Aug 1, 2015

Tougher laws needed to regulate food industry

Only a few days back, the US government reached an out of court settlement with British Petroleum (BP) for a 2010 oil spill it had caused in the Gulf of Mexico. The oil major will pay $ 18.7 billion in damages.

Spewing 4 million barrels into the sea, the oil spill had caused 11 deaths and led to a massive destruction of the marine ecosystem. Instead of worrying about how the huge penalties will impact future investments, I remember US President Barack Obama saying soon after the oil spill happened: “Will make BP pay.”

And it did. This is how the world’s only superpower means business. 

While it may be perfectly right to feel outraged at the huge BP oil spill penalties when compared with the paltry compensation package of $ 470 million that Union Carbide was made to pay for the Bhopal gas tragedy, in which some 10,000 people had died, I thought over the past three decades India had learnt the lessons the hard way. The desperation of foreign investments will not be at the cost of human lives, food safety and the environment. After all, there had been heated debates on the questionable role of politicians, judiciary and the industry leaders in ensuring justice to the victims.  

But I was wrong. Following the recall of Nestle’s maggi noodles, Food Processing Minister Harsimrat Kaur Badal has accused the food regulator – Food Safety and Standards Authority of India (FSSAI) – for inculcating an “environment of fear” in food industry. Her ire was obviously aimed at the food safety organization which had imposed a ban on maggi noodles in June. Addressing recently the regional CII office in Chandigarh, and later in a detailed interview with a newspaper, she criticized the spurt in food safety tests which she believes is hampering more investments to come in. Her man argument was that there is no testing protocol for quality check on processed food. She also blamed the return of ‘Inspector Raj’ that is haunting the food industry.

Mrs Badal’s outburst against FSSAI comes at a time when a US study has found sugary drinks responsible for 184,000 deaths globally every year. Considering that the consumption of sugary drinks has multiplied in India over years, and knowing the damming health impacts, including fatalities, it leaves behind, I expected the Food Processing Ministry to launch a massive nationwide campaign to educate people about the dangers of consuming colas, and at the same time directing the manufacturers to ensure that the sugary drinks being sold are completely safe for human health. For instance, the well-known food writer Vir Sanghvi has in a recent tweet asked Pepsico to explain why the beverage company is using Aspartme in sugary drinks in India whereas  completely blacking it out in America?

The Diabetes Foundation and the Centre for Nutrition & Metabolic Research has pointed to the continuous rise in consumption of sugary beverages, including energy drinks. With per capita consumption of sugary drinks rising from 2 lit in 1998 to 11 lit in 2014, these sugary drinks are being blamed for an increasing number of deaths and disabilities.  Considering that Swami Ramdev has been repeatedly warning people against using these sugary drinks claiming that these sodas as good as toilet cleaners, I had expected the Food Processing ministry to be extra vigilant.

The task to ensure processed food is undoubtedly safe becomes more onerous and urgent in the light of the report submitted by the US President’s panel on cancer. It estimates that 41 per cent of Americans living today will suffer cancer in their lifetime. The report warns against the pervasive use of chemicals in processed food – including pesticides, insecticides and synthetic ingredients in the processed food. Fighting cancer therefore requires tougher laws and strict implementation of food laws. If the US food industry was responsive enough, the country wouldn’t have faced a cancer epidemic. But still, the food industry does adhere to the quality standards in US/Europe. Much of the problem in the developed countries is because of lax quality standards in view of the aggressive lobbying by the industry.

Following the maggi noodles ban, the FSSAI has drawn samples from some of the major brands like Hindustan Unilever, Britannia, Nestle India, Heinz India, MTR, Haldiram and others. Quality test of food products for safety certainly warrants urgency considering that food adulteration and contamination has become rampant over the years. With nearly 80,000 food processing companies in operation, including Big Food, and with hardly any quality laboratories to check what goes inside, manufacturers have had a field day so far.

