Economic Policy in a Liberalising Economy

SPRINGER BRIEFS IN ECONOMICS

Yoginder Kumar Alagh

Economic Policy in a Liberalising Economy Indian Reform in this Century

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Yoginder Kumar Alagh

Economic Policy in a Liberalising Economy Indian Reform in this Century

123

Yoginder Kumar Alagh Central University of Gujarat Ahmedabad, Gujarat, India

ISSN 2191-5504 ISSN 2191-5512 (electronic) SpringerBriefs in Economics ISBN 978-981-13-2816-9 ISBN 978-981-13-2817-6 (eBook) https://doi.org/10.1007/978-981-13-2817-6 Library of Congress Control Number: 2018957059 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

This book is my follow-up to my Indian Development Planning in the UNU-WIDER Series in Development Economics which was a text in many universities and ran into a paperback and a reprint. Since planning has been abolished in India, a book on policy seemed a useful idea. We set the stage on the need to replace the planning commission with a strategic policy-making body. It is interesting that in successful strategic policy set-ups replacing planning bodies as in China, the National Social and Economic Development Commission also allocates funds for PPPs and so on. In India, the NITI Aayog is not so mandated. This creates problems, which we analyse in specific sectors. We then critically describe and evaluate policies in sectors like population, demographics and poverty: agriculture and water, industry and infrastructure: following up with a concluding chapter on appropriate future policies. We try to bring to this book experience in reform of data systems and policy analytics. As Chairman, Agricultural Prices Commission, I started the practice of one report on a season to bring in relative prices as a policy tool. This book also describes the work done for food self-reliance. Later, as Chairman of the then powerful Bureau of Industrial Costs and Pricing (BICP), India, I wrote out the tools to have a transition from firm-level pricing to industry-level pricing and tariff policies. Globally, experts like Lance Taylor and Jeffrey Sachs were to underline later these policy initiatives as models. I have tried to make this a textbook with a difference written by a trained economist using his experience in research and policy. Ahmedabad, India March 2018

Yoginder Kumar Alagh

v

Contents

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1 1 2 2 2 3 4 5 7

Poverty . . . . . . . . . . . . . . . . . . . . . .

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Why Policy . . . . . . . . . . . . . . . . . . . . 1.2 Why Study Policy Now . . . . . . . . . . . 1.3 Population, Demographics and Poverty 1.4 The Agricultural and Water Sector . . . . 1.5 Manufacturing . . . . . . . . . . . . . . . . . . 1.6 The Future . . . . . . . . . . . . . . . . . . . . . 1.7 Why Development Policy . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . .

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2 Population, Demographics and 2.1 Introduction . . . . . . . . . . 2.2 Population . . . . . . . . . . . 2.3 Demographic Dividend . . 2.4 Possibilities . . . . . . . . . . 2.5 Poverty . . . . . . . . . . . . . 2.6 Conclusion . . . . . . . . . . . References . . . . . . . . . . . . . . . .

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3 The Agricultural Economy . . . . . . . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Larger Growth Story and Growth Epochs . . . 3.2.1 Farmer Producer Companies . . . . . . . . . . 3.3 Terms of Trade and Investment in Recent Epochs 3.4 Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 A Policy Frame . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Technology and Productivity . . . . . . . . . . . . . . . .

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vii

viii

Contents

3.7

Land and Water . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.1 Integrated Water Resources Management . . . 3.7.2 Development and Management . . . . . . . . . . 3.7.3 River Basins and Agro Climatic Regimes . . 3.8 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.1 NITI Aayog’s Vision for Agricultural Sector 3.9 NITI Ayog and the Irrigation Sector . . . . . . . . . . . . 3.9.1 Canals and Ground Water . . . . . . . . . . . . . . 3.9.2 Delivery Systems: SSP . . . . . . . . . . . . . . . . 3.10 Water Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10.1 Water Resources Information System . . . . . 3.11 Critics of the IWRM . . . . . . . . . . . . . . . . . . . . . . . . 3.12 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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42 43 43 44 46 47 49 52 52 54 56 58 59 60

4 Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Strategic Policy and Policy Models in the Liberalization Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.1 Early Origins . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Performance: Highest Growth? . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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5 Policy and Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Elections and Industrial Policy . . . . . . . . . . . . . . . . . . . . 5.2 Origins of Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Global Perspectives after the Meltdown . . . . . . . . . . . . . 5.4 Sustainability in the Economy . . . . . . . . . . . . . . . . . . . . 5.4.1 Emissions Issues . . . . . . . . . . . . . . . . . . . . . . . 5.5 Policies on Agriculture, Rural Development and Poverty 5.6 On Technology and Governance . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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About the Author

Yoginder Kumar Alagh is a professor emeritus/vice-chair of the Sardar Patel Institute of Economic and Social Research in Ahmedabad and chancellor of the Central University of Gujarat. He is also chair professor at the Punjab University. From 1996 to 1998, he was the minister of state (Independent Charge) in the Government of India, for planning and programme implementation, science, technology and power, and until 2001, a member of the Rajya Sabha. He was vice-chancellor of Jawaharlal Nehru University (JNU), a member of the Planning Commission, chairman of Bureau of Industrial Costs and Prices (BICP) and secretary to the government and chairman of Agricultural Prices Commission (APC), Government of India. His professional experience is in research, policy-making and administration of large research/policy formulation professional groups relating to macropolicy and planning, industrial policies and reform, and agricultural planning and policy. He holds a doctorate in economics from the University of Pennsylvania at Philadelphia (USA) and has taught at that university, Indian Institute of Management (IIM) Calcutta as well as at Swarthmore College (Pennsylvania, USA). He has published extensively in India and abroad and was awarded the prestigious V.K.R.V. Rao Award for outstanding research in economics in 1982. He has been consultant/senior adviser to numerous national and international organizations such as FAO, UNDP, ILO, World Bank, ADB and chair of the Scientific Steering Committee of UNESCO’s Social Science Research Programme (MOST), member council of United Nations University, senior fellow of the World Institute of Development Research (WIDER) and of CIGI in Waterloo. His last book The Future of Indian Agriculture (National Book Trust, 2012) generated a lot of interest. He writes a column for well-known Indian newspapers such as the Express Group and the Business Line.

ix

List of Tables

Table 1.1 Table 1.2 Table 2.1 Table 2.2 Table 3.1 Table Table Table Table

3.2 3.3 3.4 3.5

Table 3.6 Table 3.7 Table 3.8

Table Table Table Table Table

3.9 3.10 3.11 3.12 3.13

Change in Selected Social Indicators in Asian Countries: 1960–90 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Values of Human Development Index for Some Asian Countries: 1960–1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Population projections in eleventh plan . . . . . . . . . . . . . . . . . . Projected difference in the growth rate of population aged 15–64 and the growth rate of total population . . . . . . . . . . . . . Average annual growth rates in index of area and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Structural change in workforce in India, 1961–2000 . . . . . . . . Shift in employment in the 1990s . . . . . . . . . . . . . . . . . . . . . . Prices paid and prices received by agricultural sector . . . . . . . Agriculture terms of trade based on GDP implicit price deflators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terms of trade for the agricultural sector 2010/11–2013/14 . . . Economy-wide reforms are removing the anti-agricultural bias (protection rate in %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . India spend twice as much on agriculture as East Asian countries much on agriculture as East Asian countries (agriculture public expenditure expressed as a share of agricultural GDP, percentage) . . . . . . . . . . . . . . . . . . . . . . . . . Normative price calculations: an example . . . . . . . . . . . . . . . . ICOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . India 2020: BAU and normative . . . . . . . . . . . . . . . . . . . . . . . Tank storage in Shedhi system . . . . . . . . . . . . . . . . . . . . . . . . . Districts by water balance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6 6 10 14 23 24 24 28 28 30 33

34 38 41 42 43 45

xi

xii

Table 3.14 Table 3.15 Table 4.1 Table 4.2

List of Tables

Allocations of development expenditure: 2014/15–2019/20 . . . Impact of special irrigation programmes in the seventies and eighties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual growth in index of industrial production . . . . . . . . . . . Annual growth rates of IIP (%) at sectoral level base 2011–12 vis-à-vis 2004–05 . . . . . . . . . . . . . . . . . . . . . . . . . . .

48 50 68 68

List of Charts

Chart Chart Chart Chart

2.1 2.2 2.3 3.1

Chart 3.2

Dependency scenarios 2050 . . . . . . . . . . . . . . . . . . . . . Growth of population and work force . . . . . . . . . . . . . Dependency and savings . . . . . . . . . . . . . . . . . . . . . . . Agricultural terms of trade: 1990/91–2008/09. Source Alagh (2009, 2013a, b), p. 100 . . . . . . . . . . . . Surface and ground water interaction. Source Nicholas Sonntag (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

....... ....... .......

13 14 14

.......

29

.......

54

xiii

Chapter 1

Introduction

1.1 Why Policy As an invited fellow at the World Institute of Development Economics at Helsinki in 1991, the author had written a book on Indian development planning during The Nineties of the last century. It was reasonably well received, running into a reprint and a paper back, so much so that there was pressure to revise it. The Planning 1 Commission of India has since been abolished. It seemed more appropriate to write a book on Indian economic policy for the current generation of students to prepare them for work in the economy as it unfolds. The approach here is to analyse the policy stance of the present NDA Government in India, as stated in recent official documents and to see if it has any relationship with past plans in terms of concepts or program details. The Government has released after considerable examination the NITI Aayog’s Vision Statement up to 2020 (NITI Aayog 2017). This perspective is examined from the planning angle and for its sectoral perspective for agriculture, rural development and the manufacturing sector. The story in the main is that ‘Everything Changes; Nothing Really Does’; well, almost. But politics does matter. This is discussed in the last chapter.

1 It

was replaced by the NITI Aayog.

Some of the material in this chapter is reproduced from papers written by the author and published in The Indian Journal of Agricultural Economics, The Economic and Political Weekly (reproduced with the permission of the journal editors), and in publications of CIGI, Indian Statistical Institute and OECD. These are all acknowledged.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 Y. K. Alagh, Economic Policy in a Liberalising Economy, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-13-2817-6_1

1

2

1 Introduction

1.2 Why Study Policy Now NITI Aayog interestingly decided that resource allocation or not, it would do planning; and in spite of planning being abolished, the Finance Minister allocated resources amongst the States in his Government’s schemes, which now in the Annual Budgets aim to allocate more money than by the previous UPA Government in Centrally Sponsored Projects. The only difference is that earlier, in the Planning Commission, resources were allocated in the Annual Plan based on the Gadgil Mukherji Formula, but now that allocation became ad hoc or as some States say, arbitrary. In spite of all this, the NITI Aayog produced a Three Year Vision Plan 2018/19–2021/22. They don’t have the resource allocation function, but their Plan Document consists of, like all earlier plan documents, sections with Objectives, Expenditure Targets, Resource Allocation, Sectoral Plans and Special problems (NITI Aayog 2017). They have also said that they will release a longer Seven Year Plan on which they are working. The NITI Aayog has a different take on this. And so they state: “The Vision, Strategy and Action Agenda represents a departure from the Five Year Plan process…” (NITI Aayog 2017, p. 1). The Aayog annex a Directive from the PMO for stating this. But the output is now in the public domain for comment and the similarities with earlier plan documents are much too striking to be ignored. Therefore it was felt that a book on Development Policy is in order.

1.3 Population, Demographics and Poverty The author belongs to a generation of economists to which ‘people’ are important. In the early days, in the eyes of development economists in the West, India’s main problem was too many people. That a person is born with a brain to think and hands to work, would not occur to such experts. However, this book begins with a chapter on population and follows it up with the demographic dividend, and the related question of standards of living and poverty. Unfortunately there is still no consensus on measures of poverty and so the reader is taken through a detour on that question and the literature related to it in Chap. 2.

1.4 The Agricultural and Water Sector The Agricultural sector chapter in the NITI Aayog’s Vision Document is not its best, being somewhat sketchy. NITI Aayog’s Agricultural vision had ‘a strong programme for agricultural transformation’, ‘measures to raise farm productivity’, ‘remunerative prices to farmers’, ‘put farmers’ land to productive uses when they are not able to farm it themselves; and chapters in subsequent parts of the document offer an

1.4 The Agricultural and Water Sector

3

ambitious agenda for empowering the rural population through improved road and digital connectivity, access to clean energy, financial inclusion and ‘Housing for All’. ‘The scope of irrigation to increase crop intensity, improve access to irrigation, enhance the seed replacement rate and encourage the balanced use of fertilizers. Precision farming and related new technologies’, were emphasized as also’shift into high value commodities’ by ‘direct sales to buyers of all commodities’ (NITI Ayog 2017). These ideas were introduced in earlier plans (see Alagh 2012) No schematic and project level details are given and Irrigation is clubbed with Power. The Vision document discusses land markets, food processing, APMCs,2 rural urban growth clusters and capacity building of Panchayats. These sections largely repeat earlier ideas (see Alagh 2016a, b, c). There is also a mention of technology for the Water and Agriculture Sector and the need for governance reform. Details are not there and so we discuss them in Chap. 3. In his invited address to The Centennial Conference of The Indian Economic Association in December 2017, the author argued that, as India takes its place in the sun as a major global entity, it does so with a high rate of growth, and a young restless population on the move. Very little can hold it back. But water, energy and other non-renewable resources like land would set the eventual limits of high growth. In spite of all the hiccups and the fact that in some regions India was already very stressed, on policy making India had the civilizational, and given it’s federal democracy, institutional strength to use water well. Therefore when the Minister of Water Resources (MOWR) asked the author to chair a committee to develop a Draft Framework Law for the Water Sector, he accepted the daunting task. This work gained relevance because MOWR introduced a Bill on The National Water Framework Law in the Indian Parliament in 2017. This Bill follows the Draft Framework Law that the author’s committee had prepared, with the change that a minimum amount of water as a Right is not accepted. These developments are discussed in Chap. 3.

1.5 Manufacturing The NITI Aayog has given a refreshingly new focus on thinking on industrial policy. It has repeated a classical perspective on the Manufacturing Sector as an engine of growth and the need to remove many cobwebs from the industrial policy environment (NITI Aayog 2017, p. 31). The NITI Aayog is clear that cobwebs must be removed and we need more formal sector jobs. Now this clear commitment to fast economic growth and nothing but fast economic growth is very attractive to a professional economist. In graduate school, we study the famous Vent for Surplus Models of Trade and Growth (Caves 1965). This was discussed in the planning models, which were used in the erstwhile Planning Commission (see Alagh 1995, 2003). However to state it in cold blood, as it were, is different and refreshingly so; and so it is

2 Agricultural

Produce Market Committee.

4

1 Introduction

embedded in the past but is a more focused priority because it is not embedded in a larger plan. On some, circumspection questions arise and we discuss them in the same chapter it’s vent for surplus and growth with interesting perceptions followed by some debatable statements. The NITI Aayog and others including this author were taken for a ride by seeing that sector as a success story and not anticipating the developments now the scams there have shown. The Manufacturing Sector section gets into development details and organisational questions. Its argument in a nutshell is that India must trade, in goods and services and foreign exchanges, and do it efficiently. But Indian economists must also try and answer questions like the strategic paths of the final stages of India’s open economy macro reforms, trading consequences on the structure of the economy and impacts and India’s role in expanding concentric circles of influence and cooperation. India must participate in the global dialogue on reform in a more positive and thought out manner, based on its own experience. This was possible earlier. It should be possible now.

1.6 The Future In the last chapter on the Future (Chap. 5), the discussion gets into policies in some details. At the beginning of the century, the author was asked amongst others by the UN, looking ahead on large countries, as to how would India move over to a higher growth path of say 7–8%. Going back to the tools taught to the author by his teacher, the author responded that we will have to save more (unlike NITI Aayog, the author believes it is too early to dream of only goodies in a country where poverty is high), and technology application will have to be faster. What was called factor productivity would have to grow at 5% annually and not 3%. And for all that we need more trade. The Indian abroad was doing the saving and sending it across with a benign Central bank underwriting him with an impossible interest rate; but President Trump may put a spanner in all that. If there were other ways, the NITI Aayog’s vision could have stated it. Earlier plans discussed such issues; the present Vision does not. If it did, we could seriously start debating the Vision. Until then as Keynes said—even mad men have visions. NITI Aayog is much too respected an institution to fall in that category. The careful attempt at reconstructing planning is striking. It makes one long for the aura of the much benighted Yojana Bhavan (seat of former Planning Commission, now NITI Aayog). It is required that the experts talk about it and the Chief Ministers of States come there. What is required is the three year action plans (then as earlier as possible a ‘Mid Term Review’) and a perspective. The real issue for India in this century to get its global glory, is growth across gender, caste or religious lines, for markets cannot function otherwise. Also it has to grow fast or it will end up in the dust bin of history, for she is a cruel mistress. Planning and policy states it even now; but the detail is promised.

1.7 Why Development Policy

5

1.7 Why Development Policy I was asked in a first version by the Editor to shorten the references to the Chapters of this book, as normally done in the introductory chapter of textbooks and give some justification in addition to the fact that it is a successor to book I had written on development planning earlier. Recently a good friend of Mine Dr. Kaushik Basu has written on the relevance of the Swedish economist Gunnar Myrdal, who had substantial interests in the development theorises of South Asia including India. Indian Planning was an instrument to correct the distortions which existed in a received colonial economy. For example the transport system was oriented to connecting its resource based regions to port towns, rather than the balanced development of its large regional economies. Dr. Kaushik Basu has been Former Chief Economist with the World Bank, who has also served with the Government of India on deputation, in the very influential position of Chief Economic Adviser to the Government of India. In the Ministry of Finance. Dr. Basu had written an interesting paper in a Memorial Volume on Gunnar Myrdal which reflected the standard Washington Consensus interpretation of Indian Development in the last half of the century and the present decades. Myrdal on the other hand was a critic of the application of the theory of comparative advantage as a Doctrine of export led growth. Gunar Myrdal’s Theories of the Spread and Back Wash Effect was in fact the only strong criticism of trade dominated Development Theory in addition to the work of Raul Prebisch in the late Sixties of the Twentieth Century.India was deeply interested in his work and was a protagonist of this in its role as a leader of the Developing Countries bloc called G 77. Recently Uma Lee, Manmohan Agarwal and Sambuddha Goswami (Lele et al., 2018), have also written an interesting little book for researchers. It has a 119 page Text and 150 page section on Statistics, both raw and processed and References. It gives information on Brazil, China, Indonesia and India and comparisons ; more on India and China. The short text shows the author’s admiration for China ( largely pre 2018), and are critical of India. The standard Washington Consensus argument that both Uma Lele. et.al., and Kaushik Basu give that India, South Korea and other East Asian countries were at the same level in the Sixties is factually incorrect. Data for the Sixties analysed by the author shows that the Japanese were better imperialists than the British. Per capita income of South Korea in PPP terms and social indicators were much higher (see Table 1.1, below) than in India and this part of the Washington Consensus orthodoxy was incorrect. Lele et. al., argue that on ‘MDGs, such as literacy, access to primary education, sanitation and drop in infant mortality, it(India) is lagging not just behind China but also Indonesia.’ (portion in parenthesis added; U. Lele, M. Agarwal and S. Goswami, 2018, p.25). The authors could have taken care of a problem that my friend Mahabul Haq had sorted out at my request and that is to separate levels from change. The following table shows the problems arise if you do not (Table 1.2).

6

1 Introduction

Table 1.1 Change in Selected Social Indicators in Asian Countries: 1960–90 Country Life Adult Population per Physician Expectancy Illiteracy (Additional years)

(Reduction in %)

( 1960 1984 change1960/84)

philippines

11

18

NA

NA

Malaysia

16

20

7020

6090

1930

Thailand South Korea India

14 17 16

25 25 20

7950 3540 4850

1660 2380 2330

6290 1160 2520

Source Y. K. Alagh, Some Issues in Health Financing, International Seminar on Emerging Public Health Issues in South Asia, Achutha Menon Centre for Health Science, Sri Chitra Trinul Institute for Medical Sciences and Technology, Trivandrum, Kerala Table 1.2 Values of Human Development Index for Some Asian Countries: 1960–1997 Country HDI/GDP (real) (1)

1960 (2)

1990 (3)

1997 (4)

India Korea

0.039 0.058

0.029 0.012

0.033 0.006

Source Various Issues of Human Development Report, UNDP

Agriculture was a matter of great concern to Mydral and his colleague Ester Boserup but the critics no time for those prime concerns of Myrdal. Myrdal called A.R.Khan Sahib to Lund in the mid Sixties to discuss agriculture prospects in South Asia on the basis of his Gandhian experiment in the Comilla Academy. The present author was a student in an Ivy League School to which Myrdal wrote a letter to one of his Professors to send an Indian student to the conference and both Myrdal and Khan Sahib had little patience with his training in economics, but the critics have no interest in these matters. India’s industry again would stagnate which Myrdal had shown in the late sixties. But this was reversed in the mid-seventies (Chap. 4 below). Again critics ignore this. We have gone into some detail on these literature exchanges to underscore the different streams underlying Indian planning policy doctrines; the Subject Matter of this book. The kind of arguments discussed above are the dominating policy mould on the Indian economy today and are therefore very influential in practice, on a global and national plane. The critics of this approach are influential since India is a Parliamentary democracy and debates moderate the impact of policies. The analysis of this book suggests that inspite of strong critical views of the Government of ‘earlier’ policies, there is in fact considerable continuity in policies like planning institutions, demographic,agricultural and industrial policies. Both Kaushik Basu and Uma Lele are good friends of the author and he has worked in collaBoth Kaushik Basu and Uma Lele are good friends of the author and

1.7 Why Development Policy

7

he has worked in collaborative publications with them. The purpose of outlining this exchange was to set the larger context in which this book is set. Kaushik’s editions of the Oxford Economic Atlas of India are a great boon to students and teachers. The merit of Uma Lele’s book lies in its extensive data coverage. It was a background study for a World Bank study on Indian Agriculture done in 2011 and so the data is largely upto 2011, updated for India till 2013. The FAO’s, FAOSTAT is a mine of agricultural data. It is organised and cleaned for all Countries. The present reviewer was a part of the Core Modelling team of Agriculture Towards 2000, together with a colleague from Harvard and Oxford’s Institute of Economics and Statistics, which prepared a grand Global Model of World Agriculture for 90 Countries done in the Seventies of the last century called AT 2000. It was flatteringly repeated and now there is Agriculture Towards 2030, led by FAO’s Senior modeller, Jelle Bruinsma, then a young colleaugue who assisted us. At that time data for 90 Countries was compered together and it was updated by FAOSTAT. It had Production, Supply and Consumption Accounts as also Population and what would be called Work Force Accounts. The author brings out that FAO will now stop the estimates of Economic Active Population in Agriculture and that gives their book a lot of importance for young researchers, because once the FAO stops publishing it will be an invaluable source. It is not possible to review the data part of the book and so we only annotate it. The Text builds up estimates of Structural Transformation of Agriculture in the Economy for 109 Countries from 1980 to 2009. Second they analyse land productivity with a focus on India. Third there is analysis of Factor Productivity in Agriculture. A Rich Menu.

