Category: Agricultural sector

Budget 2010: An Analysis

The budget document considers the high growth rates India has achieved as a ‘gain’, which needs to be consolidated so that there can be ‘inclusive’ growth. Economics, during its course has divorced rate of growth of output (of commodities and services) from the question of employment. Hence, we need to use terms like ‘jobless growth’, ‘inclusive growth’ and so on. Unfortunately, a weak form of trickle down theory is assumed in most cases. Therefore, having a high growth rate becomes a necessary pre-requisite.

It is comforting to see that the need for good institutions have been emphasised in the document. As one of the challenges is ‘to address the weaknesses in government systems, structures and institutions at different levels of governance. ‘

Unorganised sector has been highlighted in the document. A National Social Security Fund has been established for workers in this sector. And the National Skill Development Corporation has approved three projects worth about Rs 45 crore to create 10 lakh skilled manpower at the rate of one lakh per annum targeting the unorganised sector. I guess the question is: do we impart skill to the workers or do we provide jobs according to their skill’

On the agricultural front, 5 more mega food parks are going to be set up as an impetus to the food processing sector. Under the Debt Waiver and Debt Relief Scheme for Farmers, the period of repayment has been extended owing to the drought. In order to step up agricultural production, around 60,000 ‘pulse and oil seeds villages’ are going to be set up. And the benefits of ‘green revolution’ are going to be increased by carrying out similar activities in the eastern region of India. The ‘benefits’ indeed!

Owing to the financial crisis, an apex level Financial Stability and Development Council will be set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability. Alongside this, FDI flows will be liberalised more. It is interesting how new challenges/problems are brought about. Regulation is removed in a particular sector and regulation is increased in some sector. Overall, it seems to appear that ‘less regulation’ is considered efficient- right prices, no wastage of output and so on. Thanks to Neoclassical Economics.

Several projects are being set up to meet our energy demands and also to conserve our environment. Strengthening transparency and public accountability seems to be given adequate importance (in paper at least). In this context, an Independent Evaluation Office (IEO) chaired by the Deputy Chairman, Planning Commission to be set up to evaluate the impact of flagship programmes. More and more committees and commissions coming up!

On the whole, I think it is a more government’s budget than people’s or the corporates! However, their highlighting of the unorganised sector and the crucial role of institutions need to be congratulated.

What are the Contents of India's Economic Growth’

The above question was discussed by Bhabatosh Datta in 1977 in his book The Contents of Economic Growth and Other Essays. This blog post briefly revisits Datta’s article to see whether the current growth of India is on the right track. A few details about Datta is in order. For most of his life, he taught at Presidency College, Calcutta. He is an economist who has written on diverse aspects of the Indian economy – industrialisation, planning, regional rural banks, economic growth, monetary reforms, commercial banks, financial system and on Indian economic thought. And for this reason, his work is of utmost relevance to us- who want to understand the Indian economy.

On 29th December 2009, the Deputy Governor of RBI spoke about the ‘Current Macroeconomic Developments in India’. I reproduce some of her observations below:

India had a strong recovery in the second quarter of 2009-10 at 7.9 per cent. “The sequential recovery over the first quarter of 2009-10 was driven by notable turnaround in industrial output (9.0 per cent), and services sector (9.0 per cent), while agriculture sector also came to record a positive growth (0.9 per cent), despite drought like conditions and floods in some parts of the country.”

Which India had a strong recovery, when more than 60% of Indian population work in the agricultural sector’ As Datta writes, for India, economic growth takes place when there is “growth in employment and growth in incomes of large numbers.”

“On the whole, agricultural production during 2009-10 hinges critically on the performance of the North East monsoon and rabi production.”

“The recovery in industrial growth has been broad-based with acceleration in growth of all the three sectors, viz., mining, electricity and manufacturing .”

The consumer durables sector shows an impressive growth with 22.2 per cent in the second quarter of 2009-10.

Consumer durable showing strong growth, a recovery of industrial growth alongside a critical agricultural sector seems to suggest that Indian policy makers and economists seem pre-occupied with non-problems. As Datta lucidly points out: “it is possible that over a particular year there has been only a very small increase in agricultural and essential industrial production, while there has been a substantial rise in the output of luxury goods, high-income varieties of consumer goods and outdated capital goods.”

It is easy to forget that 8% or 9% rate of growth does not have a unique meaning. For, it might express many alternative states of affairs. I often wonder, what our objective should be as an economist in India! As I had argued elsewhere, it is time that we looked at the structure or the contents of economic growth carefully.

On Disguised Unemployment: Some Issues

This post discusses some of the broad theoretical issues underlying the category of ‘disguised unemployment’. The discussion is made clear by closely examining the hypothesis that Indian agriculture is plagued by the presence of high disguised unemployment.

Let us take a glimpse at the Economics textbook for class XI published by the NCERT. (NCERT 2006, p 131, Indian Economic Development)

‘Economists call unemployment prevailing in Indian farms as disguised unemployment. What is disguised unemployment’ Suppose a farmer has four acres of land and he actually needs only two workers and himself to carry out various operations on his farm in a year, but if he employs five workers and his family members such as his wife and children, this situation is known as disguised unemployment. One study conducted in the late 1950s showed about one-third of agricultural workers in India as disguisedly unemployed.’ (italics mine)

Is disguised unemployment unemployment’

A thought experiment. Suppose A and B are two similar countries ‘ both are equally populated. Now, a study has estimated disguised unemployment in country A to be 30% and in country B to be 10%. This implies that employment in country A is more than that of country B. Should this be of concern’ Must we try and reduce disguised unemployment in country A’

If so, what is the basis of ‘disguised unemployment” Do we see the principle of allocative efficiency present in disguise’ Disguised unemployment means that ‘labour’ is ‘inefficiently’ utilised. Attestation of this claim is done by showing the high share of workers employed in agriculture alongside the low contribution of agriculture to GDP.