It took 16 months from the day the first maggi sample was drawn to the final test report. Woefully lack of adequate testing laboratories all these years has therefore been an easy escape route for the food companies to manage getting Scott free. A Zee Business report showed how 75 per cent companies, whose samples were drawn, escaped being penalized because of gaps in quality testing. In the past five years, only 25 per cent of the 53,406 companies whose samples had failed to conform to quality standards, could be penalized. The penalties of course are too low which does not provide any deterrent.

It is alright to decry ‘Inspector Raj’ but unless the inspectors draw samples regularly how will the food processing industry be made to clean up its act? In China, there exists one food quality laboratory for 0.2 million people. In India, one lab is available for 88 million people. The thrust therefore should be to increase the number of quality testing labs at a phenomenal rate. And I am sure the Chinese labs are not only for decorative purposes but for testing food samples. If the food industry is perfectly comfortable with regular food testing in China why it should cry foul in India?

The need for investment therefore should not be compromised in the name of tougher food safety laws as well as environmental norms. India needs responsive business, and all investments must respect the rights of the people. The food industry must be asked to adhere to the safety laws, and if it is unable to do so, be directed to pull down the shutter. #

Food industry must sticks to safety laws. Hindustan Times. July 16, 2015.

Jul 28, 2015

Rural India has to be the pivot of Skill India. Start with farmers

In the midst of all the excitement generated over the launch of an ambitious ‘Skill India’ initiative, I find two news reports to be particularly disturbing. These reports are a reflection of the worsening job scenario, with or without specially acquired ‘skills’.  

In Madhya Pradesh, 362,685 people applied for the jobs of peon/guards in 58 State Government departments. Of these 14,000 were either post-graduates or engineers. They all sat for a written examination. I wonder what kind of special skills are required to be a peon/guard that they need to go through a written test. Anyway, another news report tells us how a Mumbai-based post graduate, with four degrees in hand, including an MA in globalization and labour from the Tata Institute of Social Sciences, is working with the Mumbai Municipal Corporation cleaning the city’s garbage. An MBA was among those who had recently applied for 26 jobs of peons in the Punjab and Haryana High Court in Chandigarh.

While the ‘Skill India’ initiative to provide particular skills to 400 million people by 2020 is certainly welcome, I don’t know whether we already have an over-skilled work force or we have a long way to catch up with some of the developed countries record in providing skills. For instance, if India were to just categorise its 52 per cent farming population as skilled workforce, it will immediately move into the developed country category with over 50 per cent skilled manpower. Farming being a skilled profession, farmers have been deliberately treated as non-skilled workers. Categorising farmers as skilled workforce has financial implications, including ensuring minimum wages, paying health expenses and also providing post retirement benefits. That’s why farmers are kept out.

Similarly, I find one of the biggest employment generating sectors – temples/churches/gurdwaras – to be outside the purview of skilled workforce. Those who join these religious institutions are also skilled, even if they don’t require an ITI diploma.

The definition of what constitutes a ‘skill’ therefore has to change. I see no reason why farmering, which employs 52 per cent of the population, should not be included as part of the skilled workforce. At the same time there is a dire need to launch a skill improvement programme for young farmers with adequate financial and institutional support to enable them to become start-ups and entrepreneurs. There is a much greater possibility to turn the young workforce in rural areas to learn avocations that can make them self-employed. This is specially required considering that nearly 81 per cent of the land holdings are below 2 acres, which means the young members of the small and marginal farm families need to be trained to supplement their income from non-farm activities.

Besides shifting the thrust of public investments to rural areas, what is also required is to provide proper incentives for bringing about a required change. A poor woman in a village who wants to rear a goat for creating a viable livelihood option too needs to be given incentives that are given to big industrial houses. She needs to borrow Rs 8,000 for buying a goat which comes from a Micro-Finance Institute (MFI) charging 24 per cent rate of interest. On the other hand, big industrial houses are often given credit at 0.1 per cent interest. If only the poor woman was to get the loan for buying a goat at 0.1 per cent I am sure she would be driving a Nano car at the end of two years. Similarly, Farmer Producer Companies, which enables farmers to get into entrepreneurship, have to pay an interest of 30 per cent on the profits generated. Why can’t it be brought down to 15 per cent to begin with? 