References Alagh YK (1991) Indian development planning and policy. WIDER studies in development economics, Helsinki and Delhi, Vikas Alagh YK (1995) Development models: the next phase. In: Prakasa Rao BLS (ed) Statistics and its applications. Indian National Science Academy, New Delhi. Also published in Indian J Pure Appl Math 26(6) (Special Issue) Alagh YK (1998) Some Issues in Health Financing, International Seminar on Emerging Public Health Issues in South Asia, Achutha Menon Centre for Health Science, Sri Chitra Trinul Institute for Medical Sciences and Technology, Trivandrum, Kerala, May Alagh YK (2003) Technology policies and investment strategies. In: de Macedo B, Chino T (eds) OECD-ADB Asia forum. OECD, Paris, pp 165–180 Alagh YK (2008) Enterprise linkages and quality jobs. International Labor Organization, Geneva and New Delhi Alagh YK (2012) The future of Indian agriculture. Delhi, National Book Trust Alagh YK (2018) Poverty Then and Now, Indian Express, July Alagh YK (2016a) The presidents speak, Review Article. Indian J Agric Econ 212–222 Alagh YK (2016b) Indian Society of Agricultural Economics, Structure of Indian agriculture. In: Ramasamy C, Ashok KR (eds) Vicissitudes of agriculture in the fast growing Indian economy: challenges, strategies and the way forward, Delhi, Academic Alagh YK (2016c) Indian agricultural economy under liberalised regime, 1991–2015, vol 3. Academic Foundation, Delhi

8

1 Introduction

Alagh YK (2018) The next stage of planning in India. Econ Polit Wkly LIII(26, 27):24–27 Caves RE (1965) Vent for surplus models of trade and growth. In Baldwin RE et al (eds) Trade growth and balance of payments. Rand Mcnally, Chicago Braga de Macedo J, Chino T (2003) Technology and poverty reduction in Asia and the Pacific. OECD and ADB, Development Centre Seminar Series, Paris FAO (2008) Accelerating agricultural growth In India, New Delhi, MOA, GOI Government of India, NITI Aayog (2017) DRAFT three year action agenda, 2017–18 to 2019–20. Governing Council of the NITI Aayog, New Delhi, 23 Apr 2017 Lele U, Agarwal M, Goswami S (2018) Patterns of structural transformation and agricultural productivity growth, Gokhale Institute of Politics and Economics, Pune Mukherji R, Chattopadhyay M, Neogi C (2001) Productivity, human development and basic needs in India. Indian Statistical Institute, Calcutta

Chapter 2

Population, Demographics and Poverty

2.1 Introduction It has been a long journey from the ‘Population Problem’ to the ‘Demographic Dividend’ and from ‘Surplus Labor’ to ‘Skill Development’. Some of us have not changed the vision and always held that mouths are also born with hands and capabilities latent to be developed. But it would be naïve to pretend that the problematique is not severe any more. Dividends can become losses and there is nothing more frustrating than unrequited skills. The fact that planning has been abolished means that population studies are on the back burner. There is a connection between employment and poverty has definitely gone down and yet a point we had made in the late Eighties of the last century, while setting up the Lakdawala Committee that the poverty debate has to shift from the so called Official Poverty Line (OPL) which was designed in the Seventies by a Task Force we chaired with an emphasis on calorie intake (OPL or as it is sometimes described the Alagh Poverty Line), is still on the agenda including in a recent report by Arvind Panagriya. It is worth repeating again that this needs remedying, by a new definition 1 of the minimum requirements of the Aam Admi.

1 Common

man.

Some of the material used in this Chapter is reproduced, with due acknowledgement, from the author’s papers published in Anvesak, Indian Journal of Quantitative Economics, Indian Journal of Human Development (‘The Poverty Debate in Perspective: Moving Forward with the Tendulkar Committee’, 2010, Vol. 4, No. 1), and from the Indian Statistical Institute and Bank Indonesia with permission from Dr. Iwan Aziz, of Cornell University and Adviser to Bank Indonesia.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 Y. K. Alagh, Economic Policy in a Liberalising Economy, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-13-2817-6_2

9

10

2 Population, Demographics and Poverty

Table 2.1 Population projections in eleventh plan

2011/12 2016/17

1208 million 1283 million

Source GOI (2008), Eleventh Plan, Vol. 1, p. 75

2.2 Population Now that planning has been abolished there seems to be no urgency in making population projections. The Expert Group of the Registrar-General of the Census of India is working on it but results are not there as yet. The Eleventh Plan did not have a separate population projection exercise but in one of its sections the numbers given were as in Table 2.1 As compared to these estimates India’s most experienced demographer, Marie Bhat estimated that the growth rate of population would go down to 1.52% annual in the decade 2001–11 to 1.25% annual in the decade 2011–21. This would imply a population level of 1345.38 million by 2020, which is higher. The demographer Tim Dyson who has been working on India’s demography in his Standard projection estimates India’s population at 1271 million in 2020 and his High projection is close to Marie Bhat’s figures (Dyson 2003a, b). These alternate estimates suggest that population and therefore future demand projections have a degree of uncertainty to them. However it has to be noted that India’s population is now seen as an asset for its growth process discussed in the discussion of demographic dividends (Alagh 2006b) As compared to our official figures, recently some FAO publications have used slightly higher projections as the following estimates show: Population (billions)

1.0 (2000)

1.2 (2015)

1.4 (2030)

Source F.A.O. (2006) as quoted in F.A.O. (2008, p. 24)

There is genuine uncertainty about India’s population future, hence we have given the reader alternative perspectives at any moment of time. As compared to the past (Alagh 1991), our policies now don’t have much interest in such so called ‘long term’ matters as planning has been abolished.

2.3 Demographic Dividend The section on demographic dividends in the Eleventh and Twelfth Plan and the Economic Survey were disappointing professionally. A part of the problem was that recent Plans didn’t have perspectives and education is a genuinely a long term business. From the day you decide to have a new university to its graduates you

2.3 Demographic Dividend

11

are talking of almost a decade. As Kirit Parikh said in an official history of plan modeling, we now rely on the private sector for futures studies. Following this to a logical conclusion, planning has been abolished by the NDA Government. In the early work on Demographic Dividends, Goldman Sachs and their then Brand ambassador, Wilson and Purshottaman (2003) and then the CIA told the World that not only was India growing but its population was an asset. There was a story on China and then for other large BRICSAM economies.2 BRICSAM got billions of dollars of free publicity which was nice. Goldman Sachs and the CIA were right, but not necessarily for the right reasons. Growth doesn’t happen when you take a slide rule, multiply per capita income by consumption propensities and air conditioners and refrigerators come out of your ears. In 2002 some of us (Alagh 2006a, b) had worked out for the UN a report going to Johannesberg (RIO Plus 10) showing that India would grow at 8% plus to 2020 if it saved more, growth of resource use efficiency went up by around 40%, integrated faster with the World and handled land, water and energy problems well. There were similar stories from China and Indonesia. Some of us had shown earlier (1997) that India was growing fast since the Eighties and we needed more of the same and faster. The Desi is passé and so it was taken seriously only when the IMF, Harvard and others said it in 2004. But this is a khatta-meetha3 business. When populations are hungry, feel cheated or unfairly treated, don’t have a job, or are sick, they are not an asset. Marie Bhat4 had neat numbers showing where labour force grows faster than population, the dependency ratio goes down, savings rise, women work more as fertility rates go down, and we are gathering bonuses all along, up to the middle of the century. But the numbers vary in alternate visions. Historically we have known that population growth was associated with economic growth. At Wharton, the author’s teacher Richard Easterlin, taught them about North America as an epoch of growth with movement of people as its architects. Ester Boserup, working with Myrdal at the same time was showing this in parts of Africa and South India. Migration in a Rural Urban Continuum is the heart of the author’s story in his book, “The Future of Indian Agriculture” (Alagh 2013), and it began with a story of two million Gujaratis moving to Census towns from villages (Alagh 2005). Earlier we were keen to model population into development plans. The author was in 1979 in an international expert meeting arguing that: The integration of population factors into the technical work of development planning in Indian context can be considered at two levels. The first level is the integration of population factors explicitly into development planning models. The second level is the integration of population factors into the planning of social services. In research studies and in official statements relating to population policies reflecting socio-political aspirations, the integration of population factors into development policy in an interactive framework has been strongly urged. But in formal planning work, population factors generally enter explicitly exogenously. Recently, interesting experimental studies have been done, however, in which the relationship between population planning and socio-economic factors has been estimated 2 Brazil,

Russia, India, China, South Africa, the ASEAN states, Mexico. and sour. 4 The best man we had in the field, alas no more for those whom the Gods love go young. 3 Sweet

12

2 Population, Demographics and Poverty in some level of detail. The pursuit of such work would finally lead to the use of population factors in an endogenous framework in development planning models… Population projections play an important role at the macro level and in sectoral plans at the national level …population estimates have an important impact on the commodity planning for sectors such as food-grains, edible oils and clothing. The Indian estimates for the consumption sectors are made separately for the rural and urban population and integrated into the national plan models. Such population projections, therefore, play an important role in projections of demand for consumer goods… Based on data collected through both the Census and also sample surveys conducted by the National Sample Survey Organisation, labour force participation rates are estimated and used for the national planning framework…. In the Indian federal policy population projections play a very important role for estimating the demand for social services at the state (provincial or regional level) and district (sub-regional level) planning. Such projections are important for education and health targets. They have also been used for estimating water supply and sanitation programmes and the need for welfare programmes. The National Programme of Minimum Needs is dependent on the population projections, particularly in critical areas such as primary education and health planning. The population projections are done by an expert committee set up by the Registrar-General of the Census of India. Ministries, the Planning Commission and the expert, non-official demographers are included in this Committee. The data sources are the Censuses of India, sample survey estimates of the National Sample Survey as well as the Sample Registration Scheme, in which demographic data are collected on a continuous basis. The impact of population-planning measures, as evaluated through various statistical sources, is also examined. (Alagh 1980, in UN, New York, 1981, pp. 119–120)

These early lessons were forgotten. From the early Eighties the message was that falling population growth was the heart of the East Asian story, Our Economic Survey, was to say it in 2000. To a certain kind of economist, people are the horror story and the less they are the better. Experts who earlier said we won’t feed ourselves, a few years ago told us that we shouldn’t invest in technology and software but in primary education, and never liked desis5 like me who said we should do both. So when Aziz Premji counted the fifty five thousand engineers we produced annually, compared them with a fifth that a great power produced and built his global plans around the divide, he could thank the strategies of the leaders of the Midnight’s Children.6 As far as models and Indian policy makers are concerned, formerly the then FM strongly endorsed them in his Budget 2008, (Para 100) and the Economic Survey 2012. It can be shown that some consequences of demographic variables are truisms. But even these vary depending on parameter values taken. Others depend on assumptions, which have hidden policies behind them. Projection models, particularly of the BRICSAM variety derive demographic dividends from ‘inevitable’ consequences of fertility patterns, age structure of populations and labour force and savings consequences. Results are striking and global imbalances result. These are becoming fashionable and it is important to assess which of the results are robust

5 Loosely

used to describe people, culture or products of Indian subcontinent. phrase taken from a novel by Salman Rushdie of the same name, used to describe Indians since India gained independence on the midnight of August 14, 1947.

6A

2.3 Demographic Dividend

13

and why? Some consequences may turn out correct, but for wrong reasons. We argue that the future is not inevitable, even though the perception of population and human resource development issues as central is correct. Dividends will be garnered by the brave who have an operating strategic vision of HRD parameters; do we have it now?

2.4 Possibilities Some analysis of possibilities is useful. The bonus comes from the changing age structure of the population. The differences between, say India and Japan or Spain, as projected by the Consultants are large (see Chart 2.1). Retirees being thrice more than workers (also children) in Japan/Spain as compared to India; consequently 4.4 workers would support a retiree in India, but 1.4 in Japan/Spain. The differences in savings and demand led growth will obviously create large imbalances. (Bloom and williamson 1998, Econometrics, however, also teaches us the frailty of Long Term Projections. Even if output per worker does not change, output per capita would grow if the growth rate of workers exceeds the growth rate of total population (the difference between the two growth rates being critical). This is the substantial demographic dividend and its robustness comes from the fact that it takes place even if worker productivity growth does not rise. But for processes and numbers at a country level one can be more careful and perhaps less fragile. The difference between the growth rate of working-age population (15–64) and growth rate of total population under alternative optimistic and realistic scenarios, India 1995–2025, as worked out by Mari Bhat is given in Chart 2.2. Yet the results are robust, for lower order estimates, also give the following figures (Table 2.2), which suggest a much smaller, but real lower order dividend. There is also the effect on the saving ratio because of changing dependency burden. If the dependency ratio is low, the savings rate would rise and therefore the growth rate. For measuring this, the relation s  −d(1 − s)/(1 + d), is derived where s is

Chart 2.1 Dependency scenarios 2050

Possibilities ? Scenarios 2050 Country Dependency Support Ratio Ratio India 22.6 4.4

Ageing Index 105.1

Growth Rate % 0.4

USA

34.9

2.9

144.9

0.5

UK

73.3

2.1

226.7

(0.3)

Japan 71.3 Singapur 50.0

1.4

338.2

(0.6)

2.0

258.8

(0.6)

Spain

73.8

1.4

386.4

(0.6)

China

37.2

2.7

183.3

(0.3)

2 Population, Demographics and Poverty Difference in percent growth rate

14 1.2 1.0 0.8 0.6

Optimistic

0.4

Realistic

0.2 0.0 -0.2 1995-00 2000-05 2005-10 2010-15 2015-20 2020-25

Period

Chart 2.2 Growth of population and work force Table 2.2 Projected difference in the growth rate of population aged 15–64 and the growth rate of total population 1991–2031 Decade 1991–01 2001–11 2011–21 2021–31 0.56

0.43

0.07

0.8

35

0.7

30

0.6

25

0.5

20

0.4

15

0.3 0.2

10

0.1

5

0.0

Saving Ratio (SR, %)

0.35

Dependency Ratio (DR)

All-India

0

1951

1971

1991

2011

2031

2051

Year Observed DR

Projected DR

Observed SR

Projected SR

Chart 2.3 Dependency and savings

the savings rate and d the dependency ratio. This is more interesting, but societies are known to have increased savings rates even when the dependency burden was rising so the relationship is possibly more complex and factors like joint families and estate motives need study. This was true for India as Chart 2.3 shows.

2.4 Possibilities

15

To summarise, fortune never came to the timid. The demographic bonus will not be ours simply because those who a few years ago were saying that the World was not growing, are now saying we will. They were wrong then and could be so now. If we misuse land, water and energy, and the absolute number of persons who don’t have jobs and food rise, population will not be a bonus. Women need to be taken in the labour force. When the demographic transition nears completion, in India the age at first birth would be 21–22 years (less than 20 now) and the age at last birth would be around 28 years (38 now). Women could then be expected to enter the labour force in large numbers. This bonus is really sweet coming additionally from the age structure change, but it is neither automatic, nor easy in a patriarchal society. Mazumdar and Sarkar (2006), in a World Bank sponsored study, have estimated that contrasted from the Eighties when employment went up, “the employment loss in subsidiary employment for females between 1993/94 and 2000 is 4.88 million just in cereal growing.” Mess up agriculture and we get the negative dividend of women withdrawing from the labour force. But societies respond to crisis. In fact, the latest NSS data show subsidiary employment of women rising in agriculture in the period 1999/00–04/05, presumably reflecting the improvement of the agricultural growth rate and diversification. (For the author’s technical assessment of demographic dividend models for India, see his invited paper in the IMF/ADB/Bank Indonesia volume on Global Imbalances, Alagh 2006a, in Simongarkir (ed.) 2008). Whether in education or in the consequences of a demographic dividend variety, the future is ours to build and not automatic. Dividends come to the brave. That lesson of the founders of this Society is as important now as it was then.

2.5 Poverty In the present phase India lacks an operative socio-economic vision. The Poverty Line which was developed by a Task Force chaired by the author in the late Seventies has been subjected recently to critiques, not all based on a reading of the report. Some of the earlier critiques were based on an “ideological view of the world” (Subramanian 2005, p. 58), but at least the recent ones are based on economic theory. But whether based on ideology or incomplete reading, it can be argued that debate around the 1973–4 Poverty Line amongst economists is not very relevant to an India which is not living from ship to mouth, where hunger is much less, literacy and consciousness is much higher and the future is much richer and younger, although not necessarily more equal or caring. Fortunately, both the compulsion of democratic politics and the pressing needs of practitioners are leading to alternate thinking and the argument of this paper is to swim with these trends and junk the Poverty Line of which the author was the founder, and to operationalize a working vision of a desirable future for the Aam Aadmi.7

7 Common

man.

16

2 Population, Demographics and Poverty

There were many hopes from the work that Arvind Panagriya was mandated to do on measurement of poverty. The author, for one, has held from the Eighties that the Official Poverty Line (OPL) emerging from a Task Force the author chaired in 1976 should be shelved. Panagriya has reportedly suggested that the Tendulkar Committee’s Report should be accepted for poverty estimates but for practical purposes the Socio Economic Indicator, say as collected by the Socio Economic Census should be used for entitlements for benefits from Government schemes, an approach suggested earlier by N.C. Saxena (GOI 2010). This is important because while earlier Centrally Sponsored Schemes, in which devolution was rule based, have been curtailed, a very large number of new schemes have been announced in the Union Budgets. The Panagriya Group on Poverty (NITI Aayog 2016) has separated the two exercises; namely entitlements for schemes and Poverty Estimates, the later to be used for assessments of economic performance; an interesting bend to a long tradition of work. The NITI Aayog,8 which Dr. Panagriya chairs has been finally asked by the Government to prepare a medium term profile of the growth of the economy, even though planning is to be avoided and how it will square the circle the Panagriya Group on Poverty has created will be of great interest to policy analysts. The Tendulkar Committee they recommend had in fact used the Official Poverty Line or Alagh Poverty Line, based on cut off points defined in terms of calorie consumption. Happy with the existing urban poverty ratio or head count ratio of 25.7% derived from the 1977 Task Force as adapted for price adjustment from time to time, they suggested that the expenditure required to meet this goal should be the poverty line for both rural and of course urban areas. The exercise was fascinating, both for policy and in theory. We are all critical of the Official Poverty Line, but they ‘found it desirable in the interest of continuity to situate it in some generally acceptable aspect of the present exercise.’ Like Banquo’s ghost the 1977 Alagh Task Force cast its shadow, possibly since Tendulkar was its members. The poverty ratio for urban areas derived from that method drove the new system. That ratio was derived from calorie norms. Now the argument was turned on its head and the same ratio in turn determined the required food expenditure determined poverty line basket. That basket was also suggested for rural areas. Viewed in a causal sense, the urban poverty ratio in 1979 came from calorie requirements and the Poverty Line basket. Now the ratio determined the basket for both rural and urban areas. As a detour in logic the parallels are there in the Mahalonobis system where a given rate of investment in capital goods drove the system or Nobel laureate Oliver Wiliamson where firms drive the market and not the other way around. These kinds of systems are also associated with causal chain analysis as pioneered by Wold and Jureen (1953). These systems have the following structure: y1t  d11 Xt y2t  b21 y1t + d21 Xt and so 8 NITI

Aayog is a popularly known alias of National Institution for Transforming India.

2.5 Poverty

17

y1t  −d11 xt y2t  (b21 d11 − d21 )xt In the Official Poverty Line, calorie requirements determine household expenditure requirements, which, in the second equation, determine the poverty line. In the Tendulkar Poverty Line, the urban expenditure requirements determine the poverty line and so the causal chain was reversed. Public policy is not an exercise in logic or causal chain systems and the Tendulkar report had many advantages. For one thing it shifted the emphasis from calories to food demand. The 1979 Task Force was in its logical structure permitting this in its complete demand systems but the focus then was on grains. That structure of reasoning with price elasticity’s separately for the rich and poor led to dual pricing. The Tendulkar Committee framework provides the food purchasing power and framework lets the poor substitute, between food items. It works in a framework that the State will now not have the full responsibility for education and health needs or for that matter drinking water for the poor. Here The Tendulkar Committee was one sided in stating that ‘the earlier poverty lines assumed that basic social services of health and education would be supplied by the State.’ It did not clarify that the 1979 Task Force stated that the State must have a Basic Needs Plan and give it the highest priority, in terms of pro poor priorities in expenditure. The Tendulkar Report had a concept of inclusive growth where the State does not take on itself such pro poor responsibilities but provides for a concept of income supplements for private expenditures for them. It shows that with these supplements the new poverty line would correspond to standards which would lead to physical nutrition norms, like nutrition for basic metabolic needs and others being met on an average, in fact exceeded. Statistically this part of the report, overlaying averages of nutrition norms with food expenditure is tentative, but its early hours yet, the approach is creative and more can, and surely will, be done. A more serious issue is that if expenditures on education and health are included in the poverty line calculations how do we account for the public expenditures on them/or are we happy with double counting. These are complex questions needing the consideration they will get (For a more complete description see Alagh 2010). But will the present standard dividing the poor and the rich and that too based on the 1979 Line in urban areas be acceptable as a norm? On the one hand N.C. Saxena wanted more and the Gandhians will have their own say. But these are expected and the important issue implicit in Panagriya is to get along with the job. In superb terse sections based on R. Radhakrishna’s presidential address to the Indian Econometric Society, the point the present author has been making that following nutrition norms do not require policy to go overboard is underlined by the Tendulkar Committee (see Radhakrishna’s summary in 2006). The relation between income growth, diversification of food intake away from cereals, calories and food demand is handled in an extremely competent manner and in fact an intake of 1700 calories justified. Here the Saxena Committee for defining concepts for the next Below Poverty Line Census goes over board and comes out with very high numbers. Food security can be achieved at much lower costs than Saxena suggests, but he

18

2 Population, Demographics and Poverty

scores in his emphasis on access to social facilities and in fact asset and education opportunities, for which he suggest a system of deprivation points based on many deprivation indicators, including caste, asset positions, educational achievements and so on. This question of indicators keeps on recurring and by early 2018, an Expert Group of the Ministry of Rural Development with some very distinguished experts, has recommended that indicators from the Socio Economic Census of 2011 (SECC-11), which has individual data, be used for establishing access to beneficiaries’ schemes (Business Line, 14 January 2017). We actually have limited experience in developing deprivation points in an admission system for Jawaharlal Nehru University (JNU), New Delhi, India. When the author was its Vice Chancellor, the University placed resources with the Student’s Union for an extensive debate to develop a workable system of deprivation in an appropriate form in a debate for admission reform. In early discussions, it was agreed that the system must actually serve its objectives and not permit cheating or just be sloganeering. Incidentally some of the participants included Sarva Shri Yechuri and Karat, both JNU Student Union Presidents in their days. Ultimately a system of deprivation points was designed. Points were given on the basis of the location of the college of the last degree, advantage given to those who graduate from the poorest quarter of districts in India, sex, and BPL (Below Poverty Line) status. If you were a girl OBC,9 graduating from Bastar and your dad was BPL you got nine deprivation points. A non-BPL OBC boy from Delhi got three. In the first year, only five children made it on this count. Real social change is gradual, since five out of a thousand is half of one percent. But those five made it. But this kind of an argument becomes blurred when applied to the provision of universal social facilities like drinking water and education or health. Saxena in fact recognizes that differential entitlement systems will be required for different facilities, a very valid point but making a nightmare for the real world if it is all from the State. There are therefore many debatable issues—only two are noted here. In the excellent technical note to the BPL report Datta (2006) has explained at length the complexity of the relationship between calorie consumption and poverty and Sainath the issue that some facilities have to be universally provided. Saxena takes on the issue of entitlements head on and Tendulkar side steps it. Panagriya will have to cope with all that and a neat separation of poverty estimates and entitlements won’t carry muster, as recent developments show. The more adventurous economists advising the Government have recommended dropping all this altogether and implementing a negative Tobin Income tax after the demonetization of November 2016. How that solves the problem of identification of those who deserve all this and why the leakages will not be more in a money transfer scheme is left to more prosaic implementers. Cash as the demonetization schemes showed very recently is permeable and those who have it are not the ones always who own it.

9 Other

Backward Class (OBC) is an official classification recognized by the Government of India to classify castes which are socially or educationally or economically disadvantaged.

2.5 Poverty

19

Meanwhile events have turned full circle, as we saw earlier, but indicators have to emerge from a goals exercise, which needs nation level cogitation, fighting and validation. These goals then need relationships with instruments and programs. Finally there has to be a matching with scarcities not only of available resources, but also of the more basic non-renewable kind as well as delivery capabilities. Otherwise these kinds of exercises will remain sporadic acts of activism. While current official thinking does not emphasize it, this exercise will have to unequivocally define the rights of sections of the population. There will have to be a much greater emphasis on the rights of individuals and groups, including participatory forms of decision making. These are not just questions of resource use, but also of governance and in fact will be resource conserving if well designed and implemented. Systems will demand greater fairness and self-restraint in the use of Government Power. Related will be demands on transparency and right to information. There will have to be a response to the demand for protecting vulnerable groups, either the historically underprivileged, or the victims of marketisation, concerns for human rights and particularly of specific groups such as women, children, the minorities, the adivasis,10 the mentally and physically challenged as Saxena defines.

2.6 Conclusion Whether in education or in the consequences of a demographic dividend variety, the future is ours to build and not automatic. Dividends come to the brave. That lesson of the founders of this Society is important now as it was then.

