Alleviating Indias Poverty

Updated: Aug 6 2002, 05:30am hrs
Why is India regarded as a poor country The answer is obvious. Because a large number of Indians are poor in an economic sense. The reference is to income poverty as well as to other indicators of poverty such as illiteracy, disease and infant mortality. But why are a large number of Indians poor

The answer should be obvious but, I am afraid, is not 700 million out of 1,000 million people in India depend on agriculture for their livelihood; 70 per cent of the total work force is engaged in agriculture. But agriculture and allied activities (however widely defined) contribute no more than 30 per cent of Indias Gross Domestic Product. The numerator (income) is small, the denominator (population) is large, and the result is that most Indians have a low per capita income. Moreover, the share of agriculture in Indias GDP is declining, but the population dependent on agriculture is not declining at the same rate. Too many people with too little income, and simple arithmetic tells you that these people are doomed to be poor.

You will notice that there are two factors here. The first is the number dependent on agriculture. I doubt if this can be altered dramatically in the near future. We can and must do more to motivate more people to find jobs in the industrial and services sectors. The objective conditions are favourable. Agricultural holdings are becoming smaller, the literacy rate is growing, and young men and women have rising aspirations. Nevertheless, it will take India 25 years perhaps more to significantly reduce the number of people dependent on agriculture.

The other factor is income. The low levels of agricultural income are directly attributable to low prices. It is fashionable to say that prices of food and food products are high and hurt the common man. The truth is that prices of agricultural products in India are much below world prices. The World Trade Organisation has a formula to measure the aggregate support given to agriculture. It is called Aggregate Measures of Support. So far as India is concerned, the AMS is negative. That means, notwithstanding input subsidies and minimum support prices, Indias farmers bear the burden of a negative subsidy! Indias agricultural producers are actually subsidising the consumers.

This anomalous situation is because of our attitude to food prices. Food is basic to human existence, yet we are unwilling to pay fair and reasonable prices for the food we consume. Even those who have decent incomes complain loudly if prices of basic food articles like rice, sugar or milk go up by as little as Re 1 per kg or litre. The same person will not hesitate to buy a 1 litre bottle of mineral water for Rs 12 or an ice cream for Rs 15.

We pay our farmers ridiculously low prices for their produce. A bag of 75 kg of paddy is procured by state agencies for Rs 330 in Tamilnadu, a price barely adequate to cover the farmers cost of producing the paddy. A bag of 75 kg of paddy will, on conversion, yield 45 kg of rice. The price paid to the farmer-producer is therefore Rs 7.50 per kg of rice. It is retailed at Rs 12 per kg to the consumer. At these price levels both, the producer and the consumer, are unhappy. Suppose we could motivate the consumer to pay a little more for every kg of rice and find a way to ensure that the additional price reaches the farmer-producer, it would immediately raise the income level of the farmer.

Take another example. The statutory price for sugarcane is Rs 760 per tonne in Tamilnadu. Sugar is retailed at Rs 12 per kg. If the consumer is willing to pay one rupee more for a kg of sugar, the statutory price can be raised by Rs 80-100 per tonne of sugarcane. The income of the farmer-producer will rise significantly. The same argument holds good for milk, eggs and vegetables. If retail prices go up by Re 1 per kg or litre it will undoubtedly put an additional burden on the consumer. The way out is to educate her to bear that additional burden willingly, and compensate by cutting expenditure under some other head entertainment or shoes or clothes. That is what people do in most developed countries of the world.

When Frances farmers protested against the European Communitys Common Agricultural Policy, 10 million French men and women came to the streets to join the protest. The Japanese zealously protect the interest of the 2 per cent of their population engaged in agriculture by paying high domestic prices and imposing high tariffs against imports. What France and Japan do, India must do with greater zeal.

Look at the prices we pay our farmers. The farm-gate price for coffee (Robusta cherry) is Rs 10 per kg. Green tea fetches Rs 4.50 per kg. A coconut gets Rs 2.50 for the grower. Rubber prices are on a roller-coaster. A remunerative price must cover the costs of the farmer-producer and leave a little surplus in his hands, if he has come out of the morass of grinding poverty. In that sense, most agricultural products do not get remunerative prices.

At the end of a normal year, the farmer finds himself, economically, in the same position as he was at the beginning poor and struggling. In a bad year, when the monsoon fails or the crop is affected, he slips further down the ladder. The farming community gets impoverished. Many sink deeper into debt; some commit suicide. The monsoon was erratic in 2000-2001 and, as a result, rice output declined by 3.1 million tonnes and wheat output declined by 7.1 million tonnes. So did the production of coarse cereals (-0.2), pulses (-7.1) and oil seeds (-2.6). In 2001-2002, if there are floods in one part of the country and drought in another, the position will become worse.

The key to removal of rural poverty is agricultural prices. A mature and civilised nation must cherish its agriculture and protect its farmers. If the price for a robust agricultural sector is to pay a rupee more for a kg or little of food products, we must be prepared to pay that price.

The author is a former union finance minister and starts a regular column from today