Therefore, there is a dire need to change the focus of skill development programme. It cannot be only aimed at meeting the requirement of 30-crore cheap labour -- dhari mazdoors -- that the Confederation of Indian Industry (CII) estimates the construction sector will require by 2022. Only a fraction of the jobs in the construction sector would need the kind of skills that the ITIs are known to train them for. More than 95% jobs in the construction industry are simply of daily wager workers.  Also, an ICRIER study shows that automation and increase in labour productivity destroyed 11.8 million jobs in the manufacturing sector in post reforms period. That’s a warning that cannot be ignored. #

*Rural India has to be the pivot of Skill India: Start with farmers. July 19, 2015

Jul 22, 2015

Farmers suicide statistics is a reflection of the terrible agrarian crisis that prevails in India

Despite all efforts to paint a rosy picture, the latest compilation of farmer suicide statistics for 2014 by the National Crime Record Bureau clearly brings out the dark underbelly of Indian agriculture. With 12,360 farmer suicides recorded in 2014, it only shows that one farmer commits suicide somewhere in the country every 42 minutes.

Although the NCRB has made a valiant effort to segregate the farm suicides figures into two categories – farmer, and agricultural workers -- to show that farm suicides rate has fallen by 67 per cent, the fact remains that historically farm labourers have been counted as part of the farming category. Adding both the figures – 5,650 farmers and 6,710 agricultural workers – the death toll in agriculture for 2014 comes to 12,360, which is higher by 5 per cent over the 2013 farm suicide figures.

The serial death dance on the farm is a grave reflection of the terrible agrarian crisis that continues in farming for several decades now. While every successive government – both at the centre and in the States – have made tall promises to resurrect agriculture, the swing in farm suicide figures shows the callous and deliberate neglect of a sector that employs 60-crore people. Farmers have been very conveniently used for only two political purposes – as a vote bank and as a land bank.

Not showing any signs of petering off, a renewed spurt in suicides is now been witnessed in Uttar Pradesh, Karnataka, Maharashtra, Punjab and Haryana for the past few months.

In 2014, the NCRB data tells us that a third of the total suicides – 4,004 – took place in Maharashtra, followed by Telengana with 1,347 suicides. Reading between the lines, it becomes apparent that there is a visible effort to downplay the suicide figures by almost all states, including Punjab, the food bowl of the country. This follows a trend that Chhatisgarh started in 2011 when it started showing zero farm suicides. After record zero suicides for 2011, 4 in 2012 and again zero in 2013, Chhattisgarh now shows a sudden jump in farm suicides to 755 in 2014.  

In Punjab, as per NCRB data, only 22 farmers committed suicide in 2014. Add agricultural workers, and the final suicide toll comes to 64. This is a gross under-reporting of the real situation that exists. Panchayat records in just four villages of Sangrur and Mansa districts in Punjab show 607 suicides in past five years, with 29 deaths recorded between November 2014 and April 2015. Similarly, in Maharashtra, the Vidharbha Jan Andolan Samiti has contested the NCRB data. Several gaps in the counting methodology, including difficulty in putting women deaths in the farmer category since the in most cases the land is not in their names has time and again been brought out.

Indebtedness and bankruptcy (22.8 per cent) tops the reasons behind these suicides; followed by family problems (22.3 per cent) and 19 per cent because of farming related issues. Growing indebtedness of course has been considered to be the major reason behind the serial death dance being witnessed on the farm. According to a study conducted by Chandigarh-based Centre for Research in Rural and Industrial Development (CRRID) – the average farm debt has multiplied 22 times in the past decade in Punjab. From 0.25 lakh per household in 2004 it has gone upto Rs 5.6 lakh in 2014. Chhattisgarh tops the chart with an average debt of Rs 7.54 lakh, followed by Kerala with Rs 6.48 lakh household debt.