References Alagh YK (1979) The importance of integrating population components into development models, UN, DIESA, 1980, pp 119–122 Alagh YK (1991) Population and development planning. Anvesak 21(2):53–98 Alagh YK (1995) Development models: the next phase, Sankhya, Series A, Indian J Pure Appl Math 26(6). Reprinted in Prakasa Rao BLS, Statistics and its applications: essays in honour of P.C. mahalanobis Alagh YK (2004) Poverty, food security and human security. In: Debroy B, Mukherji R (ed) India; the political economy of reforms. Rajiv Gandhi Institute of Contemporary Studies, Delhi, 159–184 Alagh YK (2005) Development policy and governance. Indian Econ J 3–13 Alagh YK (2006a) India 2020. J Quant Econ New Ser 4(1):1–14 Alagh YK (2006b) Demographic dividend: possibilities and realities. In: Seminar on global imbalances and their impacts on emerging economies. In: Simorangkir I (ed) (2008) Global imbalances and their impacts on emerging market economies, Denpasaar, BaliIMF, ADB, Bank Indonesia, pp 310–316 Alagh YK (2010) The poverty debate in perspective. Indian J Hum Dev 4(1):33–44 10 Indigenous population present as ethnic groups and original inhabitants of regions in South Asia.

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2 Population, Demographics and Poverty

Bhat MPN (1998) Demographic estimates for post-independence India: a new integration. Demography India 27(1):23–57 Bhat MPN (2000) General growth balance method as an integrated procedure for evaluation of completeness of censuses and registration systems: a case study of India 1971–1991. Institute of Economic Growth, Delhi Bloom DE, Williamson JG (1998) Demographic transitions and economic miracles in emerging Asia. World Bank Econ Rev 12(3):419–455 Datta KL (2006) The debate on the poverty estimates of 1999–2000, working paper no. 188. ICRIER, Delhi Dyson T (2003a) New population projections for India, Wellcome Trust India project paper no. 1. L.S.E, London Dyson T (2003b) India’s population: the future. In: Dyson T, Cassen R, Visaria L (ed) below Dyson T, Cassen R, Visaria L (ed) (2003) Population, environment and human development. OUP, Oxford Government of India, Planning Commission (1979) Report of the task force on projections of minimum needs and effective consumption demand, New Delhi, Perspective Planning Division, Government Press, Delhi Mazumdar D, Sarkar S (2006) Accounting for the decline in labor supply in the nineties. Institute for Human Development and World Bank, Meeting the Employment Challenge, New Delhi, India, July 2006 NITI Aayog, Government of India (2016) Eliminating poverty: creating jobs and strengthening social programs*, occasional paper no. 2 Radhakrishna R, Ray S (2006) Oxford handbook of poverty. Delhi, Oxford Subramanian S (2005) Unravelling a conceptual muddle; India’s poverty statistics in the light of basic demand theory. Econ Polit Wkly 57–66 United Nations (1981) Population and development modelling. In: Proceedings of the United Nations/UNFPA expert group meeting, Department of International Economic and Social Affairs, Population Studies No. 73, New York, United Nations Wilson D, Purshottaman R (2003) Dreaming with BRICs: the path to 2050, global economics paper 99. Goldman Sachs, New York Wold H, Jureen L (1953) Demand analysis. North Holland, Amsterdam

Chapter 3

The Agricultural Economy

3.1 Introduction This chapter documents our approach to the development of India’s agricultural economy. It is a fascinating story of moving from shortages and a fixation for grain in the ship to mouth period to diversification and policy reform in a WTO trade dominated economy (Alagh 2004, 2012, 2016a). It is a story of average growth, many policy experiments and persistence of poverty and regional inequality in the face of considerable technological strengths and a hard working peasantry exploited through the millennia. Through the period real resource scarcities, particularly land and water were becoming more severe (Alagh 2012, 2014) For a good description by Indian agricultural economists of each epoch, see Alagh 2016a). The chapter will examine the structure of economic growth in the agricultural sector and then see if policies had a role to play in each epoch. Are agricultural policies needdetermined or are they autonomous in the sense, driven by agencies, natural factors or the perceived needs of the larger economy at home and abroad? Recently India’s Trade Minister has made major announcements which show appreciation of India’s long standing commitments to the objectives of livelihood issues and food security but also a more accommodative stance to other issues being raised by the developed countries in global negotiations (Prabhu 2018). Debates on the Globalisation of Indian Agriculture now need discussion with pressing urgency. India’s experienced trade negotiator and analyst, Anwarul Hoda has recently stated (Hoda 2018) ‘A firestorm is raging in world Trade’ and we devote a section to these issues. Also see (Alagh 2003, 2006b and 2009)

Some of the material used in this chapter are from papers published by the author in The Indian Economic Journal, Journal of Quantitative Economics and CIGI and reports authored by the author for the Central Water Commission, and National Statistical Commission. The material is reproduced here with due acknowledgement and permission from the editors of the journals.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 Y. K. Alagh, Economic Policy in a Liberalising Economy, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-13-2817-6_3

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22

3 The Agricultural Economy

3.2 The Larger Growth Story and Growth Epochs Agricultural growth discussions in India are set in the framework of the phenomenon loosely called the Green Revolution (for short description see Alagh, OUP 2012). The green revolution In India is seen as spanning four time epochs (Alagh 2004). The first phase of the introduction of the high yielding technology is attributed to the initiative of the political leader C. Subrahmaniam and the civil servant B. Sivaraman, in the second half of the mid-sixties, a “ship to mouth” phase of grain shortage and large grain imports as PL 480 aid from the USA. The second was a phase in which the technology was internalized in what is called the favored region, favored crop period in the decade of the seventies. However in the early Seventies there was still considerable pessimism on the growth potential of Indian agriculture. Paddock and Paddock, in Famine 1975 argued. Today, India absorbs like a blotter 25 per cent of the entire American wheat crop. No matter how one may adjust present statistics and allow for future increase in the American wheat crop … It will be beyond the US to keep famine out of India during 1970. The reason? Of all the national leadership the Indian comes close to being the most childish and inefficient, perversely determined to cut the country’s economic throat” (Paddock and Paddock 1968: 217).

In the late Sixties it was the received wisdom from studies amongst others by Keith Griffin, to state that the green revolution strategy would not impact on small farms, also such farms would not participate in diversified agriculture. In a large sample study of Haryana agriculture, G. S. Bhalla produced the counterfactual. Bhalla, an economist of avowed Marxist persuasion, hypothesized that small farms would not access the new technology, but since his data rejected the hypothesis, showed that the class of adopters was more equal than the non-adopters (Bhalla 1974: survey in 1971). Roughly at the same time the economist Vijai S. Vyas, with his team at Vallabh Vidyanagar showed with a field survey in the Charotar that small farms were viable in the sense that if they were given the necessary support, they could generate incomes above the poverty line. This was at that time, like all new ideas, neither intuitively felt, nor accepted and yet soon became the orthodoxy at home and abroad. They also argued that with support on technology and credit, more small farmers would cross the poverty line, but after all that there would be some families left below the poverty line and a non-land based non-farm growth program was necessary for them (Vyas et al. 1969). Policy making was to follow. This assessment was from a larger canvas. Other think tanks the Hudson Institute, Keith Griffin, Francine Frankel, the Brettenwoods institutions and at the IDS Sussex, Paul Streeten and Michael Lipton, all had a dim view of agricultural prospects and some argued that India also did not have medium term growth prospects since poor agriculture would lead to a wage goods constraint. The initial spurt of grain growth had petered out and the green revolution was seen as a misnomer. India’s grain production after reaching 108 million tonnes in 1971, was ranging between 101 and 104 million tonnes in the early seventies. The World Bank and in fact even the Indian Finance Ministry (led by its then Chief Economic Adviser, Dr. Manmohan

3.2 The Larger Growth Story and Growth Epochs

23

Table 3.1 Average annual growth rates in index of area and production Time period 50/51–96/97 50/51–79/80 80-81–96/97

Prod Area

All crops

Non food grains

All crops

Non food grains

All crops

Non food grains

2.7 0.61

2.99 1.22

2.46 0.86

2.70 1.17

3.37 0.27 (NS)

4.39 2.02

Note Estimated by semi-log regressions on time. Estimates significant at 99% confidence levels. (NS) not significant Source Author’s estimates. Also see Alagh, 2004

Singh) said that India would not achieve its target of 125 million tonnes of grain by 1978/79, estimates ranged between 118 and 120 million tonnes. It was at that time that policy making in India focussed on resource allocation and policy support to agriculture with priorities set at the level of the then Prime Minister Indira Gandhi who saw food security as a central issue. The Planning Commission produced its first Agricultural Sub-Model (with the author organising the effort), and this model made conservative assumptions on land reserves and productivity assumptions so that resource allocation for agriculture, particularly irrigation got high priority in the investment budget. Interestingly, public sector capital formation of Rs. 5566 crores at 1993/94 prices in the year 1976/77 was not reached in any year in the decade of the Nineties, reflecting the lack of strategic policy making for agriculture in the reform period. By 1978/79 India was producing 127 million tonnes and was a net exporter of grains.1 Meanwhile in the Eighties in the third phase, Indian agriculture was growing faster and as the economy picked up non-foodgrains were leading. The growth rate accelerated in new crops, particularly rice, cotton and oilseeds and in new regions. The larger picture in terms of output and productivity growth and the shift away from food grains is shown in the following estimates (Table 3.1). Output growth rate goes up since the eighties for the agricultural sector as a whole. Output is now rising at 3.37% compound annual as compared to 2.46% earlier. The contribution of area goes down, yield being the major source of growth in the second phase. Growth of output in the nonfood grain sector is only marginally higher than for the entire sector for the period up to 1980. However since then the nonfood grain sector grows at 4.39% annual, which is significantly higher than the growth of the sector as a whole. This also led to a change in the structure of employment. A comparison of the 1999–2000 estimates with those of 1961 brings out this shift (Table 3.2). Three features are first, the decline in the workforce engaged in crop production is higher than in the agricultural sector as a whole. The second is that the increase in 1 In

a comical story, the author was asked by a World Bank Official in 1979 as to how India had exceeded its target of foodgrain production of 125 million tonnes in 1978/79 by producing 127 million tonnes; to which the author’s response was that he comes from Ahmedabad where they always keep reserves.

24 Table 3.2 Structural change in workforce in India, 1961–2000

3 The Agricultural Economy Sector

% of workforce 1961 1999–2000

1. Agriculture forestry and fishing

75.9

59.9

2. Of which crop production

73.5

54.3

3. Livestock 4. Agricultural services

2 0

4.1 0.9

5. Logging forestry and fishing

0.5

0.5

Source Census of India 1961, NSSO 2000 Table 3.3 Shift in employment in the 1990s

S. No.

State

Share of sector in agricultural employment 1991

2001

1

Gujarat

56.3

51.0

2

Haryana

57.8

51.6

3 4

Karnataka 63.1 Punjab 55.3

55.9 39.4

5

Tamil Nadu India

59.5

49.5

64.8

58.4

6

Source Census of India 2001 and NSS 2000

employment based on livestock is high. The third is that forestry is not absorbing a larger share of the workforce, because policies were not conducive for giving rise to a dynamic local production sector. In some fast growing areas these trends are more pronounced, since either the share of non-farm employment is much lower than the national average and has fallen or the decline is faster than in the country (Table 3.3). Since the mid-nineties in the fourth epoch, the agricultural growth rate has gone down, employment growth in agriculture is low. Profitability of agriculture has fallen by 14.2% in the nineties and while public capital formation was falling, now even private investment is stagnant. Recently irrigation and fertilizer growth has slackened. Indian policy making is attempting to develop a policy paradigm for a dynamic phase for an open agricultural economy. Farmer managed infrastructure systems, reform for alternate channels for input supplies and marketing, improved access to credit and improved access to markets are all being tried to reverse these trends causing concern to policy makers. This last phase which continues has a number of special characteristics. The first is that decline in the workforce engaged in crop production is higher than that in the agricultural sector as a whole. The second is that the increase in employment based on livestock is high. The third is that forestry is not absorbing a larger share of the workforce, because policies were not conducive to giving rise to a dynamic local production sector. In some fast-growing areas these trends are more pronounced, since either the share of non-farm employment is much lower than the national average and has fallen or the decline is faster than in the country as a whole.

3.2 The Larger Growth Story and Growth Epochs

25

Since the mid-1990s, in the fourth epoch, the agricultural growth rate, in the nineties went down and employment growth in agriculture was low. It is shown below that profitability of agriculture fell by 14.2% in the 1990s. Public capital formation fell initially and is anticipated by the present author, private investment also stagnated in response to the declining profitability of the sector. Irrigation and fertilizer growth slackened. These negative trends outlined by Indian economists were noted and led to a substantial revival of public capital formation in agriculture. This period also saw an improvement in the terms of trade for agriculture and a revival of private investment. Agricultural capital formation as a percentage of Agricultural GDP rose from 14.07% in 2004/05 to a high of 21.31% in 2008/09, rising both in the public and private sector according to recent estimates at 2004/05 prices. Private agricultural capital formation as a percentage of Agricultural GDP according to the new series of CSO estimates at 04/05 prices fell from 12.41% in 05/06 to 11.58% in 06/07, but preliminary estimates show an increase to an impressive rate of 17.55% in 08/09. More generally it was argued in the low capital formation phase that a gross rate of capital formation of about 12% of Agricultural GDP was necessary to support an agricultural growth rate of around 3.5–4% annual and this rate was not being achieved then. For example: It would be naïve to plan agricultural growth and policies with low incremental capital-output ratios (ICORs). In terms of gross capital formation, past ICORs are estimated as follows:

Period

ICOR

1978/79 to 1986/87 1987/88 to 1991/92

4.37 3.32

Agricultural gross fixed investment is around two thirds of agricultural gross investment. It would be imprudent plan for an ICOR of less than 3 for agricultural fixed capital formation (Alagh 1997, p. 283).

These kinds of investment levels have been consistently exceeded, but the agricultural growth rate does not show the resilience that a twenty percent capital formation would provide. This in turn raises in a fundamental way questions of productivity of investment and non-renewable resource constraints of land and water. Real resource scarcities remained. Cropped area, earlier a constant, was falling whilst the area under irrigation was a matter of concern. There was recognition that faster diversification of the sector was required to achieve growth objectives, and this required policies relating to market reform and infrastructure in the context of the rural urban continuum. Since widespread growth was required, a policy of “walking on two legs” was needed with improved productivity of cereal producing areas allowing land to be released for high value crops. In the short run, technology and input intensification were seen as the source of growth as policies of land and water management take effect. Institutional reform of markets, empowerment of small farmers to leverage their assets for strategic partnerships with corporates, new technology and market

26

3 The Agricultural Economy

linkages and the establishment of farmer groups and local institutions to build up the support bases for emerging Indian agriculture is advocated. Regarding Farmer’s Producer Organizations, the NDA Government has asked for comments on a draft legislation. In the opinion of this author they have made a mistake in shifting the original focus of FPCs in freeing them from the control mind set of the Ministry of Agriculture and shifting it to Company Affairs where there is a tradition of auditing, annual elections and ant transparency. A detour in its history is useful.

3.2.1 Farmer Producer Companies This farmer organisation system originates in a committee chaired by the author on preparing a draft bill for it which led to the second amendment to the Companies Act 2002 legislating Farmers Companies. But the author’s advice to the Ministry of Agriculture is not to proceed with the Bill even though I am supposedly the grand daddy of Farmers Producer Companies and there lies a tale. But as Wodehouse would say ‘let’s begin at the beginning’. Being friends with the legendary Verghese Kurien2 , the author would go to Anand for his work with H. M. Patel, the author’s boss in the Sardar Patel Institute. Lucien, Vijay Vyas and the author were reportedly his blue eyed boys. In 1999, the bureaucratisation of cooperatives was worrying them all. V. N. Dandekar had caricatured them in a Presidential address to an Economics Association. Kurien was getting frustrated with the systems abilities to let cooperatives thrive. The Agriculture Ministry would play politics and supersede them. The Corporate sector it seemed provided an answer. You had to have an annual audit of accounts and election of Directors, both avoided by politico coop leaders. But the heart of a coop. Mail style was missing: one share: one vote. But we will build this in the Company structure. The author was chosen to draft the Bill, and his report (GOI 2001b) became the 2002 amendment to the Companies Act. Initially there were in fact just a handful of such companies and the first big critique came from the Corporate Sector. When the Companies Act was to be refracted, FICCI argued that Farmer Companies were not companies. Pradan was experimenting with them and asked the author to lobby for them which he did. He agreed with the argument that FPCs were not Corporates in the traditional sense and argued with Homi Irani (by that time the author was a fellow Director in a Tata Company), that we can experiment with organisations. They wouldn’t agree so we lobbied and the FPCs were hurriedly kept in the 2012 Companies Bill, to be followed by an ‘appropriate bill’. The present Bill is the same. Starting with a few, by now FPCs are abundant, with the turning point coming in the Corporate sector. When the author was a Director in 2 Verghese

Kurien is rated as perhaps one of the most iconic Indians after the freedom movement. He built up the first successful case in a poor country of coperatives of landless and land short farmers, getting into prosperity. He remained in his rural lair in Anand District in Western India, all his life and built up a range of support organisations using the latest technology for small farmer and landless labourers projects with a special focus on women

3.2 The Larger Growth Story and Growth Epochs

27

Tata Chemicals, the Company acquired Rallis and nominated the author to the Rallis board. It was decided by the Board to get into raising pulses productivity. The author believed that was possible and showed the way in a GOI Committee he chaired. An experiment was started in Puddocotai with a brave Collector in Tamil Nadu. The team plugged for FPCs and it worked. Rallis was to repeat it elsewhere. Others got into the Act and they started mushrooming. For some reason the author kept on getting the news as their grand-daddy. But much as the author loves the Agriculture Ministry and Agriculture Ministers (Shared Pawar, Nitish Kumar are friends and the author has the highest respect for Radha Mohanji; ditto for the Agriculture Secretaries), the Agriculture Ministry does not have the Corporate culture. Remember, in the colonial days, the Collector, the Superintendent of Police, and the District Agricultural Officer ran a District and the author is the first one to admit that the Alagh Committee on Training and Reform of the Higher Civil Services has failed. So please let’s keep Farmers Producer Companies in the Ministry of Company Affairs. We can implement the Nitin Desai committee on registration of FPCs and NABARD must fund them but don’t throw away the baby with the bathwater. Recent developments can be seen against this backdrop. In the period 2007/2011 3 the growth rate of agricultural output on a year to year basis (not triennium averages) is 4% annual (estimated from data in GOI 2012a, b, Table 1.9, p. A 14). In the same period the growth of area is 1.75% annual (estimated from data in GOI 2012a, b, Table 1.10, p. A 15). This then means that yield grew by 2.25% annual. Area under food grains in the period 2007/2011 grew only by three quarter of one percent annual. But area under non-food grains grew by 3% annual. The trend towards diversification away from grains is now more pronounced. It may be noted that in the period in which the Indian Economy has been doing badly, its agriculture kept up its momentum. However in the most recent period agricultural growth is again going down. According to the Economic Survey “In 2014–15, the CSO has estimated a positive growth rate of 1.1% for agriculture” (GOI 2015a, b, c, p. 18). However this growth rate went up to 6.3% in 2016/17 on account of a low base in 2015/16. It is again lower and is estimated at 3.0% for 2017/18, the latest year for which estimates are available (GOI, CSO, February 2018). The author’s intention, in giving these details, is to sensitize the reader to the volatility of short run agricultural growth rates and the frequent changes that take place in recent estimates at any time.

3.3 Terms of Trade and Investment in Recent Epochs I argued in the Nineties that profitability in agriculture was falling and that was not a happy sign in a liberalizing phase (Alagh 2003). In a market economy of the kind economic policy in India was pushing. Relative profitability gives signals for resource allocation. Profitability of resource use is important, not just productivity of land. India needs to move over from a Ricardian to a Haberler point of view at the 3 Short

run growth rates are of limited use

28

3 The Agricultural Economy

Table 3.4 Prices paid and prices received by agricultural sector S. No. Period Prices paid for intermediates 0 1 2 3

1 1990/91 2000/01 % change 1990/91–2000/01

2 104.0 223.0 114.4

Output prices 3 112.3 224.8 100.2

Source Alagh (2003), Computed from estimates given in CACP (2003), Table 5.1, p. 297 Table 3.5 Agriculture terms of trade based on GDP implicit price deflators

Year

Term of trade for agriculture

2004–05 2005–06 2006–07 2007–08 2008–09

93.4 96.8 97.7 101.4 103.4

Note GDP implicit price deflators for agriculture and nonagriculture are used to derive agricultural terms of trade Source Alagh (2009, 2013a, b), p. 100, Estimated based on National Accounts Statistics, CSO

micro level. Not just land productivity, but profitability of resource use gives signals at the margin for resource use. Mind sets therefore had to change. Incidentally Ashok Gulati had in that phase argued that Indian agriculture was suffering from negative protection. After the author’s Dharam Narain Lecture he changed his stand in a not so well known paper which said the following: we report less disprotection of Indian agriculture in the 1990’s than in earlier studies (see Mullen and Gulati 2005).

More recently Gulati has again stated that incentives for Indian agriculture are falling and this needs care, a point we have also emphasized. Table 3.4 gives the details for the first decade after reforms. Agricultural profitability fell by 14.2% through the decade of economic reforms. This decline in profitability led to a fall in investment rates in agriculture, through the Nineties, as we had then anticipated. It was not rocket science economics to argue in the author’s Dharam Narain Lecture in the IEG and Delhi School of Economics (Alagh 2003) that if profitability rates fell investment rates would go down. Since the mid-1990s, the agricultural growth rate, in the nineties went down and employment growth in agriculture was low. Public capital formation fell initially and as anticipated by the present author, private investment also stagnated in response to the declining profitability of the sector. Irrigation and fertilizer growth slackened. Since then there was improvement. The next set of GDP deflators was with 2003/04 base so Table 3.5 shows an improvement of 10.71% in the period 2004/05–2008/09 in the Terms of Trade for the agricultural sector, recuperating some of the lost ground in the earlier period.

3.3 Terms of Trade and Investment in Recent Epochs

29

Term of Trade

105.00 103.00 101.00 99.00 97.00 95.00 93.00 91.00 89.00

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1996-97

1997-98

1995-96

1994-95

1993-94

1991-92

1992-93

1990-91

Term of Trade

1989-90

87.00 85.00

Year

Chart 3.1 Agricultural terms of trade: 1990/91–2008/09. Source Alagh (2009, 2013a, b), p. 100

Estimates in Tables 3.4 and 3.5 are summarised in Chart 3.1. Cyclical behaviour of the economic environment the farmer faces is self-evident in the decade of the Nineties. Unfortunately as we will see, history repeats itself in spite of protestations to the contrary. As the Terms of Trade moved in favour of agriculture investment rates went up. Agricultural capital formation as a percentage of Agricultural GDP rose. We are now again witnessing contrarian trends. Instead of using his own estimates as prepared for and submitted in the Expert Group on Agricultural Statistics set up by the National Statistical Commission (GOI 2013), under the author’s Chairmanship, the author will bring to your attention a not much advertised finding of an official Committee. The Committee which worked under Prof. Mahendra Dev, GOI (2015b) worked out the Terms of Trade for Indian Agriculture with different concepts. While the Committee says it has revised the concepts developed by a Committee which worked under Prof. A. S. Kahlon four decades ago, these were in fact revised by successive Agricultural Price Commissions and later Commission on Agricultural Costs and Prices. It has in fact updated the estimates and recommendations of An Expert Committee to Examine the Methodological Issues in Fixing MSP set up in 2003 which submitted its report in 2005: GOI (2003a, b/2005). This Committee was set up under the author’s Chairmanship and GOI accepted its major recommendations on cost elements in price fixation. This is shown by a Statement by the then Ministry of Agriculture which reads as follows. “In an important decision meant to rationalise the calculation of the Minimum Support Price (MSP) for various farm produce, the Cabinet Committee on Economic Affairs (CCEA) gave its approval to including three more variables that have so far not been included in the calculations done by the Commission on Agricultural Costs and Prices (CACP) to arrive at MSP. However, while the CCEA approved several revisions in the terms of reference of the CACP, it shot down the proposal that “the Commission, which currently only recommends the floor price for various crops to

30 Table 3.6 Terms of trade for the agricultural sector 2010/11–2013/14

3 The Agricultural Economy Year

Terms of trade

2010/11 2011/12 2012/13 2013/14

102.9 97.3 97 95.5

Source GOI (2015a), Annex Table 4.6, p. 148

its parent ministry, be empowered further and made a statutory body… The amended terms of reference and the new criteria included for MSP computation is also expected to allow the CACP to better link domestic prices to prevailing international rates. …However, the terms of reference of the CACP will now be revised to allow it to suggest such non-price measures related to credit policy, crop and income insurance.” These were some of the 48 recommendations made by the expert committee under Prof Y K Alagh in May 2003, against a background of changing policy paradigms in terms of trade liberalisation, privatisation and globalisation, vis a vis the methodology followed in fixing.” (Emphasis Added; GOI, PIB 2009; Alagh 2009, also see Alagh, in Ramaswamy and Kishor, ISAE 2016a). We will get back to this after completing the description of the recent facts on policy. The Mahendra Dev Committee’s standard case showed that since 2008/09 and in the period until 2010/11 TOT’s moved in favour of agriculture, continuing the trend I worked out earlier but since then, up to 2013/14, there has been a decline (see GOI 2015a, b, c, p. 18 and 2015b, p. 105) of 3.76 points. Since the Index is now hovering around 100 this means profitability of Indian agriculture has fallen by around four percent. It can be argued that 4% is less than 14% but that was over a decade and now it is a three year period. This does not augur well for agriculture and the trend is also not getting the attention it deserves. It is to be hoped that the Ramesh Chand Committee set up later will look into these aspects with the seriousness they deserve and bring into play remedial measures. The more recent estimates of the CACP show an even more serious situation. According to their estimates, based on the Final Report of the Committee on Terms of Trade, the TOTs for the Agricultural Sector declined by 7.75% in the period 2010/11–2013/14 as the following numbers show (Table 3.6).

