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Resource centre on India's rural distress
 
 

Political economy structures perpetuate myopic understanding of agriculture sector -Nirvikar Singh
-The Financial Express

A half-dozen years ago, I participated in a conference on water resource challenges in India. I remember Upmanu Lall, professor at Columbia University, graphically and bluntly making the point that Punjab’s water table was not far from collapse. This has been known for years, and there have been feeble efforts to deal with the problem, but they have been far short of what is needed. My own understanding of the problem has been that there is that Punjab has become “locked-in” to the current disastrous trajectory because of political and economic switching costs, including those with vested interests in the current system.

Now, the wave of unrest among farmers in multiple parts of India reminds us that the problems of Indian agriculture are more pervasive than just what ails Punjab. Allowing Punjab agriculture to go down its current road until the state becomes a desert or the water is poisoned, and shifting central food grain procurement to other parts of India will not serve the rest of the country well, aside from its devastating impact on Punjab and its citizens. A timely analysis by Shoumitro Chatterjee and Devesh Kapur, first presented at the 2016 India Policy Forum, but much expanded since then, gives us an important set of insights.

Chatterjee and Kapur identify six “puzzles in Indian agriculture,” namely, prices, procurement, political economy, trade, productivity, and exit. Their work represents a major attempt to provide an integrated macro overview of the failings of Indian agriculture, which continues to directly support—albeit poorly—a large fraction of the nation’s population. The specific issues, briefly, are as follows. First, there is high and persistent variation in agricultural prices across the country. Second, there is widely varying implementation of national price support policies across different states and even districts within states. Third, despite numbers and periodic protests (such as we are seeing now) farmers’ incomes have languished. Fourth, India seems to produce an excess and export agricultural crops that are intensive in scarce resources such as water and land. Fifth, agricultural productivity varies dramatically across India, often being well below the technology frontier. Sixth, farmers seem to be trapped in their low-income occupation, unable to exit.

What are some of the answers that Chatterjee and Kapur provide? On price dispersion, they rule out quality differences and trade costs as the sole explanatory variables, leaving market power within market institutions (mandis) as an explanation that needs investigation. Separate micro-level analysis in West Bengal by Dilip Mookherjee and several co-authors is consistent with this conjecture for the nation as a whole. For price supports and procurement, Chatterjee and Kapur suggest several possibilities that could be investigated systematically: local differences in market prices, lack of marketable surplus, complementary lack of institutional capacity or interest by government agencies, and local political manipulation.

The third puzzle, of political economy, is a crucial and complicated one. As the authors point out, farmers do get input subsidies, loan waivers and price supports. But the political influence of farmers seems to have waned in recent decades, and institutional reforms that could lead to higher productivity over time have been neglected or have stalled. One conjecture that seems to fit with whatever I have learned about Punjab agriculture from local informants is that the interests of intermediaries—those providing inputs and often also controlling the purchase of outputs—remain the politically decisive determinant of policy choices and implementation. In this view, intermediaries have no interest in farmers breaking out of a system which enriches mostly the middlemen.

The fourth puzzle, of effectively exporting scarce resources such as water, can be traced to distortions in pricing of water and of different crops, again reflecting a kind of lock-in as well as political economy structures that encourage myopia. Productivity gaps, the fifth puzzle, is also related to input price distortions, in this case, fertiliser, although one can add an effective collapse of traditional agricultural extension to the causes, something that fits with low institutional capacity as a culprit—although the shifting of funding away from extension to subsidies presumably has a political economy explanation as well. Finally, the sixth puzzle, of low exit, is clearly related to India’s failure to generate enough jobs outside agriculture.

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