The total debt that farmers carry in Punjab is almost 50 per cent higher than the State’s GDP from agriculture. At the same time, another study by CRRID shows that 98 per cent of rural families in Punjab are indebted, and the average debt is 96 per cent of the total income a household receives. If this is the situation in Punjab, imagine the plight of farmers elsewhere in the country.

Why farm indebtedness has been steadily on a rise has never been studied beyond find out how much lending is coming from the moneylenders who are known to charge exorbitant interests. While lack of institutional finance is a limitation, it is the declining agricultural income that remains the major reason for growing indebtedness. Let me illustrate with a cost analysis of a typical farmers from Uttar Pradesh. As per the latest estimates of the Commission for Agricultural Costs and Prices (CACP), the net return from cultivating wheat in Uttar Pradesh has been worked out at Rs 10, 758. Since wheat is a 6-month crop, sown in October and harvested in April, the per month income for a farm family comes to Rs 1,793. If this is the level of income of a wheat farmer, I wonder what kind of livelihood security we are talking about when it comes to farmers.

I looked for more details. If the other crop farmer is growing is rice, the average net return for it has been computed at Rs 4,311. Add for rice and wheat, the total that a small farmer from a hectare earns is Rs 15, 669 or Rs 1,306 per month. With such meager incomes I can understand why a large number of farmers commit suicide at regular intervals. Those who are not so courageous either sell-off their body organs or prefer to abandon farming and migrate to the cities looking for a menial job as a dehari mazdoor.

This augurs well with the findings of the socio-economic survey which states that 67-crore people in the rural areas are surviving on less than Rs 33 a day. Several other studies have shown that roughly 58 per cent farmers go to sleep hungry, and close to 62 per cent hold a MNREGA card. Instead of pushing under the carpet the grave agrarian crisis that persists, the NCRB data should actually help the government to formulate policies to reverse the suicide trends. If 1,000 suicides in the armed forces could prompt the Defence Ministry to take a series of steps to ameliorate the situation, I wonder why a human toll of close to 3 lakh farmers taking their own lives in the past 20 years has failed to shake up the successive governments? #

Jul 21, 2015

Why are Karnataka farmers being driven to suicides? Just look at their income levels from farming.

When Chief Minister Siddaramaiha pleaded: “I beg farmers; I touch your feet and request you not to commit suicide. We will help you in all ways,” he was not only making a political statement but simply showing his exasperation at an unending serial death dance on the farm.

In what appears to be an unprecedented reflection of the severity of a continuing agrarian crisis, more than 50 farmers (and still counting) have taken their own lives since June. In fact, self-immolation by some farmers, a few of them even jumping in the burning sugarcane fields, is seen as an expression of extreme indignation against the apathetic and farmer-unfriendly agricultural policies of the state. Such has been the pace and spate of suicides that Karnataka has suddenly joined the category of farm suicide hotspots of the country.

Karnataka agriculture has always been on a boil. The bubble had to burst sooner or later.

Ignoring warning signals, successive governments had merrily pursued macro-economic policies wherein agriculture had simply disappeared from the economic radar screen. Repeated crop failures, growing indebtedness, and falling incomes had failed to draw attention to the worsening plight of the silently suffering farming community. While the simmering discontent brewing on the farm was very conveniently brushed under the carpet, Karnataka became a hub for emerging technologies and sophisticated equipments.

That such a pitiable situation should exist in a state which has given the country an idea to integrate the existing APMC markets through a common e-platform, defies economic logic. If establishment of a Rashtriya e-Market Services Private Ltd, a 50:50 joint venture with NCDX Spot Exchange, was helpful indeed I fail to understand why Karnataka farmers are not getting the right price for their produce. Already 55 of the 155 main market yards have been integrated into a single licensing system.