3.4 Globalization Having stated the above facts, it is true to get into the details of a complex debate set on a global perspective in which India pledges a major proactive goal, before plunging into its present role as a part of global alliances. India has very rapidly in 2018 modified a position it had held for decades in the agricultural globalization debates. The 11th Ministerial Conference of the WTO was held at Buenos Aires in Argentina from December 10 to 13 2017. As the US

3.4 Globalization

31

Administration informed the US Congress, India blocked a Ministerial Declaration at that Conference, taking a firm stand on Special and Differential Treatment (PTI 2018). But in March end 2018, India’s Trade Minister Suresh Prabhu made a very important statement in a Brainstorming Session on the WTO in Delhi. He said: While some of the new issues being raised by others may also be of relavence to India, existing issues such as agriculture are critical livelihood issues which are extremely important for India (Economic Times 2018; emphasis added).

With this statement India changed a policy stand taken for more than two decades and to explain it is necessary to go back. The larger context of globalization in which trade takes place needs to be set as the content in which India even covered and played a role in the world and the marginalized position it has created for itself now since the outcomes will depend on the rules of the functioning of global markets. According to G. S. Bhalla, the avowed objective of the WTO Agreement and that of the AOA was to create a free multilateral trade regime. The aim therefore was to eliminate or considerably reduce obstacles to market access including restrictions and controls and high tariff walls; to eliminate or considerably reduce domestic support and to streamline the export subsidy regime, but the provisions of the WTO Agreement on Agriculture (AOA), the modalities adopted for making the reduction commitments, and the manner in which these were actually translated into specific commitments, all suffered from serious limitations. India played a role as concept builder and strategist for developing countries. First, in the matter of Market Access, in the choice of the base year period of 1986–1989, prices were extremely low, and this it is suggested enabled the developed countries to get away with much higher than the true tariff equivalents. Second, most of the major players indulged in dirty tariffication that enabled them to come to a higher figure of base tariff equivalents by as much as 61% for the EEC and 44% by the USA. Because of dirty tariffication, developed countries retained very high tariffs for highly protected commodities such as dairy and sugar products. This resulted in the continuation of high border protection for several high value agricultural commodities. On the other hand, oil seeds, fruits and vegetables, which were less protected, were further liberalised (Hathaway and Ingco 1995). This policy proved deleterious to the interests of developing countries like India. Third, the method of making average reduction on tariffs enabled the developed countries to make minimum reduction (of 15%) on highly protected sensitive items and much larger reduction in products in non-competitive products with low tariffs The administration of tariff rate quotas (TRQ) by developed countries was also discriminatory. There were serious limitations in the matter of provisions regarding domestic support also. The first set of problems arose because of the introduction of Blue Box which permitted the exclusion of trade distorting production linked payments by the developed countries. Furthermore, not only was the total expenditure on Blue Box and Green Box quite high and increasing, but many members were also deliberately shifting expenditure away from the Amber Box to those measures that were exempt from reduction commitments under the Green Box. The overall result of various support measures was that the total domestic support in the OECD countries regis-

32

3 The Agricultural Economy

tered an increase. According to OECD estimates the total support to agriculture in 2002 as measured by the total support equivalent (TSE) amounted to US$318 billion as compared with US$302 billion during 1986–88 (OECD 2003). But more important, the Producer Support estimate (PSE) at $235 billion during 2002 was almost as high as during 1986–88 ($241 billion) indicating hardly any reduction subsequent to the establishment of the WTO. Estimates of domestic support for the base year for most of the countries turned out to be historically high because of low world prices during the base period, 1986–88. Furthermore, the reduction of AMS was on the total support and not on the basis of individual commodities. Hence the developed countries got away by making reductions in unimportant commodities while undertaking minimal reductions in the politically sensitive commodities like wheat, rice, sugar and dairy products (see for example, GOI, Indian Submission to WTO, 1995. Also see, Hoda 2000). Finally regarding the SPS, these were important provisions meant to safeguard the sanitary and health interests of trading partners. But the main problem was the setting up of higher standards by the developed countries and the use of SPS as a subtle device for denying market access to exports from developing countries. In the matter of market access, during the UR negotiations, India, along with many other developing countries decided not to tariffy but to bind its tariffs for both agricultural and industrial commodities. Simultaneously, India was allowed to maintain its quantitative restrictions (QR’s) on exports and imports on balance of payment grounds. But India was asked to remove its quantitative restrictions over time subsequent to the complaint lodged by the USA and some other countries to the Dispute Settlement Committee of the WTO. India almost completely removed the QR’s by 2001 and is now fully in the tariff only regime. Some of the main features of post WTO tariff structure for agricultural commodities in India are given below. First, like all developing countries India bound its agricultural tariffs at very high rates for most of the commodities ranging from 100 to 300%. Second, as against this, for some commodities the bound tariff was very low or even zero. Subsequent to the agreement to remove QR’s, India was allowed to renegotiate its tariff bindings and bound many important commodities at rates ranging between 40 and 80%. Third in India, the agricultural tariffs also started coming down subsequent to liberalisation of the economy in 1991. The result was that the MFN rates were much lower than the UR bound rates. However, for some commodities, the rates were quite high almost as high as the bound rates for 2001. This notwithstanding, agricultural tariffs are very high in India. Fourth, India went in for TRQ’s for 3 commodities, these being maize, milk products and rape and colza. Finally, along with the abolition of QR’s India also decided to increase its tariffs on several commodities with a view to checking the expected surge of imports. Regarding export subsidies, India did not have any obligations in the matter of export subsidies. Under the S&D, India could subsidize internal transport and credit for export purposes. The Agricultural Processing Development Agency (APEDA) was giving some concessions on this account to exporters of processed agricultural commodities and recently, this concession was extended to exporters of rice and wheat also, as she became a major grain exporter.

3.4 Globalization

33

Table 3.7 Economy-wide reforms are removing the anti-agricultural bias (protection rate in %) To To 1990/1 1994/5 Economy-wide policies Ag. Policies Total

0.25

0.03

+0.07

−0.07

0.18

0.09

Source Rosenthal et al. (1996), Chap. 4

The author raised the issue that it was intriguing that while domestic profitability was going up, Indian agriculture’s relative position with the rest of the world was improving. India was estimated to have a negative Aggregate Measure of Support for Agriculture. This was estimated in a well known set of studies done for the World Bank by Purcell (1993, with the help of Ashok Gulati.) This was then the argument of policy taxing agriculture. In 1996, in a published report, the World Bank released new estimates. These were presented in a table which read as follows (Table 3.7). According to World Bank estimates the AMS was falling and since agricultural prices in India were rising faster than the World, this trend could be accentuated further. As compared to the Purcell-Gulati estimates of negative AMS of 28%, the findings for the nineties by the Purcell-Blairel studies was that the AMS was lower. The estimates normally discussed in India were based on the Purcell-Gulati methodology originally developed by the World Bank. The Bank has changed that as was evident in the Purcell-Blairel estimates. The World Bank Report referred to above stated the following: Accelerating a trend in the mid-1980s, the 1991 economy-wide reforms virtually eliminated the anti-agricultural bias implicit in the trade and foreign exchange regimes.

The World Bank Report makes this point somewhat emphatically in a Box, which we repeat, since some commentators deny this. This Box reads as follows: “Correcting for India’s Large Size Reduces Significantly the Apparent Policy Bias Against Agriculture The estimated mild protection of agricultural price policies contrasts with earlier studies which indicated much higher levels of relative price discrimination and deserves an explanation. The present estimates take into account the fact that India, because of its large size cannot cannot export infinite quantities of rice on the thin rice world market without affecting the world price. Ignoring this price-depressing (or large country) effect of Indian rice exports would significantly over-estimate the extent of price discrimination imposed on rice by Indian food policies. The present estimates also treat wheat as non-traded, recognizing that under free trade its equilibrium domestic price would have remained within the import-export parity band for most years.

34

3 The Agricultural Economy

Table 3.8 India spend twice as much on agriculture as East Asian countries much on agriculture as East Asian countries (agriculture public expenditure expressed as a share of agricultural GDP, percentage) India Indonesia Malaysia Thailand Average 1990–1993 Memo item Ag. annual GDP growth (1980–93)

29.1

6.9

10.1

12.9

3.0

3.2

3.5

3.8

Source World Bank (1996)

Correcting for the large-country situation in rice, and the non-traded status of wheat, significantly lowers the price discrimination of Indian agriculture since rice and wheat alone account for about 30% of the India agricultural production basket.” Source: Ibid., World Bank Report. On subsidies the World Bank’s position was clear as the following quotes show (Table 3.8); India devotes considerable public resources (center and state) to agriculture which totaled Rs. 685 billion (US$22 billion) in 1994–95, equivalent to 28% of agricultural GDP (8% of GDP). When measured as a share of agricultural GDP, India spends at least twice as much on agriculture as some East Asian economies.

Another argument sometimes given was that the AMS has a 1988 price base. Conceptually, between DRC’s, EPR’s and the AMS there is a one to one relationship. The base year became an issue for discussion. What was called the Harbinson draft changed all this. The Draft, for example provided. “Scheduled Total AMS commitments may be expressed in national currency, a foreign currency or a basket of currencies. In case a foreign currency or a basket of currencies is used and the final bound Total AMS in a Member’s Schedule is expressed in national currency (or another foreign currency) and a participant wants to avail itself of this option, the final bound Total AMS shall be converted using the average exchange rate(s) as reported by the IMF for the year at issue.” This is the background against which comments on India’s Trade Policy Review must be seen. Canada, the EU, the US, New Zealand and other countries have been sharply raising these issues, but the arguments go back (see, WTO, Geneva, October 2002.) India was and will be under pressure to reduce explicit subsidies at least “market distorting” ones. As Ms. Mary Whelan argued, at the beginning of this century, in the Chairperson’s concluding remarks in the beginning of this century Trade Policy Review of the WTO on India. “Members noted the importance of the agricultural sector in India and stressed the need to further liberalise it in order to develop its full potential. Concerns were expressed over subsidies for agricultural products and inputs, which have contributed

3.4 Globalization

35

to large grain stocks and export restrictions on agricultural goods.” (WTO 2002, p. ix). Her conclusion was based on the comments of a number of countries. Canada “encouraged the authorities to examine subsidies, particularly in agricultural production and procurement. … assess these subsidies in order to correct the Government’s fiscal imbalance, thus benefiting from removal of production distortions.” (WTO 2002, p. 198). New Zealand said that “attempts to achieve food security had created distortions in the economy, through higher support prices and financially and environmentally unsustainable input subsidies.” (WTO 2002, p. 204). Most developed countries argued for reduction of tariffs. The Chairperson also stated that India should clarify its stand on “the role of State Trading Companies.” (WTO 2002, p. x.). On this for Cancun, Stuart Harbinson the Chairman of the Special Session of the Committee on Agriculture of the WTO referred to it in the First Draft of Modalities for the Further Commitments of the Negotiations on Agriculture. This was based on work carried out by the Special Session of the Committee on Agriculture and technical and other consultations following the mandate at Doha in March 2002 Attachment 6 was on State Trading Enterprises. Since many OECD countries and others had moved away from direct government budgetary subsidies to working through commodity boards and such like arrangements and such bodies had huge reserves of money, the effort was to bring such interventions under some discipline. But the Indian price intervention programs were also through state trading enterprises and while all the disciplines wont apply to developing country members, they were to be required “to ensure that exports of a product by a governmental export enterprise do not take place at a price less than the price paid by such an enterprise to the domestic producers of the product concerned”. These provisions have the historical background to India’s present WTO negotiations. Two further arguments have a history (Hoda 2000, 2002, 2003). This was the perception to the effect that India never had a trade strategy and that anyway the scope for intervention in agricultural markets was limited by the fiscal crunch. There was an element of force in these arguments and yet to be used for trade negotiations they were to an extent shadow men. Export strategy in India in the seventies on “supply planning” and an “appropriate system of incentives”, gave way in the mid-eighties to export setoffs of the South Korean variety. Imports of edible oil, and at the margin of grains, edible oils and wage goods were a part of Indian policy since the mid-seventies (Writings of the late Manohar Rao, was also an example of this kind of work: See the obituary of Alagh and Karnik, 2003). More generally as Indian agricultural policy moved over from the initial emphasis in the seventies on grain self-sufficiency to diversification in the early eighties and a resource based agroclimatic strategy from the late eighties, the role of regional specialization and trade became more explicit. It has been argued by the present author and others that agricultural diversification in India is basically driven by domestic demand (Alagh, Shastri Memorial Lecture 1995). International trade would also hasten the process (Alagh, First Dantwala, Memorial Lecture 1999). This follows from trade theory and was welcomed (Alagh, U.N., Studies in International Trade 1995). It has also been argued that the trading agricultural agroclimatic regions were also those that had more often than not, followed sustainable land and water development policies (Alagh, Inaugu-

36

3 The Agricultural Economy

ral Address, Indian Society of Agricultural Economics, Parbhani 1998). The fiscal argument is overdone, since intervention in agricultural markets should be only at the margin, in some regions and in particular contexts and in any case as we saw, tariff, tax and monetary policy instruments were also available. There was therefore considerable synergy seen in trade, diversification and sustainable development. In the agro-climatic literature, for example, economists and policy makers supported the recommendations of studies on diversification and agricultural markets (see Government of India 1989; Basu and Guha 1995). Hoda and others have also argued that India can impose high tariffs if it wants to. These are fairly contentious issues in any negotiation as the comments on India’s Trade Policy Review bring out. The kinds of arguments given historically keep on being repeated. Thus on the 2002 Trade Policy Review, Canada “noted that many tariffs remained high, and hoped that high tariff and non-tariff barriers would not impede access to high quality and competitively priced imported goods for Indian consumers.” (see WTO 2002, p. 198) Switzerland argued that “The rather large proportion of unbound tariff lines as well as the gap between bound and applied rates provided scope for uncertainty, and diminished the predictability needed by economic operators.” Japan “thought that India’s tariff was a bit too high.” (p. 199) The EU stated that “there was still a need to cut down the high number of rates and to simplify the complex tariff structure.” (p. 201) New Zealand “was concerned about the increase in the average MFN tariff from 35% in 1997/98 to 41% in 2001/02. New Zealand also had reservations about the extent of tariff escalation on agricultural forestry imports.” And again “New Zealand looked forward to working with India in the relevant negotiations to address some of these issues.” (p. 203). The US “asked about India’s plan to simplify it’s tariff and excise structure, and to reduce rates, which were prohibitively high.” (p. 204). Even Norway wanted tariff simplification to “cover fish and fish products, and hoped it would do so at the lower levels.” (p. 207). When the US Administration comments adversely on India in the 2017 Buenos Aires Ministerial Meeting is following a long tradition. But again President Trump’s trade war (Hoda 2018) gives India space for tariff raising. Some Indian economists and policy makers, on the other hand, keep on repeating earlier arguments in a mechanical way, without appreciating that now the arguments are that: 1. 2. 3. 4.

India does not discriminate against agriculture as much as it did in the past. In the case of rice and wheat a new playing field is there. India subsidises agriculture in a big way. Indian subsidies will be up for discussion in the next round.

3.5 A Policy Frame The policy bind India is in is, therefore a difficult one, even if the arguments are not ideologically anti-trade or those of a lack of policy interest. If a feasible alternate transitional policy set exist, a sensible approach would be to try to establish a

3.5 A Policy Frame

37

roadmap of economic policies for say a few major crops and see if feasible alternatives exist. The author argued that was the only logical course in a liberalizing economy, otherwise agriculture would be left out of the process of reform, with serious negative consequences Lance Taylor in a fairly widely quoted paper described an MPS (Multifaceted Price System) as a “transition from an administered towards a market regime.” (Taylor MIT 1991, p. 7.) He gave the Polish and Indian examples of “it’s homely virtues are perhaps becoming more evident.” (Ibid., p. 7.) and the Indians for transitional regimes “developing effective multi-tiered pricing systems for their nationalized firms and even in agriculture (Alagh 1991a, b).” (Taylor, Ibid., p. 38: the reference in Taylor here is to Alagh 1991a, b, WIDER). Taylor in his review of the post socialist transition from a global development economics point of view was basically arguing that the Indians had switched industry successfully from firm level controls to an industry level efficiency policy, linked with economy level strategic objectives. “The Theory of a Multi-Faceted Price System” advocated the Indian and the present authors perception that in the transitional stage, dual pricing, threat of imports and set-off could all be used, for limited periods of time, in such a policy regime. Policy then has a level playing objective, so that the transition to a global economy, is knowledge based and without avoidable human costs. The author argued that a framework of a similar kind that should now be evoked for the agricultural sector. A road map must be developed for principal crops, which will not be based on historical costs, but opportunity costs at the margin, so that technological progress and India’s inherent competitive advantages were given a free reign to play. The capital costs for such an economy at the margin would be higher than the historical costs. But current output costs would be lower per unit of output, although they would again require larger working capital requirements. It was not possible for an individual researcher to work out a framework of this kind for all crops. The author in his Dharam Narain lecture gave an illustrative set of policies for one crop with the example of paddy. With limited access to cost of cultivation data for paddy for Punjab in 1999/2000 it was found that the average cost of cultivation per hectare was Rs. 21,119 ranging between Rs. 13,077 and Rs. 51,310 with a C.V. of 27.06%. This is the range within which the CACP would exercise their judgment for fixing a price. Out of 30 tehsils for which we had data, 14 had higher costs than the State average. But there was no way of knowing if the costs were higher on account of technical superiority or poor natural resource endowments. Tehsil level irrigation data was available and it suggested that poorly endowed water tehsils in south west Punjab had higher irrigation costs. The average cost per kg of paddy was Rs. 3.84. This could range between Rs. 2.24 and Rs. 18.12 per kg. Interestingly out of the 14 tehsils with per hectare costs higher than the State average, three tehsils had per kg costs less than the State average. These tehsils also had per hectare seed costs higher than the state average, suggesting a possible technical superiority leading to a cost and productivity advantage. In the existing policies no allowances are made for higher capital costs and internalization of technological superiority. The data brings out the problem, but there was no access to capital costs at a level of disaggregation to develop a numerical LRMC framework.

38

3 The Agricultural Economy

Table 3.9 Normative price calculations: an example S. No. Cost item Normative monetary policy

BAU

0 1 2 3

1 Return on net worth Return on term loan Interest on working capital

2 77.30 27.05 26.00

3 77.30 54.10 52.00

4

Depreciation

129.26

129.26

5

Input cost

400.00

400.00

6

Total

659.61

712.66

Source

Author s

estimates. Also see Y.K. Alagh, 2004

Data was collected from a water shed project on the River Pravara to build up a crude, but working example to illustrate the ideas being advocated. It may be recalled that the LRMC principle requires the capital cost to be worked out in real and not accounting terms and the current costs to be worked out for the efficient technology. The desirable economic profiles for paddy was worked out under two assumptions—(i) an interest rate for long term investments of 7.25% which would follow from RBI Governor Y. Venugopal Reddy’s then stated monetary policy announcement, if operationalized on the field, and (ii) the then existing BAU rate of 14.5%. Similarly the interest rate for working capital was ideally 9.75% and a BAU rate of 19.5%. The outcomes were as in Table 3.9. • 55 paise of the normative price could be shaved off with a more appropriate monetary policy or about 8% of the total price. If the tariff policy assumptions were not made the required price was Rs. 7.13 per kg. • Tax and monetary policy reform could therefore account for around 23% of the fiscal cost of the package as compared to a price support program alone. There was also a strong case for multilateral trade liberalization and reduction of tariffs on all commodities including agricultural commodities, it was difficult to make a convincing case for unilateral liberalization in the matter of agricultural tariffs. This was because the developed countries not only had high tariff ceilings very high, but also more importantly, agriculture received huge subsidies. The present author argued that along with other developing countries, India should link the reduction of tariffs with overall negotiations on easing of market access by the developed countries including reduction in domestic and export subsidies. Further, India could also argue for higher level of protection under the S&D clause to meet exigencies like a flood of imports. Actually India did ask for “the availability of Safeguard mechanism under AoA to the developing countries alone when this is eliminated for the developed countries that are exclusively enjoying it at present.” Concern was also expressed on the very high levels of domestic support given to agricultural products by the developed countries. This not only distorted world prices, but has also resulted in harming exports from the developing countries.

3.5 A Policy Frame

39

India also proposed to the WTO that all direct payments, decoupled income support and income insurance and income safety-net programs, direct payments under production limiting programs, etc., should be included in the non-product specific AMS and should be subject to reduction commitment as per the AoA. India’s other suggestions were product specific support provided to low-income resource poor farmers to be excluded from the AMS calculations; total domestic support should be brought down below the de minimis level within a maximum period of three years by the developed countries and in five years by the developing country Members. Much the same arguments continue. There are many additional proposals given by scholars and experts like the ceilings on total AMS and product specific support for each product; reduction commitment should not be only on the total AMS but also on each product specific support separately as well as on non-product specific support; there should be a faster reduction of product specific support and not of non-product support; negative product specific support should be treated as zero; only green box be included for direct payments and blue box must be excluded; green box should be strictly defined as support to research and development and extension, environment and those on equity ground and must exclude payment on land laid off; and the base period changes. One of the important issues that has come to the fore in the developing countries is that of food security consequent to trade liberalization in agriculture. Trade theorists believe that trade brings about a great deal of flexibility in the matter of food security for developing countries. Trade helps in augmenting availability in developing countries, it helps in smoothening very large fluctuations in domestic output, and is also expected to increase access of the poor to food, as free trade was expected to foster growth and increase employment opportunities of the poor in labor intensive export activities. Seen in this way, self-reliance is considered a much better strategy than food self-sufficiency, for achieving the goals of food security. But imperfections in markets made such advice debatable and IFPRI argued that global grain markets for example were highly imperfect. In another view, food security could only be achieved by widespread rural growth, which may be of a diversifying kind. Well known studies by the International Food Policy Research Institute suggested that malnourished children of age five years or below were high, in Rural India, but also in Rural China, and substantial numbers were undernourished in the rest of South Asia and also countries like Thailand, Indonesia, Malaysia and the Phillipines. These were also all countries with a demonstrated capacity to grow grain. Crop production growth was way ahead of the population growth rate in South Asia and more so in East Asia. The issue was not grain, but access. One needs money to buy food, even if our farmers produce it and our shops have it. One needs agricultural growth, not to grow grain, but to create a source of income on a widespread basis. When a large number of people live in rural areas, only widespread agricultural growth can trigger broad based rural growth and this is the only guarantee of reducing hunger. The State can feed a few people and it must do so. The really starving are the destitute. Women headed households, disabled wage earners, the destitute old. They have to be given grain. The State has to give the poor girl child a free lunch to keep her in school

40

3 The Agricultural Economy

and the poor pregnant or lactating mother needs assistance. There are also sharply defined geographical pockets of starvation placed there by the atrocities of man on nature and the environment. But these are targeted areas or peoples like the KBK districts of Western Orissa, the Sahel and war torn areas. But on a mass scale no government can do the task unless there is growth, so that there is work and then money in the pockets of the under privileged, so that they can buy food. Paradoxically to grow on a widespread basis, grain growth has to slow down more than in the past. Generally the pattern is that non grain crops grow faster than grain crops and animal husbandry and fish even faster. Diversification is the name of the game and incomes grow fast in response to demand changes, only this way. But it does not happen fast enough. One needs reform and investment in rural infrastructure. This reform is more difficult; for it runs into problems, because the rural economy is complex. A numerical Indian example for 2020 is given below. Detailed reviews of trade and food availability show that many of the benefits expected from trade liberalization did not accru for several reasons. First, regarding availability the WTO AoA envisaged that the developing countries would reduce their support to agriculture. The consequent rise in prices would induce grater production in developing countries. But this has not happened as the developed countries have failed to reduce their domestic support to agriculture. Furthermore, for the same reason, there has been no reduction in the volatility of international prices and price stability has so far eluded the developing countries. The record in the matter of access has also been mixed. While per capita income grew at a fast rate in some East Asian countries, thereby increasing access to food to their population, the growth record in South Asia was mixed. Slow down periods in the world economy since 1997–98 have resulted in reduced income growth in all the developing countries. As argued earlier, this is a real problem and have to be addressed at the trade negotiation level. In addition wars and violence also create crises response needs. Finally, developing countries have been given several options under the S&D in the matter of food security. These are: higher exemptions in the matter of both product and non-product support (for production); the provision to allow the developing to provide foodstuffs on a regular basis at subsidised prices for meeting food requirements of urban and rural poor (under consumption and price stabilization); the permission to developing countries to maintain food security stocks; and the provisions allowing the levy of additional tariffs under special safeguard clause to mitigate the effects of flood of cheap imports (under Special Safeguards).

