Agricultural potential: vested interests should not be allowed to turn India’s strengths into weaknesses

A year ago, the passage of three agricultural laws was the most radical reform adopted by the Narendra Modi government, the most ambitious reform since 1991. Today, the repeal of these same laws is the biggest fall policy of India’s first one-party majority government. since 1989. For Modi’s critics, it’s a schadenfreude moment. For India, this does not bode well. Narrow vested interests, which have hampered India’s economic growth, continue to wield enough power to defeat a strong government and a popular prime minister.

Two sets of statistics summarize the major challenge facing the Indian economy 30 years after economic liberalization. First, over 40% of the workforce is still employed in agriculture, producing only 14% of GDP. Second, the share of manufacturing in India’s GDP has remained stagnant at around 15% for 30 years. In this oversized agriculture and undersized manufacturing, it is the story of insufficient jobs, or at least a lack of quality jobs in sufficient numbers. It also explains the failure to achieve East Asian growth and prosperity levels.

Two different special interest groups (read: acquired) have played a disproportionate role in perpetuating this weakness – large farmers and importers (of industrial goods). To be fair to this government, he has worked hard to counter both interest groups in an effort to free the economy. On the one hand, he surrendered. On the other, the jury is out. This descent may embolden other vested interests.

Often, special interest groups are themselves the product of policy. The relatively prosperous large farmers of Punjab, Haryana and western Uttar Pradesh – and their associated middlemen – are a legacy of the Green Revolution. It was the generous hand of the state that brought them to prosperity by providing high-yielding seed varieties, investing in irrigation and ensuring minimum support prices (MSP) for grains like rice. and wheat. The fact that these farmers’ lands were naturally fertile was an added bonus.

Unfortunately, the majority of Indian farmers do not live or work in the Green Revolution belt. They don’t make a good living from farming. Too many of them still depend on rainfall, the local monopoly of the Agricultural Products Marketing Committee (APMC) and the lack of support prices. Because they are poor, they do not have the resources to organize and mobilize like the farmers of the Punjab, Haryana and the UP. GoI tried to change policies to help the majority access larger markets and get better prices, but the voice minority blocked it.

Realistically, even radical agricultural reform would not allow agriculture to support 40% of the workforce. Just note the example of the Punjab, where there is a rush to emigrate to Canada and Britain in search of better livelihoods. The relative prosperity of these farming families makes it possible to invest in emigration (this costs money). Other farmers have no choice. They would look for alternatives in India.

In every country that has become prosperous, whether in the advanced West or in East Asia, surplus labor from agriculture has shifted into manufacturing. The limits of the service sector to absorbing agricultural labor are evident in India where, after three decades of very impressive growth, millions of people remain underemployed.

Prior to 1991, it was special protectionist interests that prevented India from developing a competitive manufacturing sector. After 1991, the pendulum swung in the other direction. Aggressive tariff liberalization created a lobby of importers with an interest in maintaining the status quo of an uncompetitive manufacturing sector.

India is a big market and manufacturers all over the world have to sell their goods in India. By implementing import liberalization without reforming land, labor, banks, electricity tariffs and freight rates, India has become a fully importing nation. In 2000, India’s trade deficit with China, the world’s largest manufacturer, was only $ 1 billion (7,431 crore yen). It was multiplied by 60 over the next 15 years due to manufactured goods.

The GoI has attempted to reverse this trend by reimposing moderate tariff protection, announcing incentives such as Production Linked Incentives (PLIs) for manufacturers in India, and starting to reform labor laws and clean up the banking mess. It has cut taxes and is also trying to get rid of inefficient public sector companies (PSUs). There is no doubt that vested interests will seek to derail or delay this concerted attempt to build manufacturing capacity. But with farm laws pending, only manufacturing can help farmers.

India has always been proud of its agriculture and its vast market. These must be exploited as assets. Vested interests should not be allowed to turn India’s strengths into weaknesses.

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