To understand why Karnataka farmers continue to be pushed into the never ending cycle of mounting indebtedness, I tried to take a deeper look to know the economic cost of production and incomes for some major crops. The best detailed cost analysis is provided by the Commission for Agricultural Costs and Prices (CACP) which has a countrywide mechanism to collect, aggregate and analyze agricultural statistics. What is shocking to know is that the net return for many crops is actually in the negative, which means farmers will only end up harvesting losses.

The latest CACP reports for 2014-15 Rabi and Kharif marketing seasons has tabulated gross and net returns based on average of actual costs incurred between 2009 and 2012. Accordingly, the net return from cultivating bajra per hectare is minus Rs 2,669; ragi is minus Rs 9,017; Groundnut minus Rs 843; and for Sunflower it is minus Rs 629. If the farmer is destined to harvest losses, given the low market price available in the absence of an assured procurement structure, I wonder what kind of technological and financial support can bail them out. Giving them more credit, even if it comes from institutional agencies/banks, will push them further into a death trap.

For other crops too, the economics does not look to be attractive enough. Let us first look at sugarcane, a crop for which outstanding cane arrears in Karnataka amount to a staggering Rs 1,300-crore. According to CACP, the net return from cane cultivation in Karnataka is Rs 86, 156 per hectare. This is the highest net income for cane recorded in the country. But sugarcane being a yearly crop, the net return is for a 12 month period, which comes to Rs 7,180 per month. When even this low income is not being paid in time considering the huge cane arrears; the farmer is left with little choice but to end his life. 

In case of cotton, the net income in Karnataka is Rs 14,700 per hectare. For paddy, the net income per hectare has been computed at Rs 10,835; Maize Rs 6,992; jowar Rs 1,604; Tur Rs 9142; for Gram Rs 3,699 and for Safflower Rs 57 only. Cotton is a 6-month crop, which means net income per month is hardly Rs 2,450.  Similarly, net income per month is very low for other crops. These low incomes compare well with the findings of the latest socio-economic survey 2011, which concludes that 67 per cent of the rural population lives on less than Rs 33 a day. The challenge for the state government therefore is to augment farm incomes just like it did for ragi. Providing a higher procurement price of Rs 2,000/quintal (Rs 500 more than the Centre), the state has procured 14 lakh quintals of ragi.

Since the Chief Minister is keen to do everything possible to help farmers, I have two immediate suggestions: 

1. Karnataka should set up a Farmers Income Commission with the mandate to work out a monthly assured income package that a farming family must receive given the geographical location of the farm as well as its production. Farmers are actually carrying the burden of providing cheap food for the population. This has to change. If a chaprasi can get an income of Rs 15,000 per month why a farming family should be made to survive in Rs 3,000 or less in a month?
2. Just like for ragi, the procurement system needs to be expanded for other crops. Karnataka should make investments for setting up APMC markets in 5 kms vicinity of every village. Investments are also required for creating non-farm activities in the rural areas. This means shifting the policy focus to rural investments.   

Farmers deaths: Ire against apathetic, unfriendly agri policy. Deccan Herald, July 21, 2015.

Jul 14, 2015

Lesson from the Greek tragedy. How long will India continue to follow the flawed austerity measures?

The spillover from the Greek crisis may not hit the Indian shores. But it has grave lessons for India, which too blindly follows the never-ending austerity measures.

In India, the term austerity is not commonly used. Instead, successive Finance Ministers, policy makers, mainline economists and TV anchors harp on reducing the worrying levels of fiscal deficit, the gap between government earnings and expenditures. Among a series of measures that are often talked about to bring in fiscal consolidation, the focus remains invariably on trimming the social spending.

Every time a panel discussion opens on any aspect of the country’s economy, the ire of the panelists is on the wasteful subsidies – the burgeoning food subsidy, fertilizer subsidy, LPG subsidies – and a horde of other subsidies like cheaper train fares, and public sector investments in public health, education, agriculture etc. The task therefore is two-prone. First, to drastically cut down the so-called wasteful subsidies. Secondly, to reduce the outlays for various social sectors that directly impacts the majority population.  