3.6 Technology and Productivity It was argued in the low capital formation phase that a gross rate of capital formation of about 12% of Agricultural GDP was necessary to support an agricultural growth rate of around 3.5–4% annual and this rate was not being achieved then. For example:

3.6 Technology and Productivity Table 3.10 ICOR

41

Period

ICOR’s

1978/79–1986/87 1987/88–1991/92

4.37 3.32

Source Author s estimates. Also see Y.K. Alagh, 2004

It would be naïve to plan agricultural growth and policies with low incremental capital-output ratios (ICORs). In terms of gross capital formation, past ICORs are estimated as follows. Agricultural gross fixed investment is around two thirds of agricultural gross investment. It would be imprudent plan for an ICOR of less than 3 for agricultural fixed capital formation (Alagh 1997, p. 283).

These kinds of investment levels have been consistently exceeded, but the agricultural growth rate does not show the resilience that a twenty percent capital formation would provide. This in turn raises in a fundamental way questions of productivity of investment and non-renewable resource constraints of land and water. Real resource scarcities remained. Cropped area, earlier a constant, was falling whilst the area under irrigation was a matter of concern. There was recognition that faster diversification of the sector was required to achieve growth objectives, and this required policies relating to market reform and infrastructure in the context of the rural urban continuum (Alagh 2013a, b). Since widespread growth was required, a policy of “walking on two legs” was needed with improved productivity of cereal producing areas allowing land to be released for high value crops. In the short run, technology and input intensification were seen as the source of growth as policies of land and water management take effect. But to some public sector agricultural research was not a priority. The Planning Commission for example in the Mid Term Appraisal of the Eleventh Plan points out the strategic nature of seed research but ravishes the ICAR and says that only a reliance on the private sector will be required to meet the technology gaps (GOI 2010, pp. 66/67). This is a mistake. Technology is going to be the kingpin of solutions. The high rate of capital formation in Indian agriculture which had reached 21% of agricultural GDP is not leading to a commensurate increase in agricultural growth. Groups pushing technology should be in the drivers seats and that should be a hot seat with performance markers. Since the land base has stopped growing, productivity growth will have to be much higher. The author worked out that the past growth of productivity in agriculture was 1.62% annual in the decade 1981–90 and 1.55% annual in the decade 1991–2000. This growth would have to be 1.72–2.08% annual in the period 2001–2020 if agriculture grows at roughly 3.5–4% annual and 1.9–2.5% annual if agriculture grows at 3.8–4.8% annual in the period 01–20. Thus to source higher growth factor productivity will have to rise at least by a third, which is difficult in agriculture. While we had developed these estimates in 2002/05 Alagh (2006a, b), it is heartening that the Approach Paper to the Twelfth Plan stated that a third of agricultural growth was to be sourced from technology in the following words’ Technology is the main prime mover of productivity in agriculture where natural resources are fixed. Studies have shown that at least one third of the future growth

42

3 The Agricultural Economy

Table 3.11 India 2020: BAU and normative India 2020 Total population (million)

1273

Rural population (million)

738

Labour participation rate %

46

Labour force (million)

340

GDP growth (% annual)

8.5

GDP agricultural growth (% annual)

4%

Employment elasticity w.r.t. agricultural growth (low)

−0.3%

Employment elasticity w.r.t. agricultural growth (high)

−0.1%

Land augmentation through increase in cropping intensity (high)

0.5%

Increase in cropping intensity

0.0–0.2%

Source Alagh (2013a, b)

in productivity should come through innovations in crop technologies (GOI 2011, p. 93: For a more detailed discussion of this see Alagh 2006a, b, 2013a, b). To facilitate understanding we have used a small model (Table 3.10). A benign process will be in the following larger frame work (Table 3.11). In a benign framework of development, agriculture will grow at 4% annual, technological change and diversification will be high so the shift away from agricultural on this account will be 20% over the decade 2010–2020 (elasticity of −0.3%). This will mean a corresponding increase in real wages of the agricultural labor force. If the shift does not take place on account of poor agricultural productivity increase, with an employment elasticity of minus 0.1, there will be no increase in wages and there will be pressure on programs like MNREGA. Institutional reform of markets, empowerment of small farmers to leverage their assets for strategic partnerships with corporates, new technology and market linkages and the establishment of farmer groups and local institutions to build up the support bases for emerging Indian agriculture are all needed and advocated by us but the strategic nature of agricultural research should not be lost sight of.

3.7 Land and Water In a book authored with Uma Lele of the World Bank, the author had predicted incorrectly that net area sown would be stuck at 141 million hectares and growth needs would need to be sourced from productivity and more intensive cropping. Growth in net area sown, rising slowly earlier and constant since the early nineties indeed fell. The last year in which NAS was less than the 2002/03 number was in 1958/59.

3.7 Land and Water Table 3.12 Tank storage in Shedhi system Year No. of tanks deepened (progressive)

43

New capacity creation MCM

Range of deepening (m)

Season 1993/94

150

3.5 (6.0–9.9)

1–6

By June 1994

254

6.0 (9.0–13.9)

0.25–9.3

Source

Author s

estimates. Also see Y.K. Alagh, 2004

There is an intimate relationship between cropping intensity, land use and water development. Irrigation permits the possibility of multiple cropping by bringing additional land under cultivation and the same land to be used more than once. Application of new technologies in the past was related to assured water supply. But in actual fact, in this, irrigated area stopped growing for some years at the beginning of this century. Since then there was a slight increase in gross irrigated area but since 2010 it has again stopped growing. The decline in canal irrigated area is equally recent and shocking. We really do not have a detailed analysis of the debacle in irrigation. While a detailed analysis is not there the author would like to take the liberty of suggesting a more integrated and holistic approach to the problem. This is essential if the crisis of Indian Agriculture is to be staved off.

3.7.1 Integrated Water Resources Management There is an example from the planning work of SSP. The author wanted to see the augmentation of water in convergence of canal and other water conveyance and saving techniques (Table 3.12). 14% additional water cannot be considered trivial in a water short context. It is interesting that the Shedhi Branch of the Mahi system was planned on the basis that there are no tanks in the system Once resource assessments are known Project Planning and Global Best Practices need consideration. These then become the basis of Integrated Water Resources Planning and Implementation.

3.7.2 Development and Management In Integrated Water Resource Development and Planning Exercises, hydrological and technical, in the sense of engineering, parameters are well known and detailed. In fact in many investments these are the techniques largely used. But management in the sense of organizational, networking and financial issues are recognized but seldom detailed, otherwise progress would have been greater on achievement of goals.

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At the other end there is another financial perspective. The view that development should take a back seat and the focus should only be on management. This is incorrect. India is water short and will have to walk on two legs, with both aspects given priority.

3.7.3 River Basins and Agro Climatic Regimes Should we plan with agro climatic regimes or in river basins? We Plan water Projects in watersheds and basins but the flagship agricultural development Rashtriya Krishi Vikas Yojana (RKVY), said: • The state agricultural plan, should be based on (these initial) district plans, subject to reasonable resources from its own plan and adding those available from the centre, aimed at achieving the state’s agricultural growth objective, keeping in view the sustainable management of natural resources and technological possibilities in each agro-climatic region (emphasis and paranthesis added). This plan should then determine each district’s final resource envelope, their production plan and the associated input plan.

This therefore works in an agro climatic paradigm. The Mid Term Appraisal of the Eleventh Plan had a sober review of this approach. It says that the States have adopted the approach: “But convergence of non-governmental programs has been invariably omitted by the states.” (GOI 2010, p. 76)” The Agro Climatic Plans in the last decade said: • “Community groups, NGO’s and Cooperatives in the Agro Climatic Project have identified the major components. Farmer led distribution systems in existing commands; watershed development rehabilitation of tanks, beels, ponds, talaavs; aquifier management particularly in coastal areas have high returns;”

But the water and agriculture projects work in silos. Convergence would have high returns as many experiments show. K. V. Raju and Tushar Shah recognise that “The physical diversity in India is further accentuated with a definite variation in soils and cultural mores. Agro-Climatic Regional Planning (ACRP) presents itself as an alternate approach for classifying water resources in the country. This method of categorising and classifying water resources employs a utilitarian perspective by subsuming the entire range of “land and water resource based activities under the broader range of farming systems” (Planning Commission 1996).” Following earlier studies, described earlier (Deshpande, op.cit. and Alagh, et al., Planning Commission 1989), they state “The ACRP strategy aims at a more scientific utilisation of available resources by taking a holistic view of climate, soil type, topography, water resources and irrigation facilities and relating them to output and employment (Planning Commission 1989). As a first step in the ACRP approach, the country was regionalised into 15 agro-climatic zones having 73 sub-regions. The zones are delineated so that the regions within the zone have a high degree of commonality on a number of factors ranging from climate, rainfall, water demand and supply characteristics, aquifer conditions to soil types and topography.” (As quoted in Alagh 2004, Chapter 3).

3.7 Land and Water

45

Table 3.13 Districts by water balance Climate class Water balance Number of code districts

Extremely arid

A

7

% Table 3.11 Moisture index districts by water balance Land area 9.3 +100

estimates. Also see Y.K. Alagh, 2004

But the author believes (or is it his prejudice) that River Basins are preferred as a beginning. To Raju and Shaw, and like minded scholars, “River basins, as is evident from the definition, is a natural division that has physical existence (unlike political and administrative boundaries). Furthermore, river basins occupy the apex of a hierarchy of natural subdivisions like sub-basins, watersheds and micro-watersheds. This is perhaps the most powerful rationale for the introduction of management of water resources through a river basin approach.” (Ibid.) Another approach can be thought of: Shall we experiment with watershed basins at the lowest level and integrate with agro climatic regimes. We can then move up to larger watersheds and the entire river basin (Table 3.13). Action on solving water problems has to be at the local, watershed, aquifer, State and river basin level. This has to be the guiding mantra of Planning, Project Formulation and Execution. But it should not remain just a Mantra. What are the mechanisms to give strength to the local, State, watershed and river basin level. Cutting edge frontier technology in water delivery and development projects has to be developed at home and accessed in the World and made available. Working Best Practices must be known and diffused. Development and applications of success stories will require data and information support. We have to set up the systems to aid the State Governments, Local Bodies and CBOs in these support mechanisms.

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3.8 Planning As we know planning has been abolished by the NDA Government that took over in 2014, but these are operational problems and so we had the Honorable Prime Minister of India announcing in his drought assessment press conference (July 2015) that a Rs. 50,000 crore scheme will be implemented at the village level; but he hastened to add that it will be on the basis of agro climatic zones. Being the Grand Daddy of the Agro-Climatic Planning Exercise designed when the Late Rajiv Gandhi as Prime Minister was also Chairman of the Planning Commission, the author kept up the focus. This was difficult in the Narasimha Rao—Manmohan Singh period since both were very hostile to Rajiv Gandhi’s experiments. But we kept up the technical work at the Sardar Patel Institute of Economic and Social Research in the Agro Climatic Regional Planning Unit and now when any Government or the NITI Aayog wants it can be revived again. More generally there is the question of agricultural planning. Are agricultural price trade and private investment policies enough to ensure an adequate rate of sustainable growth? Such questions are considered heretical in a regime which has abolished planning but in a resource constrained agriculture operating in a not too friendly open economic regime and trade dominated policy biases, it is a necessary question. The contours of agricultural planning in India (see, Alagh, in UN, ESCAP 1982 for details) was followed until and in the Twelfth Plan. This is now over and planning is abolished. But long term issues are raised and NITI Aayog is asked to make 3 Year Vision and 7 year Plans (See Chapter 2). So agricultural planning may again be revived and a brief discussion is in order. A fair appraisal of agricultural development planning and policies adopted in India has to take into account the factors confronting the planners and policy-maker at a given point of time and also the choices or options available to them. First, planning for agricultural development has to be an integral part of a comprehensive development strategy for overall economic growth. The objectives of economic and social development at the national level also set the important objectives for agricultural development. Second, the demographic factors operating in India have their impact on the strategy chosen for agricultural development. The pressure on population on land coupled with the size-distribution of land holdings which weigh heavily in favour of small holdings and unfamiliarity with agricultural inputs of industrial origin dictates that India should evolve its own strategy for agricultural and economic development. In other words, the situation implies that the strategy for improving productivity and output in the Indian context has to be substantially different from that adopted in other parts of the world with altogether different demographic and infrastructure conditions. Third, the planning process in general and agricultural development planning in particular, have to operate within the framework of a federal democratic political structure. In spite of posturing to the contrary, the logic of alternative political parties ruling different parts of the country has its own momentum and impact. Fourth, India being a sub-continent, the planners have to adopt a differentiated strategy in respect of agricultural development in order

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to take into account the varying agro-climatic conditions prevalent in different parts of the country. This, in other words, implies multi-level planning as well as a multipronged approach which has to be interwoven with policy making and planning for agricultural development at the national level. NITI Aayog, interestingly decided that resource allocation or not, it would do planning and in spite of planning being abolished and the Finance Minister allocating resources amongst the States in his Government’s schemes which now in the Annual Budgets aim to allocate more money than by the UPA Government did in earlier Centrally Sponsored Projects. The only difference was that in the UPA schema, resources were allocated in the Annual Plan based on the Gadgil Mukherji Formula but now that allocation is ad hoc or as some States say, arbitrary. In spite of all this, the NITI Aayog has already produced a Three Year Vision Plan 2018/19–2021/22. They don’t have the Resource Allocation function but it consists like all earlier Plan Documents of sections with Objectives, Expenditure Targets, Resource Allocation, Sectoral Plans and Special problems (NITI Aayog 2017). They have also said that they will release a longer Seven Year Plan on which they are working (PIB 2016). The NITI Aayog have a difference take on this. And so they state: “The Vision, Strategy and Action Agenda represents a departure from the Five Year Plan process…” (NITI Aayog 2017, p. 1). The Aayog annex a Directive from the PMO for stating this. But the output is now in the public domain for comment and the similarities with earlier plan documents are much too striking to ignore. We summarise the Vision Document Plan for the Agricultural and Related Sectors and then discuss each recommendation. The hope is that there will be developments such that planning of a strategic nature will again become a serious possibility and then our work as reflected in this address and the discussion which, it is hoped, will follow, will become of some practical relevance apart from its academic interest. The academic interest will remain because as the author has argued—we are still all Planners (!)—whatever that means.

3.8.1 NITI Aayog’s Vision for Agricultural Sector Frankly speaking the Agricultural sector chapter in the NITI Aayog’s Vision Document is not its best chapter. It is somewhat sketchy. As a background Capital Development Expenditure which was falling since 2013 had fallen to 0.9% of GDP in 2025/16, but NITI Aayog expected it to rise, as Budgeted to rise to 1.2% in 2016/17. It presented a Medium Term Expenditure Framework in which in which this would rise further to 1.7% in 2019/20. NITI Aayog wanted to raise the allocation of Rs. 103,000 crores for Agriculture and Rural Development in 2015/16 to Rs. 216,000 crores in 2019/20. This it anticipated would raise the share of Agriculture and Rural Development in Capital Development Expenditure from 5.9% of Development Expenditure to 7.7% (Table 3.14). NITI Ayog’s Agriculture Vision until 20119/2020 is stated as follows;

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Table 3.14 Allocations of development expenditure: 2014/15–2019/20 Sector 2014/15 2019/2020 (Rs. Crores) Agriculture and rural development

103,130

215,941

Power, irrigation and flood control

13,355

24,111

Total capital development expenditure

90,649

358,462

Source NITI Ayog (2017), p. 19

the Prime Minister has called for doubling farmers’ incomes by 2022. To achieve this goal, the Action Agenda outlines a strong programme for agricultural transformation. It includes numerous measures to raise farm income… enable to farm it themselves and improve the implementation of relief measures. Chapters in subsequent parts of the document offer an ambitious agenda for empowering the rural population through improved road and digital connectivity, access to clean energy, financial inclusion and “Housing for All.” 1.11. Enhancing agricultural productivity requires of efficiently using inputs, introducing new technologies and shifting from low to high value commodities. We need to expand the scope of irrigation to increase crop intensity, improve access to irrigation, enhance the seed replacement rate and encourage the balanced use of fertilizers. Precision farming and related new technologies, that allow highly efficient farming and conserve resources, must be spread through appropriate policy interventions. Conditions conducive to shift into high value commodities such as horticulture, dairying, poultry, piggery, small ruminant husbandry, fisheries and forestry need to be created. Farmers should get genuine rights for direct sales to buyers of all commodities, potential buyers should get the rights to buy produce directly from farmers, entry of private agricultural markets should be free and an effective legal framework for contract farming should be established. Minimum Support Prices (MSPs) have distorted cropping patterns due to their use in certain commodities in selected regions. There has been an excessive focus on the procurement of wheat, rice and sugarcane at the expense of other crops such as pulses, oilseed and coarse grains. These distortions have led to the depletion of water resources, soil degradation and deterioration in water quality in the North-west. At the same time, eastern states, where procurement at the MSP is minimal or non-existent, have suffered. One measure that can help reduce distortions in the MSP system is the system of “Price Deficiency Payment.” While MSP may still be used for need-based procurement, under the deficiency payments system, a subsidy may be provided to farmers on other targeted produce, contingent on prices falling below an MSP-linked threshold (NITI Aayog 2017, p. 2).

No schematic and project level details are given and Irrigation is clubbed with Power. But as we will see the Irrigation chapter has program and project details. The Vision document lists Land Markets, Food Processing, APMCs, Rural Urban growth clusters and capacity building of Panchayats. There is also a mention of Technology for the water, agriculture sector and the need for governance reform. Details are not there. Details are there for the Irrigation and Flood Control sector, so the chapter starts by presenting them and discuss them.

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3.9 NITI Ayog and the Irrigation Sector The background is set on well known facts. Utilisable flow is 1123 BCM of water: 690 BCM of surface and 433 BCM of ground water, giving an availability of 1816 cu. Met. In 2001, going down to 1544 cu. met. In 2011, this compared with 4733 m3 in Australia, 3145 m3 in Brazil, but only 1111 m3 in China. In 2050 the high demand is 1180 BCM and the low is 973 BCM of which 70% will be in agriculture. The present storage is 303 BCM of which 53 BCM was silted by 2000. The Ultimate Irrigation Potential is 140 mn. Hec. and 112 mn. Hec. has been created. There is a 21% gap between potential created and utilised. Half the Net Area Sown needs irrigation. There are insufficient funds for improving irrigation efficiency and poor maintenance of existing facilities. Participatory Irrigation Management is scarce, cropping patterns are unsuitable to available water and the agro climatic regime and there is absence of last mile connectivity (NITI Aayog 2017, pp. 166–167). The Pradhan Mantri Krishi Sinchai Yojana is to give water to each field, but at a practical level the irrigation department has included the Advanced Irrigation Benefit Project (AIBP) to complete 99 projects. The AIBP was designed by me as a successor to such schemes originally designed in 1975. It had worked then and later but by 2010 it was not working. In the Twelfth Plan the author’s exhortation for a detailed study was included. The author had argued then—“We really do not have a detailed analysis of the debacle in irrigation”. The first issue is the failure of the AIBP. This programme for completing ongoing irrigation projects was started when the author was Planning Minister. It was started because we have a long history of successes with such programmes. The first such programme was started in 1975/76, when we had formulated a plan for food self-reliance. Table 3.5 shows that it worked and irrigated area went up by 5 million hectares and irrigation intensity from 108.77 to 110.25. We then reinvented it in 1987/88 when the late Rajiv Gandhi wanted a Plan for stepping up stagnating agricultural production. As member in the Planning Commission, the author saw it again worked and over a brief period irrigated area went up by around 5 million hectares and irrigation intensity from 113.15 to 115.15. There has been very little progress since. These earlier programs and the critical role they played have been described elsewhere7 , but the real issue is why did the AIBP fail? (see Table 3.15). We need a serious professional evaluation, but being involved with planning and monitoring such programs for over three decades, the author suspects that not including a Canal component to cover the last mile of water deliveries is one reason and the other is bringing in a loan component and not keeping it a Central Plan scheme. There were, however more basic factors at play. As compared to relief against rainfall failure, the farmer now wants yield enhancing water supplies for water stress periods of diverse crops grown with modern technology. Access to ground water gives them this facility, badly planned and inefficiently managed canals don’t. Farmers and their communities now want control on water deliveries. We have just started canal systems which employ for example hydraulic controls up to distributory levels and the successful examples are few and far between. In a recent critique of the Ken

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Table 3.15 Impact of special irrigation programmes in the seventies and eighties S. No. Year Net irrigated area Gross irrigated area Irrigation intensity 0 1 2 3 4 5 6 7 8

1 74/75 75/76 76/77 77/78 78/79 87/88 88/89 89/90

2 33.71 34.59 35.15 36.55 38.06 42.89 46.15 46.70

3 41.74 43.36 43.55 46.08 48.31 56.04 61.13 61.85

4 108.03 108.77 108.40 109.53 110.25 113.15 114.98 115.15

Source Government of India, Ministry of Agriculture, Nov. 2005, Agricultural Statistics at A Glance: 2005, Table 14.2, p. 176

Betwa project put on web by the Interlinking of Rivers Project we have described how the soil scientists have shown that the area is unsuitable for paddy and irrigation would enhance yields from oilseeds, pulses and fodder crops, but the system is designed largely for flood irrigated paddy. We have also described the alternatives now possible, like the computer controlled delivery systems being constructed in the Sardar Sarovar Command (see Alagh 2006a, b). Inspite of these warnings, dutifully stated in earlier plan documents we continue with the program without analyzing the reasons for the money not giving us any results now. The NITI Ayog’s vision discusses the National Water Framework Law, which is surprising since that was an initiative of the previous UPA Government. The Draft of the Law was prepared by a committee chaired by the author (GOI, NWFL 2013). Having grave misgivings, in the Foreword to that Report the author had said that “I accepted the daunting task… [because], ‘As India takes its place in the sun in this century as a major global entity it does so with a high rate of growth and a young restless population on the move. Very little can hold it back. But water, energy and other non-renewable resources like land will set the eventual limits of high growth. In spite of all the hiccups and the fact that in some regions we are already very stressed, I believe we have the civilizational and given our federal democracy our institutional strength to use water well” (Ibid., p. i). But in spite of all the author’s misgivings this work has become important because The Minister of Water Resources has introduced a Bill on The National Water Framework Law in the Lok Sabha in 2017. It follows in the main The Draft Act the author’s committee had prepared with the change that a minimum amount of water as a Right is not accepted. This aspect is discussed later. National Water Framework Law of the Government of India has an expression which is owed to an initial draft Shri Mohan Kumar, then Additional Secretary, MOWR, used: ‘Appropriate Government’. The Framework is meant to provide the larger structure for organizing the support mechanisms to States and communities in their governing institutions at the levels that matter, the Local

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51

Government, CBOs (Community Based Institutions), the Management of ponds, water bodies, watersheds, aquifers, and river basins. Action on solving water problems will be at the local, watershed, aquifer, State and river basin level. This is the guiding mantra of the proposed National Water Framework Act. But it is not allowed to remain just a Mantra. The Act lays the mechanisms to give strength to the local and State, watershed and river basin levels. Chapters 1, 2 and 4 deal with these aspects. It is these that need discussion, scrutiny and strengthening. Once these mechanisms are fully in place, as appropriate structures, the National role is largely that of support. But these support mechanisms can be critical for the ‘Appropriate Government’. Cutting edge frontier technology in water delivery and development projects has to be developed at home and accessed in the World and made available. Working Best Practices must be known and diffused. Development and applications of success stories will require data and information support. The Framework attempts to set up the systems to aid the State Governments, Local Bodies and the Appropriate Government in these support mechanisms. The Act provides for a web based information system (WRIS). It will be state of art, comprehensive and user friendly. Geographic mapping systems, satellite based technologies, all aspects in which India is good but has not used for decentralized systems like water and will be developed at the national level. The Andhra Pradesh Farmer Managed Information System, the author had highlighted in his evaluation of the FAO in South Asia (FAO 2009), has now been introduced as a major instrument of water management since the Twelfth Plan. These kinds of systems are inter disciplinary, farmer and user friendly and well-honed to solve problems. In the 100 distressed ground water districts, information through real time to each farmer on water levels can be a major instrument for evolving better systems. For example, if we know how each of us is impacting exactly on the common aquifer, we can better evolve working systems. Similar examples abound of technology based solution systems in ground water, river basins, watersheds and other water bodies recognized in the Framework. Rivers are back in fashion. The Chief Minister of the Indian state of Uttar Pradesh, Yogi Adiyanath, wants the river Gomti to be integrated with the Ganges. The Gomti near the ghats at the Deoband is not a river but a nallah4 in the dry season, as is the Sabarmati5 before we pump in scarce Narmada water in it at the expense of the farmers for whom it is meant and not as entertainment for Ahmedabadis. Should we plan with agro climatic regimes or in river basins? We Plan water Projects in watersheds and basins but the flagship agricultural development. Rashtriya Krishi Vikas Yojana (RKVY), which in a mutilated form still lives if the Budget papers are to be believed works in an agro climatic regime, but the water and agriculture projects work in silos. Planning and policies for convergence would have high returns as many experiments show. But now planning has been abolished. In spite of this setback, the Water Resources Ministry has kept up a long term water 4A

thin stream, usually full of sewage and other wastes. that flows through the Indian city of Ahmedabad.

