2006-7 (which was the period of extraordinarily high growth in the GDP) there has been no increase at all. Likewise, the precipitous decline in the per capita absorption of foodgrains during the last half century of colonial rule, which had been partially reversed in the period up to the end of the 1980s, has started all over again: the figure for the triennium ending 2006-7 was 160 kg compared to around 180 kg for the end-80s. At least a part of the reason for this has been a fall in area under foodgrains by 3.2 per cent between 1990-91 and 2008-9.


If we take non-food primary articles, their wholesale price index declined slightly relative to the wholesale price index of manufactured goods between 1991-2 and 2008-9. But wholesale prices are not what the peasants get; and for individual crops, such as raw cotton, the relative price decline is much sharper between these two dates, even if we use the wholesale price-index, apart from the fact that this relative price exhibits sharp fluctuations during the period. Since the peasantry�s indebtedness is caused not just by the secular decline in the terms of trade, but also, crucially, by fluctuations in these terms of trade, the absence of government intervention in sustaining and stabilising the producer�s price has undoubtedly been a major factor imposing an onerous debt burden on large segments of the peasantry. One consequence of this has been the acute distress leading to suicides; the other is the increase in landlessness. Between 1993-4 and 2003-4, the proportion of rural households with zero operational holdings has increased significantly for the country as a whole, and for almost all individual states. We thus have a return of the agrarian crisis in its old incarnation all over again.


There is a view that with the introduction of the NREGS, the debt waiver, the instruction to banks to increase agricultural credit, and a host of other measures taken by the UPA government after it came to power in 2004, the agrarian crisis is well on its way to resolution. Nothing could be further from the truth. The proposition that the foodgrain economy has shown a revival has no foundation whatsoever: the revival, prior to the current drought, is only with respect to the earlier trough. If we make peak-to-peak or trough-to-trough comparisons, the rate of growth of foodgrain output in India in the current century still falls short of the rate of population growth. And as regards NREGS and debt waiver, we must not confuse the provision of relief in a crisis with the resolution of the crisis.


Indeed there is something ironic about the Congress government, which has the original responsibility for introducing the neo-liberal regime and hence re-precipitating the agrarian crisis, claiming credit for providing relief against the crisis. It is like the killers of a person turning up with flowers at his funeral. No doubt, it is better that they turn up with flowers than with guns, but they are the ones responsible for the funeral in the first place. Hence the provision of relief by the UPA government, though welcome, does not absolve it from the responsibility of having caused the crisis in the first place. And what with the FTA with ASEAN already signed; a spate of other FTAs on the anvil, including reportedly with Indonesia and Malaysia; and a revival of the Doha round, assiduously engineered by the UPA government, where protection against subsidised agricultural exports from the advanced countries had been a major stumbling block earlier; we are going to witness many more �funerals�. The UPA that professes concern for the peasantry is all set to deal several more body blows to peasant agriculture in India. 


It follows from the foregoing that the agrarian crisis, being endemic to monopoly capitalism, cannot be resolved without reining in the spontaneous tendencies of monopoly capitalism. In a certain conjuncture, viz. in the wake of a prolonged anti-colonial struggle, there was a period when the dirigiste regime, that had characterised at that time the development of the bourgeois order, could do such a reining in. But that has to be seen as a very specific and necessarily short-lived conjuncture. The overcoming of the agrarian crisis requires the permanent overcoming of monopoly capitalism through its transcendence by an alternative order that leads to socialism. The crisis therefore is as much a proof of the necessity of socialism as an occasion for fighting for its realisation.


(Sub-headings added - Ed)