The first draft of National Employment Policy (2008) reads thus: ‘Over half the workforce continues to depend on the agriculture even though it accounts for less than a fifth of the total GDP. This implies a vast gap in incomes and productivity between agriculture and non-agriculture sectors. This is mainly due to inadequate growth of productive employment opportunities outside agriculture.’ Is employment the need of the hour or is it contribution to GDP’ Which variable (employment or GDP) should be the criterion’ Why not improve the quality of employment in agriculture’ To attain quality, provision of infrastructural support is absolutely essential- credit facilities, good roads and increased railroad connectivity, storage houses, institutions so as to enable the farmers get a ‘decent’ price for their produce, etc.

In 1960-61, the share of agriculture, forestry and fishing in total GDP was 53% (at 1993-94 prices). This came down by around 30 percentage points to 22% in 2002-03. On the other hand, the share of agriculture, forestry and fishing in total employment was 75.9% in 1961; by 1999-2000, it had come down to 59.9%. [The Oxford Companion to Economics in India, ed Kaushik Basu, OUP: New Delhi, 2007, p. 11]

The above discussion attains significance when we view agricultural workers as those who are trying to make a livelihood out of various jobs ‘ farm and non-farm employment and self-employed and casual labour. ‘Employment’ mainly refers to wage employment. In India, out of total employment, the share of self-employment is the highest. As Amit Bhaduri writes, the economic activities predominant in the agricultural sector (or rural or informal) can be called as ‘survival strategies’. [Bhaduri 2006, Employment and Livelihood, in Employment and Development: Essays from an Orthodox Perspective] He cautions the policy makers on the use of dual-sector models in framing development policies for India owing to the heterogeneity prevalent in rural India and also because of the specificities present in the unorganised agricultural sector. Hence, the notion of ‘surplus labour’ loses much of its weight. In turn, we need to carefully look at ‘disguised unemployment’ for it disguises a lot of specificities of rural India.

On the Unorganised Sector in India

This post very briefly touches some aspects of the informal sector in India. Since, this sector is not organised strictly on the lines of capitalist systems, theoretical models find it difficult to accommodate them. And owing to the wide cultural and social differences in India, the informal sector is to that extent heterogeneous and differentiated. But, the first step is to identify such a sector and to broadly identify similarities, especially with respect to the production process and the organisation of the production process. It should be noted that the existence of a large ‘unorganised sector’ is not a problem; rather, it is a peculiar characteristic of the Indian Economy. And theory is supposed to be made in accordance with specificities of an economy and not the other way around.

The significance of the unorganized sector is seen when one takes a look at the NSS survey 1999-2000 ‘ around 92% the Indian workforce (around 370 million workers) is employed in the unorganised sector. This is an extremely large section of India. Hence, any macroeconomic analysis (fiscal policy, monetary policy, international trade, etc) ought to look at this section of the Indian society.

The unorganized sector consists of small economic entities which are diverse and differentiated in nature. This sector (a.k.a. informal sector) is larger than the organized sector in terms of the relative share in GDP as well as the workforce. Moreover, the unorganised sector produces about 60 per cent of India’s GDP and also provides livelihood to nearly 93 per cent of the work force. [Kabra 2003] Whereas a report by National Commission for Enterprises in the Unorganised Sector (NCEUS) ‘estimated the un-organised/informal sector workers as comprising about 86% of work force in the Indian economy in 2004-2005 and informal employment both in the organised and unorganised sector as 92%.’ How can any macroeconomic analysis/model leave this sector out’

Now, let us move on to how data is generated for this sector. As the ‘establishments’ in the informal sector are not governed by any legal provisions, no regular data is available such as that of the corporate (organised) sector. The Annual Survey of Industries (ASI) ‘provides statistical information to assess and evaluate, objectively and realistically, the changes in the growth, composition and structure of organised manufacturing sector comprising activities related to manufacturing processes, repair services, gas and water supply and cold storage’ pertaining to the organised sector. [ASI 2005-06] Based on the Population Census (PC), the Economic Census (EC) is prepared which forms the reference for carrying out surveys to capture the informal sector. These surveys are conducted by the NSSO and are called as enterprise surveys.

To sum up, it is evident that the informal sector is an important contributor towards GDP as well as in terms of providing ‘livelihood’ to a large section of the Indian populace. And, we have data sources such as NSSO data which try to capture the process of production in the informal sector and their economic characteristics, which need to be looked at urgently. For any development process that does not explicitly address the informal sector will be blind towards the Indian reality!

References:

Kabra, Kamal Nayan (2003), The Unorganised Sector in India: Some Issues Bearing on the Search For Alternatives, Social Scientist, Vol. 31, No. 11/12 (Nov. – Dec., 2003), pp. 23-46.

ASI 2005-06, Introduction, Accessed at http://www.mospi.nic.in/stat_act_t3.htm on 26th September, 2009.