Financial Daily from THE HINDU group of publications
Tuesday, Oct 05, 2004
Agri-Biz & Commodities - Insight
Industry & Economy - Natural Calamities
Agrarian crisis in Andhra Pradesh
C. P. Chandrasekhar
Andhra Pradesh provides a dismal example of the disastrous effects of neo-liberal economic policies upon agriculture.
The new Government in the State which came to power essentially because its leaders showed themselves to be aware of the severity of the problems in the countryside has therefore made agricultural regeneration the most important priority. It is becoming increasingly evident that the difficulties confronting agriculture in Andhra Pradesh are complex and multifarious, and will in fact require a complete reversal of the earlier economic strategy followed in the State, if these problems are to be adequately addressed.
But the past experience in Andhra Pradesh deserves even greater national attention. This is because what has already happened in very acute form in this State is occurring in many (even most) other parts of rural India. Even the same symptoms farmers' suicides, hunger deaths in the midst of production surpluses, distress migration under stark conditions are exhibiting themselves in regions as disparate as Vidarbha in Maharashtra and south-western Rajasthan.
The causes, also, are broadly the same, with the shift towards increasingly unreliable cash crops, the decline in institutional credit, the problems with input supplies and crop marketing, and the lack of alternative non-agricultural income opportunities, all contributing to the generalised agrarian crisis.
Of course, what has happened in rural Andhra Pradesh has been particularly severe. The State had become almost a laboratory for every extreme form of neoliberal economic experiment, with a massive shift towards relying on incentives for private agents as opposed to State intervention and regulation of private activity, in virtually all areas. Ironically, this decline in the State's role took place at the same time that the State Government was incurring massive external debts from bilateral and multilateral external agencies. Many of the problems in the economy of the State in agriculture as well as in non-agriculture can be traced to this reduction of the Government's positive role and the collapse of a wide range of public institutions affecting the conditions facing producers.
Take the problem of farmers' suicides, which are probably the most dramatic sign of extreme despair and hopelessness, and close to starvation deaths as the most blatant indicator of the extent of rural devastation. The proximate cause of such suicides is usually the inability to cope with the burden of debt, which farmers find themselves unable to repay. In most (but not all) cases, the debt was contracted to private moneylenders, as the massive decline in agricultural credit from banks and co-operatives has reduced access especially of small cultivators to institutional credit.
But the debt burden itself is only a symptom of the wider malaise. Cultivation itself has become less and less viable over time, as input prices in Andhra Pradesh especially have skyrocketed, and farmers have gone in for cash crops with uncertain harvests and even more uncertain output markets. The opening up of agricultural trade has forced farmers to cope with the vagaries and volatility of international market prices, even while the most minimal protection earlier afforded to cultivators has been removed.
Public agricultural extension services have all but disappeared, leaving farmers to the mercy of private dealers of seed and other inputs such as fertiliser and pesticides who function without adequate regulation, creating problems of wrong crop choices, excessively high input prices, spurious inputs and extortion. Public crop marketing services have also declined in spread and scope, and marketing margins imposed by private traders have therefore increased. All this happened over a period when farmers were actively encouraged to shift to cash crops, away from subsistence crops which involved less monetised inputs and could ensure at least consumption survival of peasant households.
The crisis in water and irrigation sources can also be traced to these cultivation patterns. Overuse of groundwater once again resulting from the absence of public regulation or even advice, as well as the shift to more water-using crops has caused water tables to fall across the State. Declining public investment, inadequate maintenance and the regionally uneven pattern of spending, have all made surface water access also problematic. In consequence, there are now real problems with respect to even the current economic viability of farming as a productive activity in most parts of rural Andhra Pradesh, not to mention its sustainability over time.
Other factors have added to debt burdens that become unbearable over time. Production loans dominate in current rural indebtedness. But among the non-productive loans incurred by rural households, those taken for paying for medical expenses are the most significant. The deterioration of public health services and the promotion of private medical care have dramatically increased the financial costs of sheer physical survival and wellbeing, even among the relatively poor.
This entire process is sometimes presented as a situation in which rural people have been "left out" of the process of globalisation, or have been "marginalised" or "excluded". But nothing could be further from the truth. The problem is not at all that cultivators and workers in this State have been "left out"; rather, they have been forced into market relations that are intrinsically loaded against them. They have not been marginalised and excluded; instead, they have been incorporated and integrated into market systems in which their lack of assets, poor protection through regulation and low bargaining power have operated to make their material conditions more adverse.
Thus, there have been policy errors of both omission and commission. And these have combined to create the specific problems outlined above, on which there now exist a wealth of data and a number of useful studies. But the effects of these errors are apparent even in the aggregate data on output, even though these are recognised to be notoriously slack in identifying actual material trends.