The primary thrust of economic reforms is to cut down on social spending and shift the resources to corporate welfare. It is generally assumed that more financial support for corporate will lead to increased industrial output, increase in manufacturing, and growth in exports eventually leading to more job creation. Basing its flawed economic thinking on the failed concept of ‘trickle down’ the International Monetary Fund (IMF) has used the macroeconomic strategies to tie its debt restructuring plans with austerity.

Greece has shown that neither the concept of ‘trickle down’ nor the stringent austerity measures have helped. In India too, the results of the Social Economic and Caste Census 2011, which was unveiled by Finance Minister the other day, has conclusively shown that economic reforms have bypassed 70 per cent of the country’s population. With the highest income in 75 per cent rural households not exceeding Rs 5,000 per month, and 51 per cent households working as dehari mazdoor for their daily living, rural India presents a grim picture.   

As if this is not enough, the outlays for social sectors have been slashed by Rs 4.39- lakh crore in Budget 2015-16. This includes a huge cut in budgetary provisions for Women and Child Development, Panchayati Raj, Mid-day Meal and Drinking Water and Sanitation sectors. Take agriculture, which engages 60 per cent of the rural population. The total outlay for agriculture is less than that of MNREGA. No wonder agriculture is faced with a terrible agrarian crisis.

While the poor are getting the boot, the thrust of the economic reforms is to move the resources for corporate welfare. Not only in Europe, In India too massive hidden subsidies, direct grants and tax breaks for the corporate are doled out by both the Central and State governments. Since 2004-05, Corporate India has been given tax concessions to the tune of Rs 42-lakh-crore. In addition, State governments have been providing more tax rebates every year. For instance, Punjab has in the past 4 years given tax concessions to the tune of Rs 900-crore to the industry. Regardless of such massive doles to the industry, the thrust of fiscal consolidation remains on cutting social sector spending.

Some economists say Rs 48,000-crore that goes as LPG subsidy, which they term as wasteful subsidy, is enough to remove poverty from India for one year. If that is true, Rs 42-lakh-crore could have wiped out poverty from India for the next 84 years !

Such massive tax concessions (I am not counting hidden subsidies and direct grants) were expected to boost industrial output, increase exports and lead to more job creation. Nothing of the sort happened. In the past 10 years, while economic growth has remained at an average of 7.3 per cent or more, only 1.5-crore jobs were created against a requirement of at least 1.2-crore newer jobs every year. And despite such massive tax concessions, industrial debt is higher than the debt of all the State governments put together. On top of it, the non-performing assets of the industry is also zooming with Rs 3.5-lakh-crore written-off as bad debt in the past five years. Moreover, privatisation of health and education is cutting a big hole in the pocket of the average citizen.

It’s Corporate India that needs austerity. Fiscal deficit can be wiped out simply by withdrawing the tax concessions to the industry. Instead, the need is to invest more in human assets. The sooner we learn this, the quicker will we be able to avoid a Greek tragedy. #

Will India be able to avoid a Green tragedy? July 9, 2015.

Jul 11, 2015

Rural India is poor. More reforms is not the answer.

Rural poverty in India -- AFP photo

In what appears to be a damming indictment of the 5-year plans, launched in 1951, as well as the economic reforms process that began in 1991, the first-ever socio-economic survey has painted a dismal picture of rural India.

What emerges clear from the survey is that for 70 per cent of India’s 125-crore population, which lives in rural areas, poverty is the way of life.   

Rural India is poorer than what was estimated all these years. With the highest income of a earning member in 75 per cent of the rural households not exceeding Rs 5,000 a month, and with 51 per cent households surviving on manual labour as the primary source of income, the socio-economic survey has exposed the dark underbelly of rural India. Whether it was Garibi hatao or Shining India, all the talk of development has not enabled rural India to emerge out of poverty.

Whether we like it or not, poverty has remained robustly sustainable.