5 River

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conservation planning policy focus. In February 2016, Mukesh Sinha then JS PP in MWOR and the CWC ranking official on water planning presenting the National Water Framework Law in Jal Manthan 2 organised by the MWOR, argued that ‘It suggests we experiment with watershed basins at the lowest level and integrate with agro climatic regimes. We can then move up to larger watersheds and the entire river basin.’

3.9.1 Canals and Ground Water The delivery efficiency of canal based irrigation in India is poor. Wastage of water is high and irrigation is generally not controlled leading to severe restrictions in cropping and technology choices. Studies show that farmer managed modernization and operation programs for levels below a distributary can double irrigation efficiencies. It should be possible to extend this program to a million hectares. The existing systems act as a drag. Irrigation authorities are loath to decentralize power. Planning Commission sponsored studies show that even in canal modernization schemes, when farmers are encouraged to manage canal systems, irrigation authorities keep most powers to themselves and if responsibilities are decentralized, resources for operation and maintenance are not. The only alternative model known to the author, which is seriously suggested is the plea that the Chinese experiments in private sector institutions at the village level to run water systems should be the preferred model. Incidentally this model also includes a strong system upstream say up to the distributary as we would call it. Also, it underestimates the role of the Communist party in directing public-private partnerships in China. The author’s impression after field visits in rural areas leading a Rajiv Gandhi Foundation delegation in October 2004, was that the local agents are carefully selected and are responsible to higher authorities. It is not an accident that The Mayors of Shanghai go to Beijing at the highest levels. The model cannot be copied without adjustment.

3.9.2 Delivery Systems: SSP This was an Indian designed system. Some of the unique features built into the planning of the project were concrete-lined canals to reduce conveyance losses, use of control volume concept for design of distribution systems, efficient water use allocation with optimised crop planning for 13 different agro-climatic zones of the command, extensive irrigation to a 180,000 ha area with just 21 “delta supported by the use of 8” of groundwater, deepening of village tanks for borrowing soils for canal embankments, computerised automated operation of canal system, participatory irrigation management through Wager Users Associations, and promoting micro-irrigation systems like drip and sprinkler for efficient water use (Jagadeesan 2012, p. 901).

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It is not done yet. But scarcities have now started. So now should start the experiment on the ground do it? We can start an experiment in a Distributary with Integrated Water Resources Management (IWRM). In the SSP system, canals were designed to deliver controlled water, and depending on their cropping pattern, the farmers would draw ground water in each region. The actual design showed that canal water use would vary inversely with groundwater use. The system was designed such that the private sector could participate in it. The design needs implementation and replication. Shall we repeat the Shedi experiment for a lot has changed since then? Meanwhile SSP completion is on the back burner. The lowest level canals, which deliver water to the farmer are being constructed very slowly. In end of February 2018, the Government of Gujarat in a written reply to a question by Una6 MLA Punja Vansh declared that 2899 km of Minor Canals in the SSP were yet incomplete out of the total of 127,71 km. Worse still at the level of sub-minors, which was the delivery point to the farm, 17,451 km of the canals were yet to be taken on, out of the total of 30,779 km. Thus 56.7% of the canals at the sub minor level or delivery point were yet to be completed, even though the water started flowing into the Main Canal of SSP in 2002, the year the present regime took power. Also 22.7% of the sub minors were not yet ready. Conjunctive water use can be attempted and is well suited to describe the “dynamic interaction between the surface and subsurface water systems” (Peter Millington 1996). The flow chart of a simple multi level model is shown in Chart 3.2. There are successful models in India. They require that the ownership and operation of the systems say at the level of a minor or below is left to an organization of the farmers in the command. In addition the existing resources for operation and maintenance have to be transferred to the Farmers group. This has to be done by law in the sense that government orders have to be issued requiring the transfer in practice. More often than not the principle is accepted but the practice is not there. “There are many successful examples. A few years ago a meeting was held at the Development Support Center (DSC) at Bopal in Gujarat where the results of different experiments in handing over lower level irrigation systems to farmers groups were discussed in the presence of the then Member of the Planning Commission, Shri B. N. Yugandhar and Y. K. Alagh. The design of such experiments both in physical control systems, operations and more important legal and rule based changes are available with the DSC.” Shouldn’t we have a research plan to revive these experiments? Who will bell the Cat or Do It? Community groups, NGO’s and Cooperatives have been identified for the major components. Farmer led distribution systems in existing commands; watershed development rehabilitation of tanks, beels, ponds, talaavs; aquifier management particularly in coastal areas have high returns. A massive program for land and water development has to be the centre piece. Growth of private investment in groundwater has

6A

district in the Indian state of Himachal Pradesh.

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Chart 3.2 Surface and ground water interaction. Source Nicholas Sonntag (1996)

been spectacular and needs further support, particularly in the Eastern region and in Peninsular India. But Basin Development and transfer of water are also important. These plans must be led by a public policy initiative, with a very large financing component. Newer institutional forms like cooperatives, NGOs, non profit companies and Producer Companies, have all worked. PPPs must be designed. Private Participation with Regulation must be supported. Leadership groups must supervise the preparation and implementation of such programs at the regional level of 3 to 5 Districts. We know they will run into trouble and must then support them.

3.10 Water Demand The IWRM has to provide that every individual has a right to a minimum quantity of potable water for essential health and hygiene and within easy reach of the household. The state‘s responsibility for ensuring people‘s right to water has to remain despite corporatization or privatization of water services and the privatisation of the service, where considered necessary and appropriate, should be subject to this provision. The Falkenmark Index is there and yet the minimum need for human consumption is a question. For the human consumption aspect a globally accepted norm does not exist. In developing countries, the question of water for animals becomes a vexed issue

3.10 Water Demand

55

and the Government of India norms are select program features and not minimum needs in a universal sense (Cullet 2012). In fact, the earlier minimum needs plans only talked about the availability of a drinking water source and quantities of flows were not stated. In fact, apart from exceptions like Bengaluru, measured quantities of water deliveries were not known in India. Having chaired the Task Force which defined India’s Poverty Line which continues through today since the Tendulkar Committee did not set down a new criteria but decided that the Alagh Urban Poverty Line should be the National Poverty Line and Rangarajan also did not change. We have been asking for a new definition since the Nineties of the last century and have supported indicator based systems for poverty identification. This has not been done. However, practical problems cannot await resolution of these issues. We may follow the approach operationalized in the Food Security legislation and described by experts like Abhijit Sen and others like us. The Food Security legislation has the approach of keeping the norm low but coverage universal. The low norm is a minima which can and is, expected to be exceeded in most cases. Thus, if the minimum norm directs a certain minimum quantity of grain to be delivered at a minimal price, the rest is expected to be made up by the State Governments and from the savings achieved by poor households when some grain is delivered free. The pregnant woman is not given a glass of milk and the girl child an egg, but the legislation is a step in that direction. The minimum water norm for human consumption will need to be enforced by law even at 2000 m above sea level in the Himalayas or in the desert. It is a minimum. It is interesting that although the Expert Committee I chaired on The IWRM Draft BILL provided for this drinking water right, the IWRM Bill presented in Parliament does not and neither does a Draft Bill presented in the Gujarat Assembly on an IWRM for the State (Kapil Dave, Times of India, 11 March 2018). It is possible to build up dual pricing models where some water is given free (life supporting) and the rest is priced (For a discussion of this see Yoginder. K. Alagh, More on MOST, UNESCO 2002.). Communities can be asked to enforce these systems.

3.10.1 Water Resources Information System A new research effort is needed at integrating water resource assessment work with agro-climatic regional categories and that of improving the precision of the estimates and setting the base for more work on the features which augment the availability of fresh water in a renewable manner. Apart from institutions, it sets down categories corresponding to agro-climatic concepts defined in a regional context, simultaneously modeling water availability. Surface-groundwater interaction models are by now common. It is being suggested that such modelling should be attempted more systematically, not in only in response to project formulation work, but with instruments of a water conserving or water augmentation nature built in. Farmer Managed systems, conjunctive use and holistic management of local water bodies are examples In a three to five year framework, it should be possible to generate knowledge, from

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which generalisation could begin. It is extremely likely that assessment of water as a resource will gain another dimension if such efforts are pursued. There is great need of integrating Water Resources Management with agro climatic regimes (Alagh 2014). This has to be at the level of Local Government, CBOs (Community Based Institutions), the management of ponds, water bodies, watersheds and aquifers and then to build up at higher spatial levels, leading to river basins. This will mean integrating water with soil and climate. This in turn will mean consideration of temperature and rainfall. Integrated water studies have to come to grips with Technology and Resource Assessments. Water Resources Information Systems are now common; The real question is that with technology and better assessments will more water become available for use. Will “Additional(?)” Water be Available as the wit said? In Integrated Water Resource Development and Planning Exercises, hydrological and technical, in the sense of engineering, parameters are well known and detailed. In fact in many investments these are the techniques largely used. But management in the sense of organizational, networking and financial issues are recognized but seldom detailed. At the other end there is another financial perspective. The view that development should take a back seat and the focus should only be on management. This is incorrect. India is water short and will have to walk on two legs, with both aspects given priority. In a debate on the centralizing aspects of the NWRF, it was pointed out that the only two aspects in which it gave initiatives to the Central level was in building up a WRIS and in dispute resolution. There was little appreciation or comment on this in the literature. The French scholar Coullette had an earlier critique of the Drafting Committee report of the NWRF and the only piece that the author has come across recently is by Observer Foundation Fellow Nilanjan Ghosh in Business Line (July 30). This aspect was highlighted in 2017 in the Cauvery disputes between Karnataka and Tamil Nadu. The then CM Karnataka had requested the Prime Minister to call a meeting of the party States to sort out this year’s Cauvery water sharing problem. Asked in 1995 to arbitrate in a season’s the 2017 dispute on water sharing in a river basin, following the Apex Courts directive, the author had, apart from the flows to be shared that year, also suggested that a three layer system implemented in the Mekong Basin amongst nations which had actually gone to war with each other be designed. This dispute resolution system, at the highest level political, at the second level coordinative and at the third level a delivery apparatus, was implemented and has worked reasonably well. It is now institutionally incorporated in the Draft National Water Framework Bill 2016, The Ministry of Water Resources has placed in the public domain and circulated for comments by the States and as noted earlier this is based on the Report of the Committee for Drafting of National Water Framework Law, chaired by me which submitted its report May 2013. In Jal Manthan 2 organised by the NDA Government the CWC presented it again for discussion. The Draft Bill takes all this into account. Surprisingly there has been little discussion on the water framework bill, considering that water is a critical issue in India’s federal politics, as the current Cauvery dispute shows.

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In the discussion on the Water Framework Law, now with Parliament as the report of a committee chaired by the author to highlight the proposed legislation, he had argued again, that lawyers don’t understand the difference between water as a Stock and as Flow amongst other deficiencies and their Tribunals and Awards don’t solve any problems. This aspect has been highlighted again in the recent SC ‘award’ on the Cauvery dispute between Karnataka and Tamil Nadu. Also this time the PM has not responded to the call and a Development Board is to be set up. Such Boards have been known to delay matters. In the earlier report submitted by the author, he had pointed out that ground water is used extensively in the Cauvery delta and it is not accounted in the earlier Awards. The SC takes care of this as a flow account. But the essence of the author’s argument was that the legal “Awards, don’t distinguish between average flows say ‘x tmc’ and the actual flows in a particular year. As compared to 270 tmc an award of 284.75 tmc to Karnataka and consequently as compared to 419 tmc, 404.25 tmc to Tamil Nadu is a no brainer water account which has nothing to do for a year when the flows are terribly reduced. To say that an ‘expert’ should resolve the problem then is to wash your hand off the real problem.” Needless to say everybody is happy when you allocate to them water from average flows; when they find out that that allocation will not be available when the flows are less as in a drought year, the knives will be out. It is not that such problems cannot be resolved. In the earlier case when the author was the designated ‘expert’, he had not only given the numbers for that year, but also suggested that the MEKONG formula should be followed in future years when problems arose. The Mekong countries (Thailand and Cambodia, Vietnam and China, and so on) had terrible political problems and were also going to war with each other. Also at the end of the river was the Tonle Sap, a lake home to almost half a million people whose water needs had to be protected. This by itself led to the scrapping of many of the dams the late Kanwar Sain had designed for the Mekong River upstream. But the countries set up a three Tier dispute resolution mechanism. At the lowest level was a Committee of water officials, much like the proposed Water Management Board in the Cauvery. But when it failed, as it would in a scarcity year, the differences would go to an “Senior Officials” Committee. In our setup these would be Chief Secretaries or so. If this failed, it goes the political level which would be state Chief Ministers chaired by the PM. This system was implemented in the Cauvery and worked in the sense that everybody was equally unhappy but it functioned. This year this was jettisoned. That is a mistake.

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3.11 Critics of the IWRM The French expert P. Coullette and the Indian expert N. Ghosh have commented on the Draft Report. Cullet and now Ghosh interestingly want these bodies to be more sharply defined in their functioning in a constitutional system which permits diversity. This aspect is dealt with in some detail in the preparatory committees but there is a problem with these comments. Details of this kind, in terms of larger perspectives, have to be seen in the background documents as they cannot be there in the legislation itself. These kinds of operative details in any legislation would come in rules and background explanations. There has been a sharp debate on this in the crises on the Cauvery. In ‘The roots of the Cauvery crisis’ (Business Line, September 23), Nilanjan Ghosh has said—[I favoured] “a decentralised approach towards resolution by vesting more powers lower down”. Ghosh was discussing a piece the author wrote for Business line (Alagh 2016d). He has described the history of the dispute and correctly stated the principles of water-sharing, now established in the Dublin Protocol. In the report, the author had suggested a variant of the Mekong formula for resolution of the dispute. This was not a decentralized approach. It provides for three levels: disputes are resolved first at the level of operators of the system, that is irrigation engineers, etc. They are then settled in the ministry of water resources with Central and State level officials. If this does not work, the dispute goes to the highest level with the Prime Minister of the country and state Chief Ministers. This system worked in the Mekong valley, as we saw earlier. This system worked for many years in the Cauvery. There was no violence although tension was there. This year, the second level has taken the call. Karnataka at that stage wants the Prime Minister to take the call. We can only wait and see (Alagh 2016e). The approach giving primacy to Local Governments is reiterated in the Draft Framework Law a number of times. Therefore, Chapter 1, Sect. 3.2(i) stated; “‘Appropriate Government’ means in relation to interstate rivers and river valleys, the Central Government and in relation to rivers confined to the territory of a State, the State Government; and as defined in the concerned legislation devolving powers to local bodies. Further Local Authorities and the appropriate Government shall take all measures to plan and manage water resources equitably, sustainably, and in a socially just manner and again, the planning, management and regulation of water resources shall be carried out by the appropriate Local Authorities and the appropriate Government in a manner that is transparent, accountable and participatory.” In fact the local bodies are to be empowered and assisted. It was provided that such users and community based institutions will be empowered to take information based decisions based on aquifer information and extraction data shared with them. More generally, local governing bodies like Panchayats, Municipalities, Corporations, etc., and Water Users Associations, wherever applicable, were to be empowered and involved in planning and management of the projects. In fact, it would be for the first time that such explicit functions will be legally legislated for the appropriate government at the local level in India and powers backed by law if the legislation is enacted. In the ex opere operata comments being made it will be nice if at least

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some of these points so explicitly introduced in the Draft legislation were read and referred to. The new laws and the literature behind them also include in them the relevant aspects of the role of the national government in the complex area of dispute resolution. In a federal setup this has to be a national task. Again experienced based solutions need to be looked at. These problems need constant attention. To the best of my understanding the only aspect in which the Draft Framework is prescriptive at the National level, is its requirement that a minimum amount of life giving water must be the right of every Indian. For the rest it only designs a structure to, empower in detail and support the State Governments, Local Governments and governing institutions of the water sector to play their ordained role. These issues need serious debate. It is obvious that a lot of work is needed to operationalise integrated water resources management. This has to do with definitions, resource inventorying, planning methodologies and integration with users and the bureaucracy. But we cannot wait for the perfect fit to start. We must begin and experience will be the best teacher. All of this will need resources, but one of the distressing features of the economy in 2014/15 is the decline of Gross Investment as a ratio of GDP in last year to 29% from the figure of 32% three years ago and 34% earlier. We have to make efforts to get out of this trap.

3.12 Conclusion Progress in agricultural reform is slow. Why is it so? The sector is supposed to have great political clout. We do not believe this is effectively so. It is largely a competitive sector since the farmer is atomistic. But they do not have power of an economic kind that the corporate sector does and they are also not backroom boys as the corporate fraudsters have shown themselves to be. The abolition of planning has taken away the only economic constituency they had. So terms of trade fluctuate but nothing much happens in the favour of the Agricultural Sector. Infrastructure investments are low. So output and employment growth is around the historical trend. The water sector also does not give them the priority the rural sector is supposed to have. As India’s non-renewable resource constraints become more severe problems get more acute. As an economist, one has to portray reality but as a human being it is heart breaking for as the author’s teachers taught, it is the science of human welfare. But the context can improve. Policy must believe and work for the fact that in the next decade, Indian agriculture will meet the requirements of food security and rapidly diversify itself. It will function in a rural urban continuum, with rapid developments of markets and shifting of working populations from villages to linked small towns and also from crop production to value added activities. Employment growth will be high in these activities chasing a high rate of economic growth. All this will happen if the institutional structure gives the appropriate signals in term of technology and organizational support and the necessary economic support in terms of pricing and infrastructure support. Otherwise there will be rising food prices chasing few goods and immiserisation.

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References Alagh YK (1982) Agricultural development planning and policies in the ESCAP region. In: U.N., ESCAP, Experiences in agricultural development planning in selected countries of Asia, UN, ST/ESCAP, 191, pp 16–28 Alagh YK (1991a) Indian development planning and policy. In: Wider studies in development economics. Vikas, Helsinki and Delhi Alagh YK (1991b) Sustainable development, from concept to action: techniques for planners. UNCED, Geneva Alagh YK (1994/1995) Planning and policies for Indian agricultural research. Shastri Memorial Lecture, Reprinted in ICAR. Landmarks in Indian Agriculture Alagh YK (1995/1997) India’s agricultural trade with the ESCAP region. In: U.N., agricultural trade with the ESCAP region. Studies in international trade, vol 10. U.N., New York Alagh YK (1997) Agricultural investment and growth. In: Inaugural address to the 56th annual conference of the Indian society of agricultural economics (Indian Journal of Agricultural Economics) 279–287 Alagh YK (1999) India’s agricultural trade. Ind Econ J (First Dantwala Memorial Lecture) Alagh YK (2003) Agricultural price policy in an open economy. Tenth Dharm Narain Memorial Lecture, Institute of Economic Growth, Delhi Alagh YK (2004) State of the Indian farmer—a millennium study: an overview. Academic Press, New Delhi Alagh YK (2006a) India 2020. J Quant Econ New Ser 4(1):1–14 Alagh YK (2006b) Indian economic strategies after Doha. In Radhakrishna R et al (eds) Earlier version in seminar on the ideas Institutional Nexus, CIGI and UNU, Buenos Aires, pp 205–233 Alagh YK (2009) Agricultural pricing in a WTO economy: policy advice and decisions. Economic Developments in India, no. 138. Academic Foundation, New Delhi Alagh YK (2012) Green revolution, entry. In: Basu K, Maertens A (ed) The New Oxford Companion to Economics in India, vol 1. OUP, Oxford and New Delhi, pp 331–333 Alagh YK (2013a) The future of Indian agriculture. NBT (first reprint 2014) Alagh YK (2013b) Technology and the future of indian agriculture. Kalinga Lecture 2013/14 Alagh YK (2014) Integrated water resources management. Inaugural Address to CWC and World Bank Meeting on the Same Subject, New Delhi Alagh YK (2016a) Structure of Indian agriculture (Ramaswamy CR, Ashok KR, editors), pp 12–24 Alagh YK (2016b) The president speaks. Ind J Agric Econ 212–222 Alagh YK (2016c) The Cauvery dispute. Bus Line, September 12 Alagh YK (2016d) Levels of mediation. Bus Line, September 23 Basu DN, Guha GS (1995) Agro-climatic regional planning in India, vol 1 and 2. New Delhi (Concept) Bhalla GS (1974) Changing Agrarian structure in India. Minakshi, Delhi Cullet P (2012) Comment on NWFL. Asian Transp J (AITD) Ghosh N (2012) Root cause of the Cauvery crisis. Bus Line, September 22 Government of India (2001a) Ministry of commerce and industry. WTO: agreement on agriculture; India’s Proposals, New Delhi Government of India (2001b) Committee of experts for legislation to incorporate cooperatives as companies (otherwise called the Alagh Committee) in statement of objects and reasons The Companies Second Amendment Bill, 2001, Bill no. 88 of 2001, pp 25–26 Government of India (2003a) Expert committee to examine the methodological issues in fixing MSP; For summary, Ministry of Agriculture, Lok Sabha Unstarred Question no. 3855 answered on 19.12.2005, Report of Alagh Committee on Agriculture, 2005 Government of India (2003b) Discussion paper on terms and conditions of tariff. CERC, New Delhi Government of India (2011) Planning Commission, Mid Term Appraisal of Eleventh Five Year Plan, New Delhi Government of India (2012a) Economic survey, 2011/12. Ministry of Finance, Delhi

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Government of India (2012b) Planning Commission, Approach Paper to the Twelfth Five Year Plan, New Delhi Government of India (2013) National Statistical Commission. Report of the Committee on Statistics of Agricultural and Allied Sectors (under Chairmanship of Dr. Yoginder. K. Alagh), New Delhi Government of India (2015a) Economic Survey, 2014/15. Ministry of Finance, Delhi Government of India (2015b) Ministry of agriculture, commission for agricultural costs and prices. Price Policy for Kharif Crops, Delhi Government of India (2015c) Ministry of Agriculture, Directorate of Economics and Statistics. Report of the Working Group on Terms of Trade Between Agricultural and Non Agricultural Sectors (under Chairmanship of Dr. Mahendra Dev), Delhi Government of India (2018) Second advance estimate of national income 2017-18 and quarterly estimates of gross domestic product in the third quarter(Q3) of 2017-18, C.S.O, 28 February Government of India, Niti Aayog (2017) Three year vision plan 2018/19-2021/22. New Delhi, Niti Aayog Hathaway D, Ingco M (1995) Agricultural liberalisation and the Uruguay Round. In: Martin and Winters (ed) The Uruguay round and the developing economies. World Bank Discussion Papers Number 307, World Bank Hoda A (2002) WTO agreement and India. In Hoda A (ed) WTO agreement and Indian agriculture. Social Science Press, Delhi Hoda A (2003) The dragon and the elephant. JNU-IFPRI Workshop, New Delhi Hoda A (2018) No winners in this trade war. Financ Express, March 9 Mullen DO, Gulati A (2005) Quantitative protection measures, IFFPRI Prabhu S (2018) Brainstorming session in world trade organization. Econ Times, 20 February Pursell G, Gulati A (1993) Indian agriculture; an agenda for reform. Policy Research Working Paper, WPS 1172, World Bank, Washington Ramaswamy C, Ashok KR (eds) (2016) Vicissitudes of agriculture in the fast growing Indian economy: challenges, strategies and the way forward. Indian Society of Agricultural Economics, Academic Rosenthal D, Pursell G, Gupta A, Blarel B (1996) Have economy level reforms helped Indian agriculture. World Bank, Washington Vyas VS, Tyagi DS, Misra VN (1969) Significance of the new strategy of agricultural development for small farmers. VallabhVidyanagar, Agro-Economic Research Center World Bank (1996) India: country economic memorandum, five years of stabilization and reform. The Challenges Ahead, Washington, World Bank WTO (2002) Trade policy review: India 2002. Geneva, p 198