Chart 1 indicates the behaviour of the index numbers for per capita income (that is net domestic product in constant 1993-94 prices) for all sectors and for agriculture alone. The SDP has been deflated by total population, and the agriculture product has been deflated by rural population only, to give an idea of the actual trends over time in rural incomes.
It is evident that while aggregate SDP per capita has increased moderately since 1993, SDP in agriculture per capita shows no such increase, and has actually declined. In fact, between the triennium 1994-94 to 1995-96 and the triennium 2001-02 and 2003-04, per capita agricultural product actually declined by around 12 per cent.
This has also been reflected in indicators of per capita consumption, which probably provide a more accurate picture of the real economic conditions in the countryside. Chart 2 indicates the trend in the four regions of rural Andhra Pradesh according to the NSS consumer expenditure surveys.
Aggregate per capita consumption for the rural areas of the whole State taken together increased marginally between 1983 and 1999-2000. But it is notable that there appears to have been hardly any increase since 1993-94, despite the moderate increase in per capita SDP indicated above.
What is even more significant is that per capita consumption fell after 1993-94 in all the regions of rural Andhra Pradesh barring the coastal region. This fall was particularly marked for Rayalseema (comprising the southwest and inland southern regions). So, in most of the rural areas of the State, average consumption expenditure actually declined in real terms in the period 1993-94 to 1999-2000.
This is quite consistent with the picture of growing difficulty of cultivation that has been outlined above. But in addition to the agricultural patterns, the general stagnation of the rural economy, and the absence of non-agricultural income generation possibilities, contributed further to the deterioration of living standards in the countryside. Part of the problem in employment generation stemmed from agriculture itself not only was this sector depressed, but the increasing mechanisation implied falling labour use per hectare of cultivation.
Growing mechanisation of agricultural activity was a phenomenon noticed across rural India. But in Andhra Pradesh this was actively encouraged by the State Government, which provided subsidies to large farmers attempting to change cultivation practices to use more mechanised techniques. To give an idea, the subsidy expenditure incurred by the State Government for farm mechanisation increased from Rs 250 crore in 2001-02 to as much as Rs 933 crore by 2003-04.
Unsurprisingly in this context, agricultural employment stagnated. Table 1 provides evidence on the growth of employment, using work participation rates (for all workers and for principal and subsidiary activities) from the NSS and population data from the Census of India. Total agricultural employment in terms of Usual Status occupation barely increased at all between 1993-94 and 1999-2000, while in terms of Daily Status (which as a flow measure is a more accurate indicator of labour demand conditions) actually declined.
This decline in agricultural employment was not countered by any increase in non-agricultural employment, so that total rural employment effectively did not increase at all, in a period when rural population in Andhra Pradesh was increasing by around 1.4 per cent per year. Andhra Pradesh shows the lowest rate of rural employment growth (of all types that is principal and subsidiary) among all the States of India, at less than one-tenth of the already low national average of 0.66 per cent per year over this period.
This too was related to national and State government policies in particular, the decline in public expenditure directed towards the rural areas especially after 1992-93. The positive multiplier effects of public expenditure in rural India have been widely noted; indeed, it was such expenditure that was responsible for the diversification of employment observed across the rural economy in the late 1980s, and the associated reduction in rural poverty. By contrast, the 1990s were marked by a concentration of public resources towards urban areas.
This trend was especially marked in Andhra Pradesh, where the urge to build up a supposedly modern metropolis in Hyderabad and to enhance certain types of connectivity, especially for urban areas, dominated over the evident need to provide resources even for basic infrastructure in the villages. Thus, even public investment that directly contributes towards agricultural growth, whether in the form of road and rail connectivity or the construction and maintenance of surface irrigation schemes, was reduced. The pattern of public expenditure therefore contributed in no small measure to the overall agrarian crisis.
In addition, as has already been noted, certain critical public organisations that provided direct assistance to farmers were either closed down (such as the AP Irrigation Development Corporation, which provided assistance in groundwater exploitation) or greatly debilitated (such as the AP Seed Corporation).
All this is important in suggesting how the direction of policy must change in Andhra Pradesh, and the good news is that the State Government already appears to be aware of much of this. But it also serves as a warning for the whole of India. Indeed, just as Andhra Pradesh provides a dismal example of the disastrous effects of neoliberal economic policies upon agriculture, it also may in future point to the alternative policies that allow for viable and sustainable agriculture to develop in India.
The extensive nature of the agrarian crisis in Andhra Pradesh is now widely known. But it is not more generally recognised that what has already happened in that State is actually replicating itself to varying degrees across Rural India.
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