This socio-economic survey, undertaken for the first time in the country, defies all the tall claims made by successive governments on poverty reduction. Whichever way you measure it, and whichever way you decipher the survey findings as well as the emerging social trends, the extent of rural poverty exceeds all projections. The reason is obvious. All these years, the effort of mainline economists and policy makers has been to sweep rural poverty under the carpet. In fact, we were never honest in accepting the extent of poverty that existed in the country.

It was in 2011 that Supreme Court questioned the very basis of counting the number of poor. Prior to that, no mainline economist had ever raised a finger at the artificially kept low poverty line. At that time, Planning Commission was treating those earning less than Rs 17 a day in urban areas and Rs 12 in the rural areas as living in poverty. Supreme Court’s questioning happened 60 years after Jawaharlal Nehru had launched the first Five-Year Plan in 1951. In other words, for 60 years Indian planners had drawn poverty eradication programmes, sinking in lakhs of crores of rupees, not even acknowledging the magnitude of rural poverty situation they were trying to address.

By keeping the poverty line deliberately low, planners were simply trying to ensure that the plan outlay for rural development was kept a bare minimum. I have always been saying that the unrealistic poverty line, later adjusted after a nationwide uproar to Rs 32 for urban and Rs 26 for rural areas, would not even be enough for rearing a pet dog in the cities. For the rural areas, I challenged if any farmer could domesticate a cow within a daily expenditure of Rs 26. With such an inhuman poverty line I questioned time and again the relevance and purpose of the massive plan outlays which are sure to go awry. The rope to pull poor out of a quagmire of poverty and deprivation has to be long enough to reach them.

It is primarily by keeping the rope short, which means by keeping poverty line too low, the 12 Five -Year Plans attempts to remove poverty had failed. It is therefore time to revisit the strategy and approaches that have been followed all these years. Let’s admit our mistakes, and make a fresh attempt.

Take the case of agriculture. With 52 per cent of the population engaged in farming, which means 60-crore people, the government provided just Rs 1-lakh-crore in the 11the Five Year Plan, and Rs 1.5-lakh-crore in the 12th Five Year Plan. In other words, in 10 years, public sector investment transforming agriculture thereby impacting the livelihood of 60-crore people has been a meager Rs 2.5 lakh-crore. Whereas in the past decade, the industry has been given tax concessions to the tune of Rs 42-lakh-crore. This huge subsidy to the industry, if recovered, and invested in rural development programmes effectively could have wiped out poverty for 84 years as some estimates have suggested. If poverty can be removed for 84 years, I am sure you’ll agree that for all practical purposes poverty becomes history in India.

Now let us look at the economic reforms. It is almost 25 years since India opted for economic reforms in 1991. In these 25 years too, rural poverty has refused to recede. Against all studies and reports that pointed to a significant reduction in poverty, the socio-economic survey openly calls the bluff. Against the expectation of the percentage of population living in poverty sliding to about 21 per cent in the past decade, this survey shows that rural poverty is much higher, exceeding 30 per cent. Even this is a conservative estimate knowing that even the revised poverty line – Rs 47 a day in urban and Rs 32 in rural areas – is not enough.

In a market economy it is generally believed that poverty comes down when growth picks up. This is not true. Poverty has not come down in India in the past 10 years when the growth rate remained high at an average of 7.5 per cent. Pushing people out of agriculture, and providing job opportunities in the form of dehari mazdoor in the cities to be employed as cheaper contract labour in infrastructure projects is not employment generation. Nor is it a plausible way to pull people out of poverty. Already 51 per cent of the rural population is dependent upon daily wages. They are looking for jobs which are non-existent. Take the case of Tamil Nadu. As per MNREGA public data portal, more than 63 lakh households demanded employment under MNREGA in 2013-14. This constitutes 9 per cent of the households who are employed in manual labour. In any case, in the past 10 years, only 1.5-crore jobs have been created throughout the country against the annual turnout of 1.2-crore people who become eligible for employment.