Chapter 4

Industry

4.1 Strategic Policy and Policy Models in the Liberalization Phase 4.1.1 Early Origins Towards the mid-eighties of the last century, there was considerable discomfort in India with the then received plan models and awareness that newer tools of strategic policy making were required. The received models were of closed economies, prices were not a part, the intervention variables were largely quantitative and more generally behavioral relations were not a part of the arguments (see Alagh 1991, Chap. 4 for a description, also Alagh 2008). Fashionable at that time the Bretton woods orthodoxy was a big bang structural reform. This consisted of abolition of quantitative controls, reduction of tariff rates, elimination of fiscal deficits and abolition of any special policies for employment and regional balance. There were four central rules, with some, corollaries, which we will ignore. The central rules were abolish all quantitative interventions in output investment and trade markets; introduce Tariffs instead and then reduce their levels and spread; abolish interventions in exchange markets; do not intervene for employment or regional development objectives (see Khan, IMF, 1990, for a concise and elegant testable statement of the rules). These rules were to be applied to all countries at all times, irrespective of size or initial conditions. The Indian perspectives were different. In the second half of the Eighties Rajiv Gandhi was to develop the concept that India would grow fast as a part of a globalising world. There was a refreshing youthful emphasis on technology and the newer Some of the material reproduced in this chapter is from the author’s papers published in The Indian Journal of Labour Economics and The Financial Express with due acknowledgement. It is reproduced with permission of the Editors. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 Y. K. Alagh, Economic Policy in a Liberalising Economy, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-13-2817-6_4

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organizations and social institutions in which it would be embedded as the flip side of the problems of low growth, poverty and shortage of renewable resources. There was a break with the past in operationalizing decentralising paradigms of growth. The argument that the policy systems of the eighties were designed to establish a cosy relationship between the capitalists and the establishment through tariffs and directed credit was factually incorrect. Firm level price and output controls were abolished and there was a policy of relaxing investment and foreign exchange controls. These were replaced by tariff and tax policies. In the Eighties around two thirds of Indian industry was freed from output and price controls. (Alagh 2001, WIDER). But since the reform was not designed by the Bretton woods institutions it was ignored abroad. The fact that it was broad based and had a paradigm behind it, (Alagh, ibid.; Taylor 1991;1992/1994: Wade 1992) was to power India’s stance at global institutions like the G20. Wade refers to a paper I published in the Asian Economic Review of the ADB (Alagh 1989), in which I quoted the architect of the South Korean miracle, Governor Park, telling me “Don’t listen to ‘comparative advantage’ advice. …. In fact we did everything we wanted, but whatever we did, we did well.” (Alagh 1989, p. 116; Wade, p. 270.). In actual practice World Bank field level specialists appreciated tese approaches. (See World Bank 1992) In fact, India did grow fast in that period and that reinforced the world view at home. The World did not believe that and India was then perceived as a basket case. The fact that India was growing fast was recognised in the media only by 2003 when a well-known CIA study and later Goldman Sachs dreamt of it as a BRIC (Sachs 2003). In fact a little before that John Kirton discovered India’s growth, although not getting the larger media credit for it (Kirton 2002/2004). The episode was a fascinating illustration of perceptions and not reality determining global beliefs. By 2003, there was global acceptance that India was growing fast and that in fact the Eighties was a period of equally good if not better performance. Indian economists had said this a decade earlier. “There are therefore two characteristics of growth in recent years. It is higher. It is more stable. The characterization of the economy as a gamble in the monsoons needs change.” (Alagh 1996). When Dani Rodericks and Subrahmanian discovered Indian growth in 2003 at the IMF, they said it happened in the Eighties, because India favoured the capitalist and so “the trigger may have been an attitudinal shift by the government in the early 1980s that unlike the reforms of the 1990s, was pro business rather than pro market in character, favouring the interests of existing businesses rather than new entrants or consumers.” (Dani and Subrahmanian 2004, p. 1). Meghnad Desai declared that in the Eighties “A lifetime of living off tariffs and subsidized interest rates has inured the big business classes against the virtues of competition.” (Desai 2004). In fact Mohsin Khan, the Chief Economist of the IMF had given a presentation of the early versions of his paper at a Seminar organized by the BIDS at Dhaka and the author was asked to write the story of Indian reform there, as a counterfactual. Khan was presenting the standard World Bank/IMF Reform Package. The Sri Lankan economist and policy maker, Lal Jayawardene was, a few months later, to describe the author’s paper at this meeting as follows;

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At a Conference on Structural Adjustment Policies organized by WIDER, jointly with the UNDP and the World Bank, earlier this year at the Bangla Desh Institute of Development Studies in Dhaka, Dr. Yoginder K. Alagh presented a paper and a framework of ideas which carried forward a view that a number of WIDER studies had proposed, namely that markets and policies have to be integrated into a plan incorporating social priorities. Dr. Alagh had argued at Dhaka that concepts like domestic and resource costs, effective rates of protection, and long range marginal cost could all be used to develop tariff, tax and dual pricing policies for priority sectors as a concomitant to a plan. He argued that it would not be necessary to implement plans through quantitative allocation mechanisms. Professor Lance Taylor of M.I.T. who functions as the Research Adviser for the WIDER Project on Stabilization Experience and Medium Term Development Strategies, and was present at Dhaka, described Dr. Alagh’s approach as leading to the construction of a socially relevant plan and prescription of policies for it. (Jayawardene 1991, p. v)

Given the large number of countries listed in Mohsin Khan’s paper, which had accepted the IMF/World Bank Structural Adjustment Programme, the reasoning was obviously influential. This was so even in countries which had not accepted the Programme like India. For example Montek Ahluwalia as Finance Secretary in July 1990, soon after the resignation of the Rajiv Gandhi Ministry was reported by the Financial Express (Ahluwalia 1990) to have written a policy note which paraphrased the World Bank’s analysis of policies for Indian industrialization (World Bank 1989). But apart from the fact that countries like India held out, there was a contrary intellectual tradition, which was later to resurrect itself after the East Asian Crises when the Bretton woods institutions were also to change their stance to a great extent. The dominant view in India was always a part of this latter tradition, although there was always debate around it. India since the mid-seventies did not have a mercantilist or fixed exchange rate policy, with the rupee pegged to a basket of currencies, a reform introduced in the Indira Gandhi period. The floating of the lndian rupee by linking it with a basket of currencies goes back to the mid-seventies, when controls on industry were relaxed, but such reform excluded monopoly and foreign companies and small firms were protected. In fact some commentators think of the mid Seventies as the break with earlier stagnation. Kaushik Basu argued this on the basis of an analysis of savings rates (Basu 1997), as also the Canadian political economy commentator, (Nayyar 2007). Y. K. Alagh argued this on the basis of Savings rate, a break in Public investment stagnation from the mid Sixties and the beginning of monetary and industrial reform (Alagh 1987/1988). The Bretton Woods policies led to abortion of growth processes in many countries. Studies after the East Asian crises (see Aziz et al. 2000; Jomo 2000) reinforced the somewhat stark manner in which Gert Rosenthal described the lost decades of growth in Latin America and the Caribbean in his by now famous ECLA Reports (as a sample see ECLA 1991). Similar experiences were recorded, for example for Africa (see Helleiner 1986). These studies and the more dramatic UNICEF descriptions of stunted generations, did not lead to dramatic questioning of the underlying paradigms. But there developed considerable interest in alternative ways of integration with the global economy. It is here that there was interest in India’s experience.

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There has been in the last decade considerable debate on the Washington Consensus. A recent piece by Mohamed. A. El-Erian gives a good perspective on these concerns. El-Erian, Chair of former US President Barrack Obama’s Global Development Council states; The paradigm that, until recently, dominated much of economic thinking is embodied in the so called Washington Consensus-……the idea, simply put, was that countries would benefit from embracing market based - pricing and deregulation at home, while fostering free trade and relatively open cross border flows. …But … the world economy becoming more vulnerable to a series of small shocks that in 2008, culminated in a crisis that pushed the world to the brink of a devastating multi-year economic depression. Suddenly the advantages of globalization paled in comparison to the risks. …. Analytical failures were partly to blame for this. … Building consensus around a revised unifying paradigm will not be easy. It will be an analytically challenging, politically demanding and time consuming process that will probably entail the consideration and rejection of a few bad ideas before good ones take root. (El-Arian 2018)

In the past India was always at the forefront of such thinking epochs. Now this is perhaps not quite so. This is an interesting question. The World seems again to be at another interesting turning point. Just like at the beginning of the decade of the nineties before Rio, there seems to be an air of questioning. The East Asian meltdown, the 2008 perfect storm, the new millennium and with other developments, there is an atmosphere of expectation from ideas. Stiglitz and Akerlof now talk of ‘Let A Hundred Flowers Bloom’. They argue that ‘Just as the crisis has reinvigorated thinking about the need for regulation, so it has given new impetus to the exploration of alternative strands of thought that would provide better insights into how our complex economic system functions.’ Why do such periods emerge? The work of earlier scholars on the uneven nature of development in the Eighties and early nineties did not lead to many questions. The East Asian meltdown did. This by itself is a, phenomenon, which needs some exploration, as a manifestation of power and global discourse. It is not human misery but a disruption of global processes which leads to demands for change, even though an understanding of underdevelopment may be a requirement. Past experience is also that such periods do not lead to gain for the developing world unless there is an attempt at improved understanding of the context in which they exist and even then genuine’ change is not easy. The statements on comprehensive development frameworks, pacts and partnerships are promising and anyway the developing world has no ‘real options’ to such dialogue. There are some very profound reasons to give content to such statements, deconstruct them as they were and rebuild them so they do not remain empty boxes. Partnerships require level playing fields and comprehensive frameworks and regional pacts have to function at the cutting edge if they are not to degenerate into slogans. The argument we are building is that theory has to relate with the current nature of developments in industry and technology and with macro and trade questions. We

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also argue that the discourse has to be that of the quantum jumps from the angle of the developing world. However, it is set in incremental terms and this makes it basically unequal. As El-Arian says this is not easy. But India has to be a part of the dialogue and process. We have shown it was so earlier. It should be so now.

4.2 Performance: Highest Growth? To avoid Brexit and Rexit we had the celebration of a quarter century of reform. As Naom Chamsky shows in painstaking details history, particularly of the recent period is decided by those who pay. So we were living in the dark ages and then there was reform and we live happily ever after. But towards the end of the Nineties I was to show in my Presidential Address to a national economics meet that actually economic growth in the Nineties was not more than in the Eighties. Arvind Virmani was independently working with the same data and said so also. It is interesting that after the growth story was known in India for almost seven years it was globally discovered. Until then India was a basket case. In 1997 in his Inaugural Address to the Indian Society of Labour Economics at Trivandrum, the author had comparing the period since the late Seventies with the earlier period argued that “Per capita growth was less than 1% in the early period and is 2.65% in the later period. In the later period, registered manufacturing is growing at around 7.5% and agriculture at above 3% …. In the early period agricultural growth was appreciably lower. Growth is now becoming a built-in part of the structure of the Indian economy…. In the Eighties, there was hardly any year in which the growth was less than 3% compound annual and in around 80% of the years it was more than 4% compound annual. The situation was the other way round in earlier decades. Thus in the decade of the Fifties, GDP growth was less than 2.8% in fifty percent of the years and in the remaining years, it was more than 5.7%. In the decade of the Sixties, this behaviour persisted and growth was less than 3.1% or negative for fifty percent of the years and in the remaining years it was more than 5.1%. However, from 1975–76 to 1996–97, a growth performance of less than 3.1% was there in only three of the twenty one years. There are therefore two characteristics of growth in recent years It is higher. It is more stable” (Alagh 1998). Arvind Virmani argued along the same lines, as summarized in his ICRIER paper in 2003/04. This change in mind set of economists working outside India was good, even though belated, for some of us had been writing for over a decade that India is growing fast and that its reform started in the Eighties, Thus was picked up in this century by economists like Roderick and Subrahmaniam working outside India and once economists from Harvard, the IMF and the NBER were saying the same thing, it became orthodoxy. We said “GDP growth from 1980 to 1990 was 5.6% and not statistically significantly different 5.7% from 1991 to 2002.” More recently Joshi (2016) has repeated this characterisation. As far as the latest numbers for a decadal period are concerned The Index of Industrial Production shows that the average of annual growth rates for the four year

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Table 4.1 Annual growth in index of industrial production

Year

Growth in IIP

05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 14/15 15/16 16/17

10.7 16.1 17.6 0.9 7.7 8.6 4.4 2.4 2.3 2.0 0.1

Source C.S.O. Table 4.2 Annual growth rates of IIP (%) at sectoral level base 2011–12 vis-à-vis 2004–05 Sector Base Weights 2012–13 2013–14 2014–15 2015–16 2016–17 year (%) Manufacturing

2011–12

77.633

4.8

3.6

3.9

3.0

4.9

2004–05

75.527

1.3

−0.8

2.3

2.0

−0.1

Source MOSPI, Revision of Base Year of All India Index of Industrial Production from 2004/05 to 2011/12, Press Release, 12 May 2017, Statement 111, p. 11

period 05/06 to 07/08 was 8.8% annual growth. But for the period 09/10 to 12/13 it goes down to 5.8%. The annual numbers are given in Table 4.1. The most recent figures was dismal. February 2017 with this price base was minus 1.2% over January 2017. The CSO has now changed these estimates. The IIP now has a new base. This is 2011–12. The growth rate of the Manufacturing Sector now shows a substantial pick up from the 04/05 estimates (Table 4.2) The highest revision upwards is for 2016/17, when the earliest estimate of IIP at 04/05 prices at minus 0.1% goes up to 4.9%. Interestingly the March 2017 estimate of the IIP was 1.3% at 04/05 prices higher than the 2011/12 estimate of 1.2%, opened up the possibility that the change in base year effect may be petering out. Interestingly the latest estimates of IIP with 2011/12 as the base showed a Manufacturing Growth rate of 1.9% for April/September 2017 (GOI 2017b). When the same context is examined from the angle of National Accounts estimates a different picture emerges. The current estimates are in 2011/12 prices and past data is not available. The estimates are available from 2014/15. The growth of Gross Value Added at constant prices of the Manufacturing Sector is 10.6% in 2015/16, 7.9% in 2016/17 and 5.1% in 2017/18 (2016/17 and 2017/18 figures are from the February 2018 National Income Estimates release of the C.S.O. GOI, 2018). This compares with the growth of the Index of Industrial Production of 4.9 and 1.9% respectively as shown in the table above (also see GOI 2017a, b). This discrepancy is truly extraordinary. Assuming for the present that both figures are correct and that

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one measures output and the other value added there is indeed a great consistency problem. Even if we assume that the national income figures consist in the main in technological advance leading to value added rising even when the physical output is not rising, the gap is just too large. Incidentally in the same period gross capital formation or investment in the economy has collapsed. Gross Fixed capital formation as a percentage of GDP which had crossed 32% fell to 31.8% in 2015/16 and stood at 29.2% in 2016/17. This figure fell in every quarter of 2016/17. It was estimated at 29.7% in the first quarter of 2016/17, falling to 28.9% in the second quarter and was 29.1% in the third quarter. These have now again been changed and the latest estimates revise this figure to 30.3% in 2015/16, 31.1% in 2016/17 and 31.4% in 2017/18. (GOI, February 2018). These estimates are in constant prices. In current prices gross fixed capital formation which stood at 31.4% in the first quarter of 2015/16 fell to 26.7% in the third quarter of 2016/17. Again the revised figures are a fixed figure of 28.5% for 2015/16, 2016/17 and 2017/18. (GOI, CSO, February 2018) The NITI Aayog has given a refreshingly new focus on thinking on industrial policy. It has repeated a classical perspective on the manufacturing sector as an engine of growth and the need to remove many cobwebs from the industrial policy environment. It begins its analysis of the manufacturing sector by underlining that India’s manufacturing sector is low productivity and low wage. It points out that China’s industrial productivity per worker is three times that of India (NITI Aayog 2017, p. 31). Small firms employing less than twenty workers account for 72% of employment but 12% of output in the manufacturing sector.” Our workers are overwhelmingly employed in low productivity and low wage employment” (NITI Aayog 2017, p. 31). The NITI Aayog is clear that cobwebs must be removed and we need more formal sector jobs. Again India’s performance in exports is dismal. In 2015, China accounted for 13.72% of World exports, India only 1.67%. Export performance has to be on the basis of higher productivity and that needs scale economies. China relies on Special Economic Zones. There restrictions and labor laws are relaxed. India needs one big Special Economic Zone on each Coast. They give the example of Gujarat as a success. (NITI Aayog 2017, p. 32). Now this clear commitment to fast economic growth and nothing but fast economic growth is very attractive to a professional economist. We studied in Graduate School the famous Vent for Surplus Models of Trade and Growth (Caves 1965). We discuss this in models(see Alagh 1995), but to state it in cold blood as it were is different and refreshingly so. A policy adviser to the NDA Government, who was to later join it as Vice Chair to the NITI Aayog after Arvind Panagriya remitted office had in 2014 stated five measures to improve the Business Environment (Kumar 2014). These were; 1. 2. 3. 4.

Introduce a combined application form for obtaining the required clearances; Introduce a system of common annual return; Drastically reduce the time taken for starting and exiting a business; Shift to a system of self-certification rather than annual clearance by designated inspectors;

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5. Encourage the States to replicate the best practices in Some States for acquisition of income tax and sales tax registration numbers (Kumar 2014, pp. 84–850 in Debroy et al. 2014). He also sets down land costs and labor relations as preconditions of growth. On some circumspection questions arise. In the same chapter the NITI Aayog illustrates it’s vent for surplus and growth with interesting perceptions followed by some debatable statements. They point out that ‘Gems and Jewelry’ are a success story. At 39.4 billion US dollars they account for 15.1% of India’s exports, employ 4.5 million workers and process 95% of the World’s processed diamonds. But they are unhappy. Apart from demand shocks, they argue that technological substitution by higher capital labor ratios in China will be a threat to India (NITI Aayog, p. 38). This is a debatable stance. This is at best incomplete and at worst incorrect. The Chinese have for over two decades, unsuccessfully tried to compete with the Surat Diamond polishers and failed. In a study for the ILO in 2006 (Alagh 2008) we had argued this out and will discuss this below. Before we look at these empirics a word at the general theoretical level may be in order. There are generally, some limitations to the Vent for Surplus or maximal growth models concentrating only on maximizing per person labor productivity to plough back the maxima to surplus for growth. To begin with there is the Keynesian exhortation in the General Theory not to confuse margins with averages. A very large number of small changes added together can be more significant than a small number of large changes. Further a strategy which is of a mobilization nature, can absorb latent reserves in the economy and social system which a vent for surplus effort could miss out on account of its narrow focus. The Surat Diamond polishers case was in a sense a social enterprise case. The flexibility of the diamond polishers came from the social capital of trust. The employer could hand over a ‘Rough’: a ‘Passa’ as it was called and ask for it to be polished and brought back the next day. The Dutch factories in Amsterdam had to close down because they did not have this ‘social capital’. In summary form The Surat diamond polishing industry was described by the present author in the following terms: A large part of India’s diamond cutting comes from the town of Surat which was less than half a million population when the expansion started and is now around three million (Table below). India is the largest exporter of diamonds in the World and a million jobs have been created in Surat…(emphasis added). The success studies here involve training and improvement of inherited community based artisan skills. The organizational pattern is generally based on fierce competition between small firms, with considerable mobility between self employment and wage labour. However the communities (castes) also engaged in training and skill enhancement, access to larger markets through traditional networks, and technology enhancement, both of production and markets/communication. (Alagh 2008, p. 19)

Notice the emphasis here is on an organizational structure based on trust, upgradation of technology and community and caste based systems. These were flexible organizations to use an expression attributed to Michael Piore (Piore and Sabel 1984). This context has been studied in some detail earlier (Alagh 1991, Ch. 3). In an exercise for strengthening globalization trends we had listed that there had to be identification of agricultural and artisan based strengths which need to be

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strengthened to compete in local, regional, national and global markets and that such areas of strengths required support of development of market based infrastructure which was generally lacking. Again in fragile agro-ecological regions and artisan based industrialization and services, replication of demonstrated potential needed sharply focused and limited forms of community action. The organizational rules for such newer forms of organizations were not in place, since considerable ingenuity was needed to fashion them as compared to private or government institutions in place already. Cooperatives, producer associations, self help groups, local bodies and NGO’s were increasingly entering into strategic alliances with each other and corporates and governments and such alliances need to be provided for in the policy, legal, and administrative space. Financing and credit mechanisms for these newer initiatives were needed including community collateral, lending through weather and project cycles and other innovative forms of financing. It was argued that economic reform had to be deep routed, otherwise policies of structured subsidies and support to those who help themselves were not possible. That this performance is not as market oriented as the studies and the NITI Aayog paper showed and that corruption was an important part of it has come out in the open in 2018. The author’s younger colleague Rohit Desai was working on the diamond polishers of Surat and for fun and learning, the author would go to the field with him. They discovered that the diamond polishers in cottages were using the latest technology, since miniaturization had begun and computer fitted polishing machines where reaching cottages. The diamond polishers would buy ‘passas’ as the diamond roughs were called locally, from Antwerp, give them to the artisan and get it back polished in a day. The system worked on trust. The Dutch didn’t have that social capital and lost out initially in the polishing finishing game. Later the diamond polishers bought them out and the factories shifted from Holland to Surat in Gujarat. The author was invited to the ILO to evaluate the World Employment Program and met Gerry Rodgers who was leading a global team integrating population and employment in my first love, national econometric models—roughly then MIT’s. Michael Piore had written his influential classic on the great changes taking place in industrial structures. This was the origin of the literature on the Neo Fordist revolution and lean production in Italy and Japan. The original book was his Second Industrial Divide. Modern communication, computerization and the new materials were reviving cottage production in Emiglia Romana in Northern Italy in fashion garments and the French were losing out to the Italians who were to become household fashion names later. Piore was serving with the author on the Board of a think tank in the ILO and the author insisted that this revolution was happening in India and art silk fabrics, zari and diamond polishers in Surat all studied in my Ahmedabad mother Institute were the counterfactuals. Initially skeptical, Michael Piore, Gerry Rodgers and others fell for the argument after their colleagues checked in visits to Surat. Gitanjali progressed, bought out the Diamentaries in Antwerp and went backwards to acquire retail trade in Europe and America. They integrated backwards into the market and partially owned Rodgers and India almost had a fifth of that market. The NITI Aayog’s Vision Document for 2020 expressed the fear that China would take over diamond exports which equal in the net, software exports if not exceed them.