In an era of jobless growth, the findings of the socio-economic survey needs a proper assessment and an honest appraisal. To use it to justify the push for a higher economic growth as the way forward would be a grave mistake, a historic blunder. #

Jul 8, 2015

Moody's is wrong: Reforms is not the solution to raise rural incomes

Ratings agency Moody’s has at least got the first part right. Farm distress is pulling down economic growth. “India’s farm sector expanded only 0.2 per cent in 2014-15, data released by the government in May showed, and thereby depressing rural income growth.”

This is absolutely right. But where Moody’s has gone completely wrong is its effort to link rural slowdown with the slow pace of economic reforms. In a report ‘Inside India’ which is based on a poll conducted by Moody’s global credit research, the rating agency pointed to “sluggish reform momentum”. Harping again and again on “disappointing pace of reforms’’ has therefore become a usual but overused expression, which is turning out to be a nothing but a cliché.  

The problem with creditors (and credit ratings agency are supposed to operate on their behalf) is that they cannot look beyond reforms, which means cutting down on social security in the name of containing fiscal deficit. Such austerity measures have already created a socio-economic upheaval in Europe, and the crisis in Greece emanates from such faulty prescriptions. Even the IMF has reluctantly begun to accept that the ‘trickle down’ theory, the hallmark of global economic reforms, does not work anymore.

“Rural income growth has been struck in the mid-to-low single digits in 2015 to date, well off the 20 per cent plus rates clocked in 2011. Given the rural consumer price inflation came in at 5.5 per cent year-over-year in May, this means that rural wages are actually contracting in real terms,” the Moody’s report said. This certainly is a correct assessment. The lower the rural incomes, the less would be the capacity of the rural people to increase consumption as a result of which the demand for industrial as well as FMCG products decline. The wheels of economy come to a halt when rural wages decline.

Instead of pushing what is generally meant by reforms, what is urgently needed are measures that raise farm incomes to a higher level and at the same time attract more public investments in rural areas. The best way to do so is to raise the minimum support price (MSP) for farmers. The subdued hike in procurement price of rice by a mere Rs 50 per quintal, an increase of 3.67 per cent, is less than the 5.5 per cent rural consumer price inflation that Moody’s report point to. Similarly, the hike in wheat MSP is by Rs 50/quintal, a jump of 3.27 per cent, shows how deliberately farm incomes are being kept low. With such low farm incomes how does Moody’s expect a revival in rural incomes to the levels achieved in 2011? I would have therefore expected Moody’s to make a strong plea for raising the MSP for farm produce. But perhaps I was expecting too much.

This assumes significance in the light of a recent studiy highlighting the mounting rural indebtedness over the years. In his book Rural Credit and Financial Penetration in Punjab, Dr Satish Verma, RBI Professor at the Centre for Research in Rural and Industrial Development (CRRID) in Chandigarh, clearly shown how rural debt has been multiplying. In Punjab, the food bowl, the average cash loan per cultivator household has risen by a whopping 22 times in a decade. In just 10 years, the average debt per farmer has risen from Rs 0.25 lakh to Rs 5.6 lakh.

Incidentally, Punjab, ranks third in the country as far as farm debt is concerned. Chhattisgarh tops the chart with Rs 7.54 lakh, followed by Kerala at Rs 6.48 lakh.

Loading the farmer with more credit would surely help the sale of farm machines and equipment, which would add to the country’s growth, but is no reflection of the extent of agrarian distress that prevails. It is easy to say that “a sustained soft patch or India’s rural economy would weigh on private consumption and non-performing assets in the agriculture sector, a credit negative for the sovereign and banks,” but difficult to spell out an economic gateway from where the indebted farmer can exit. Moody’s reforms (like other rating agencies) have only pushed 600 million farmers deeper and deeper into a vicious cycle of credit, indebtedness and suicides.

Moody’s report also includes highlights from the first annual Moody’s and ICRA Credit Conference held in Mumbai in May. Well, if you invite only the creditors/investors to such conferences you certainly will not get a complete picture. #

* Moody's report is disappointing: Reforms is not the solution to raise rural incomes. July 2, 2015.