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In his Invited valedictory address to the centennial conference of the Indian Economic Association, the author insisted that this was not a worry. NITI Aayog’s ‘Vent for Surplus’ as the author called it, or a yen for large size, was fine, but one should not tamper with facts. Diamonds, gems and jewelry is our niche and the Chinese failed for decades because they don’t have the social enterprise organizations. So the NITI Aayog’s fear of the small size of Indian firms, which they wanted to change by increasing the capital size of Indian firms, was unfounded in this case although as an economist the author agreed with the ‘Vent for Surplus’ models that Panagriya and Rajiv Kumar of the NITI Aayog were advocating. The author was not too happy at their exclusive advocacy of large firms and did not agree on the so called Chinese threat in gems and jewelry. In fact a few years earlier the author had been critical of large corporates in jewelry. Mehul Chokshi and Gitanjali have changed the World at one stroke and we will have to start all over again. First is the study of systems as to how a few can completely hoodwink all checks and balances. Second what is the required mix for the future. The NITI Aayog’s next Vision Document will have to contain it’s reappraised policy stance on gems and jewelry as compared to what it wrote in its Vision document approved by the Government and circulated in the country. All of us have to help the NITI Aayog in this difficult task. The kind of issues discussed in economic policy literature and textbooks and those that are discussd in Indian politics, as well as in the rapid industriasation of Surat City as a part of Gujarat State and its role in India’s industrialistion, will all have to cope with this phenomenon. New bifocals and adjustment of sights will be needed. First digest, then understand and finally prescribe. We can’t let down the next generation while the Chokshis and others gets their just desserts, hopefully in jail, rather than in safe havens outside India. Getting back to the more general level, the argument in a nutshell is that India must trade, in goods and services and foreign exchanges and do it efficiently. But Indian economists must also try and answer questions like the strategic paths of the final stages of India’s open economy macro reforms, trading consequences on the structure of the economy and impacts and India’s role in expanding concentric circles of influence and cooperation. India must participate in the global dialogue on reform in a more positive and thought out manner, based on its own experience. This was possible earlier. It should be possible now.

References Ahluwalia MS (1990) Reported author of a paper on industrial policy. Financial Express, Bombay, June 13, p 6 Alagh YK (1987) Some aspects of planning policies in India. Vohra, Kolkata Alagh YK (1989) The NIEs and the developing asian and Pacific region: a view from South Asia. Asian Develop Rev 7(2):116–126 Alagh YK (1991) Indian development planning and policy. In: WIDER studies in development economics. Vikas, Helsinki, Delhi

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Alagh YK (1995) Development models: the next phase, Series A, Indian J Pure Appl Math 26(6). Reprinted in Prakasa Rao BLS, Statistics and its applications: essays in honour of P.C. mahalanobis Alagh YK (1996) The theory of not hastening slowly. Indian J Labour Econ Alagh YK (1998) From emolyment planning to employment policies, Presidential Address to Indian Society of Labour Economics,1997/98, delivered on 28 december, 1998 and published in Indian J Labour Econ 42(1), 1999 Alagh YK (1999) Presidential address. Indian J Labour Econ Alagh YK (2001) Indian Development Policies and Planning, Wider Studies in Development Economics, Vikas Alagh YK (2008) Enterprise linkages and quality jobs. International Labor Organization, Geneva and New Delhi Aziz I et al (2000) Indonesia’s sustainable development framework. UNU, IAS, Singapore, Institute of Southeast Asian Studies, 17–18 March Basu K (1997) NCAER Jubilee Lecture on Indian Economic Performance, Chaired by Alagh YK Braga de Macedo J, Chino T (2002) Technology and Poverty Reduction in Asia and the Pacific, OECD Development Center Seminars, OECD, Paris Caves RE (1965) Vent for surplus models of trade and growth. In: Baldwin RE et. al. Trade growth and balance of payments. Rand Mcnally, Chicago Dani R, Subrahmanian A (2004) From hindu growth to productivity surge: mystery of the Indian growth transition. IMF working papers, no. WP/04/77 Debroy B, Tellis AJ, Trevor R (eds) (2014) Getting India back on track: an action agenda for reform. Random House, London Desai M (2004) Development and nationhood. Oxford Publishing House, Oxford ECLA (1991) Overview of the economy of Latin America and the Carribean, 1990 El-Arian MA (2018) Working towards the next economic paradigm. Financial Express, 17 March Government of India (2017a) Highlights of index of industrial production. CSO, June Government of India (2017b), Highlights of index of industrial production. CSO, September Government of India (2018) Second advance estimate of national income 2017–18 and quarterly estimates of gross domestic product in the third quarter (Q3) of 2017–18. CSO, 28 February Government of India, Niti Aayog (2017) DRAFT three year action agenda, 2017–18 to 2019–20, New Delhi, Governing Council of the NITI Aayog, 23rd April Helleiner G (1986) Balance of payments experiences and growth prospects in developing countries. In: World development, vol 14, pp 877–908 Jayawardene L (1991) Preface in Y. K. Alagh Jomo KS (2000) Income distribution in East Asia. IEG-New School of Social Science Research Seminar, New Delhi Joshi V (2016) India’s long road. Oxford University Press, Oxford Khan MK (1990) Empirical aspects of fund supported adjustment programs. WIDER/UNDP/BIDS Seminar, Dhaka Sachs G (2003) Dreaming with BRICS: the path to 2050. Global economics paper 99, New York Kirton, J (2002/2004) Toward multilateral reform: the G20’s contribution. In: Conference on “the ideas-institutional nexus: the case of the G20,” Centre on International Governance Innovation, United Nations University, FLACSO and the University of Waterloo, Buenos Aires, 19–21 May Kumar R (2014) Revisiting manufacturing policy in Debroy B et al (ed), above Nayyar BR (2007) India’s globalisation. Delhi, Sage (Reprint) Piore M, Sabel C (1984) The second industrial divide. Basic Books, New York Taylor L (1991) The post socialist transformation from a development point of view, MIT Taylor L (1992/94) The rocky road to reform. WIDER, Helsinki Wade R (1992) East Asia’s economic success. World Polit 44:270–320 World Bank (1989) An industrializing economy in transition. World Bank, Washington World Bank (1992) WPS 842, capital flows to South Asian and ASEAN countries trends. In: Husain I, Jun KW (eds) Determinants, and policy implications

Chapter 5

Policy and Future

5.1 Elections and Industrial Policy This provocative byline as a starting point is to stress the political dimension of policy in an open democratic structure. Elections as Ken Galbraith said are ‘The Liberal Hour’ and yet in spite of all the cacophony the direction in which the agenda would be pushed by actors becomes transparent to a degree. These problems cut across party lines. We would therefore like to start with the previous UPA Government and its statements before the elections it lost. We will follow it up with the NDA Governments political stance (Alagh 1991). As we saw earlier, in the UPA period, from the low growth period of 2012, we were assured every six months that recovery is in the next six months. Then in a concise written piece, the then Chairman of the Economic Advisory Council of the Prime Minister of India gave his analysis of the slowdown. Capitalists, he said sagely, were not investing. That by itself was not enough so he delivered a neat class room lecture on sources of growth. On the first argument we were not told that public investment fell two years earlier by a little less than two percent of GDP and then corporate investment fell. The entire edifice of Public Private Partnership (PPP) infrastructure was punctured. The Congress (largest party making up the UPA) was the first one to get off the block on stating intentions; others followed. On the economics, the Congress enumerated its past, industrialization, food self-reliance, then reforms and technology from the eighties onwards. For the future there was the National Manufacturing Policy and our comment that mild tariff protection that it advocated should be an objective was there much against statements to the contrary by the UPA’s accredited advisers. There was a commitment for raising investment Some of the material used in this chapter is reproduced from the author’s papers published in Anvesak, The Indian Journal of Labour Economics, Business Line and Financial Express, with due acknowledgement. The editors of these journals and news magazines have given permission. Material from the authors publications in MOST, UNU and OECD has also been used. © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2018 Y. K. Alagh, Economic Policy in a Liberalising Economy, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-13-2817-6_5

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levels with a clear statement that a PPP strategy would be followed in a time bound manner. We had advocated this stance but it was not acceptable, for example, to Dr. C. Rangarajan (then Chairman of the PM’s Economic Advisory Council), for public initiatives were not there on the agenda. The differences between the ruling party and the agenda of the official advisers in that period were much too striking to pass over in terms of election propaganda. In fact at these stated levels the NDA (the coalition that forms the current government and was in the opposition earlier) had the same intentions, then and interestingly has the same position now. The policy stance is that of industrial reform. Yet at the time there are elections in a state the local industrial lobby is promised tax incentives, preferential market access and reservations. Before the Gujarat elections the GST was tweaked with, major local industries like jewelry and textiles in view and the Finance Minister made special appearances to satisfy ceramics, textiles and gem polishing interests (Alagh 2000a, Andahl 2009).

5.2 Origins of Reform We saw earlier that Indian statements of a break with the stagnation of the Sixties of the last century were followed with global acceptance of fast growth in India. The Eighties saw a break with the historical growth rate. But the description of the reform process then is tepid. On this view, Arvind Panagriya was most readable on Hindu versus. Reform Led growth. Writing in the Financial Express, he set at rest the characterization of the Eighties by economists like Meghnad Desai asserting that “in contrast to the isolated ad hoc policy measures taken to release immediate pressures prior to the 1980s, [the Eighties] taken as a whole, constituted significant change and an activist program. For example, by 1990, approximately 20% of the tariff lines and 30% of imports had come under OGL. import licensing on many other products was eased up” (Panagriya 2005). This much is uncontroversial, as it is based on facts. Recently Vijay Joshi has also in a careful analysis of the growth stages said that the Eighties was the highest growth epoch (Joshi 2016). The serious argument now seen on that decade is that it did lead to a rise in debt from sovereign borrowing. Again the magnitudes of the deficits were much less than now. After the Eighties, borrowings in the Nineties and later were increasingly for consumption. The revenue deficit of the Government of India which was 49.4% of the fiscal deficit in 1990/91 went up to 59.2% in 1995/96 and was 67.2% in 2015/16. The Combined Disbursements of the Central and State Governments are now 24.7% of GDP but Capital Disbursements are only 4.2% in 2015/16 (GOI 2017, Vol. II, Table 8, p. 34). No wonder fiscal sustainability is the task at hand of the present Government and not a great achievement of the Nineties. The fiscal sustainability argument is buttressed by citing the crises of 1991. India we are told had to sell gold, because it had splurged. 1990/91 was a very unusual year. The Janata Government of 1990 was explicitly against growth. The Eighth Plan Approach Paper they brought out was the only one not to have a growth target. The near run on the rupee in 1991, is generally cited as evidence but can be attributed

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to the great denigration of the economic record of the Eighties by the V. P. Singh Government. With the level of short term debt we have today, wouldn’t we have a crisis of confidence if the Prime Minister berated growth as an objective. To say that inflows are in the private sector and so different now is a thin argument and as Raghuram Rajan (ex-governor of Reserve Bank of India) and now Urjit Patel (current governor of RBI) never tire to remind us, the sovereign has to maintain, in a global comparative context, very high interest rates to sustain them and that is a mirror image of high sovereign debt? So let’s celebrate a little cautiously and plug away for capital account convertibility as we laid out as our Valhalla as way back as in the Ninth Plan. The only one known to the author who understands that in today’s policy makers, is RBI Governor Urjit Patel, and that because, amongst RBI Governors, he is a first rate Monetary Economist GOI, FM (2018). The distressing part is that the earlier reform processes of tariff policies for a cluster of industries to avoid negative protection, which were seen as transitional to more full bodied reform have developed a penchant for becoming permanent and not remaining transitory. At the intellectual level this was like the ‘Poverty’ debate (Chap. 2). In that debate even when everybody accepted the need for change it did not happen in a full blown manner. While political economy is an important part of the lethargy to reform, the fact that the initial reform is well stated and embedded in economic theory, leads to an inability to easily change it because the necessary intellectual effort for reform is not there in a political administrative ruling class which is essentially of generalists and so does not have the were withal to fight the intellectual battles for reform. Much the same happened in industrial policy reform being staggered. By 1992, India moved away from the policy stance to that of a uniform tariff rate and reducing that rate. But every time the economy is under pressure the old habits are revived and interestingly with the same old arguments although these are no longer relevant. In a distorting trade epoch which to an extent all depressions will be, it is possible to bring in policies of inverted tax structures in a measured and phased manner. These kinds of historical epochs in policy have contemporary relevance. India’s budget papers, for the 2009/10 stimulus budget describe this policy as indirect tax rates compensating for ‘deeper cuts on finished goods as compared to their raw materials’. This was very much like the intellectual justification given by the policy making literature and Committees quoted in Chap. 4 on Industry. Peak tariff rates, set by reform of the tax system are not changed, but tariff rates reduced on specified inputs, components and capital goods (GOI 2009, p. 36). This continues. As an economic policy stance it is not that of full blown economic reform. The origin of the reform efforts in the Eighties were noted then in the literature. Robert Wade in his well-known World Politics Paper on East Asia’s Economic Success was to quote Indian perspectives on South Korea in his famous justification of ‘strategic trade theory’. Wade begins and ends his paper with a reference to an Indian description of South Korea’s policy perspectives in the early phases of industrialization (see Wade 1992, p. 270 and p. 320). The reference by Wade to a South Korean perspective from Y. K. Alagh’s view from South Asia in the Asian Development Bank’s journal the Asian Development Review (Alagh 1989) became a widely

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cited part of strategic trade theory literature. Later, for example John Stopford was to place this experience in a larger strategic global political economy perspective and draw management implications for the global firm from it. (Stopford, Carnegie Mellon 1994, p. 5). This was reported in a Working Paper of UNESCO’s International Social Science Programme called MOST (Management of Social Transformation), which got a certain amount of attention (Alagh 2000c; see van Rinsum and de Ruijter 2002).

5.3 Global Perspectives after the Meltdown It is interesting that when Stiglitz talked of counterfactuals that succeeded later, and the theories that go with them he discussed Poland and China, while in the early Nineties the references as we have shown, were also to India. The somewhat labored examples from Lance Taylor, Robert Wade and John Stopford were only to argue for an Indian perspective on the country’s positioning in the reform process. In the second half of the nineties and the early part of this decade, Indian economists were well represented in global journals, but there is now no perspective on India’s experience from an analytical point of view. This is definitely unfortunate from a knowledge point of view and since knowledge we know is a source of growth and has practical consequences also. Every time there is a crisis—2008, 2012 and so on, the World seems again to be at another interesting turning point—there emerges an air of questioning. The East Asian meltdown, the 2008 perfect storm, the new millennium and with other developments, there was an atmosphere of expectation from ideas. Stiglitz and Akerlof talked of ‘Let A Hundred Flowers Bloom’. They argued that ‘Just as the crisis has reinvigorated thinking about the need for regulation, so it has given new impetus to the exploration of alternative strands of thought that would provide better insights into how our complex economic system functions.’(Stiglitz and Akerlof 2009). Why do such periods emerge? The work of earlier scholars on the uneven nature of development in the Eighties and early nineties did not lead to many questions. The East Asian meltdown did (see Iwan Aziz, as quoted in UNU 2003 for a description). This by itself is a phenomenon, which needs some exploration, as a manifestation of power and global discourse. It is not human misery but a disruption of global processes which leads to demands for change, even though an understanding of underdevelopment may be a requirement. Past experience is also that such periods do not lead to gain for the developing world unless there is an attempt at improved understanding of the context in which they exist and even then genuine change is not easy. The statements on comprehensive development frameworks and partnerships are promising and anyway the developing world has no ‘real options’ to such dialogue. There are some very profound reasons to give content to such statements, deconstruct them as they were and rebuild them so they do not remain empty boxes. Partnerships require level playing fields and comprehensive frameworks, have to function at the cutting edge if they are not to

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degenerate into slogans. The argument we are building is that theory has to relate with the current nature of developments in industry and technology and with macro and trade questions. The discourse has to be that of the quantum jumps from the angle of the developing world. However, it is set in incremental terms and this makes it basically unequal. The Indians, for example, continue with a strategy of working for capital account convertibility of the rupee, since it is already convertible on current account. While the interest rate is declining, bringing it to global levels, through macro reform, faster export growth and a near doubling of exchange reserves, currently over $300 billion are seen as the preconditions. A strategic view means that India is not willing to dilute the earlier objectives, now even when global capital markets are under question. The interesting question, however, is that while the objective has been stated, there is very little solid work on the transitional regimes to achieve it. It is quite obvious that high interest rates are hurting India’s competitiveness abroad, in the current context of a liberal trade regime. But these arguments are discussed in India in newspaper articles and unfortunately, there no academic studied discourse. On a more general level, any standard international trade textbook discusses the fact that you have limited degrees of policy freedom. The tradeoffs between monetary policy for investment for growth and employment on the one hand and price and exchange stability on the other are well known (see for example Krugman and Obstfeld 2000, Ch. 22, on trillema’s of the open economy). In an earlier model Abhijit Sen had worked with crowding in identities in a Taylor model applied to India (see Sen’s paper in Taylor 1988). The author developed these ideas for a model of the Indian economy for its plan (Alagh 2008). In this paper, the author had also argued that income distribution could be modeled since demand functions for the rich and poor were already available and also price responses of supply functions since LRMC pricing was a tradition as argued earlier. More recently the author was told that such modeling would not be done by the policy makers anymore. Sankhya Series A is much too theoretical a journal it was said and the author’s paper was, unfortunately for him, published there (this is the reason for giving the full reference in the text to the table above). For the current generation of policy makers the benefits of reform and nature of required policy changes are so obvious that it is not considered necessary to model policy choices anymore. This was not so earlier (see Mukherji et al. 2001; also see, Alagh and Kashyap 1987, in the Jan Tinbergen Festchrifte). There is also little work on the employment and demand consequences of a more open economy. The author has separately argued for more research on the employment consequences of areas showing high export and while he could collect considerable case study material, there was less of a macro economy nature (see Alagh, Presidential Address, Indian Society of Labour Economics 1999). Also the relationship between income distribution and macro outcomes is considered uninteresting. Let us digress on India’s reaction to Edmund Phelp’s Nobel in the context of this World of Philistines. While the author was a young teacher at the University of Pennsylvania and at Swarthmore College, the institutions had invited Phelps who spun a fascinating

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story of how the wage earner and the profit maker kept on trying to get to terms with each other as the economy pushed to fuller utilization of resources and the unstable outcomes which followed. Monopolies, both of businesses and of trade unions, were the bees in his bonnet and an enlightened policy maker would push them to flexibility and prosperity. The author’s teachers were to make him do the numbers and maths for it, but that economics is also about power, and efficiency is important. The Indian discussion on Phelps Nobel did not mention it, but the author pointed out that Phelps also made serious contributions to mathematical growth theory. That the philistine masks power was a lesson the author was to remember in the models his country would ask him to make in future. That was when he was twenty seven and came back home, and is seventy seven years young now, but the fire still burns. The pursuit of efficiency and justice is so powerful that India does not let it go and keeps on teaching lessons to those who would play with it. The period was of ferment on understanding the analytics of macro theory. Hicksian and Patinkin extension of Keynes and the Fisher Friedman contributions were leading to a deeper understanding of the asset spectrum and futures. In terms of tools, at the analytical level in the frontiers of understanding, there are in fact sometimes not that many differences. The author once asked his then boss the late Sukhomoy Chakravarti why his monetary economics was so conservative, while his economics was radical. His eyebrows furrowed when he was under pressure. He told the author that those who didn’t do their sums right were never really going to help the poor. Economics at one level is about power, but at another it is about understanding. So, while the author may disagree with Shankar Acharya, or Urjit Patel for example on their values, but he admires their insights. Phelps was right there, the author argued, at the point Chakravarti was focusing on in the early Eighties and richly deserved the prize. The author discovered that Stiglitz in one of his popular writings has also written on the Phelps Nobel in the same tone and also mentioned Okun, another favorite.

5.4 Sustainability in the Economy There are two kinds of methods which introduce environmental considerations in development policies, The first is public expenditure, investment and other policies in which environmental considerations are directly introduced at the stage of formulation, evaluation and approval. Policies which lead to such an integration at the economy level, both for public and private investments, are a part of this method. Such programmes and policies may be at the economy, sector or project level. Since in most environmental cases, “externalities” are involved, the sectoral or economy level may need attention as compared to only project level analysis although the project or plant level will, be the ultimate focus of action orientation. The second approach is one where environmental considerations are considered as add-ons to project selection, financing or implementation, or alternatively, policies are developed to mitigate environmental costs (Alagh 2000a, f, 2002; Shirai 2004).

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Examples of the first kind of programmes are energy saving technologies of infrastructure, manufacturing or mining or by-product recycling methods of production. The reference here is to environmentally friendly aspects embedded in the technology itself. Alternatively, agricultural crops, production methods and input use patterns which sustain land, “enrich soils” or use water or energy in an “optimal” manner are examples. Also, policies which encourage environmentally friendly products or processes, like non-leaded petrol, CNG driven vehicles, fall in this category. The second case includes examples like emission taxes, environmental costs included in GNP analysis or policies; or projects like reclamation of saline or degraded lands or effluent channels. It is obvious that development which introduces sustainability considerations consists mainly of the first kind of programmes, policies, technologies or products. These are projects or programmes and policies in which real social resource costs and benefits and benefits are fully considered and thus technological and organizational options which are environmentally friendly are given due weight at the blueprint or design stage. To give a preliminary explanation, it may be useful to define what the method does not do. The method does not first design an economic development strategy, a development plan or policies, and then separately work out an environmental plan or policies. It does not, therefore, follow a methodological sequence in which profitable market outcomes are first worked out and then environmental costs and benefits are separately looked at. Alternatively, the approach is not to implement economically profitable projects and then to introduce pollution averting techniques like precipitators, effluent channels, or by-product recycling processes like energy cogeneration, recycling of chemical and other material wastes etc. or at a regional level, river and air pollution “clean up” schemes and economy level pollution taxes and subsidies. Similarly, at the highest level of economy-wise aggregates, the approach is not to work out GDP indicators of gross value of output or gross value added and then to separately work out a vector of environmental costs, to estimate net social output or welfare. This of course does not mean that in operating economies, the legacy of the past is to be ignored and environmental costs and consequences of the operation of existing projects and sector can be neglected. Also, it does not imply that production processes in which environmentally friendly opportunities are integrated at the stage of inception, are costless in the net sense. The method of reasoning, or the mindset, in the positive sense is to design development strategy and policy with environmental costs and opportunities seen as a part of the “nitty gritty” structure of the economic process itself and the details of its growth as it unfolds itself in real time. The design of sustainable development therefore implies a refusal to separate environmental costs and opportunities from the fundamental processes of the functioning of the economy. Real social costs and benefits in reasonable time horizons, in which they work themselves out, have to impinge on consumption patterns of individuals and groups and therefore work back on production and distribution processes. Given the above focus it can be argued that there are six major sets of techniques with which policy makers can integrate sustainability considerations in economic decisions, and this book’s focus is around them. These are techniques required for:

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(i) the evolution of a long term and short run strategy of development, in which externalities and inter-relations are not lost sight of, particularly for sectors and regions which have potential for development and those which have borne the major costs in the recent growth process; this would require selective but intense analysis of recent developments, problematiques and evolving potential in a fast changing global economy (UNU 2003); (ii) evolution of policies corresponding to the development strategy; strategic interventions in existing markets to introduce sustainability concerns or evolution of new market forms in areas of concern like backward areas, fragile lands; the concern may be with more appropriate factor prices (for example, the cost of non-renewable resources) or product prices; interventions may involve subsidies, taxes, information systems or steps for the development and sustenance of new organizational forms (see UN, DESA 2002; see Sharma 2007 for an energy example and Varshney’s 2002, discussion of Indian community examples); (iii) policy techniques for fragile resource bases, land and water development problem areas; these would include areas of low and/or variable water availability, poor soils, special eco-problem areas like hill and forest areas, cold and hot deserts, coastal lands and islands and polluted river valleys and degraded areas; (iv) special consideration of problems emerging from industrial pollution including inefficient and unsustainable energy use, industrial waste disposal and social costs of industrialization and urbanisation including urban waste disposal, dualistic development, slums, industrial housing, social violence and criminality; (v) consideration of problems emerging from the relationship between population growth and the carrying capacity of eco-systems and from inappropriate institutional systems either unmatched with available endowments on account of commercialization or alternatively unable to adapt to changing social pressures; and (vi) techniques required to integrate supra-national concerns of sustainability with national plans and policies; these may be inter-regional concerns such as international rivers, mountains, transport systems, etc., or global issues like ozone layer, sea warming, and so on (see Pronk and Haq 1992 and justification of measured subsidies as advocated by the author in Agenda 21). Since the third and fourth set of issues relate with very concrete sets of problems of development in fragile eco-systems and sustainable industrial and urban economies, the discussion of policies can be at the sectoral level (Alagh 1988, 1994, 2000d). Also, woven in this discussion can be the third set of techniques examined, namely policy interventions in selected markets and the question of design of more appropriate market forms when required (the second set of issues listed above). The discussion can also proceed to the somewhat more abstract though equally relevant issues of population and carrying capacity (issue (v) above), long and short term development strategies (issues (i)) and inter-regional and international implications, which are important in the South Asian context (see Pitcher and Yangi 2000, and Scwank et. al. 2000, for modelling of these issues). Our concern is always on operational aspects

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of replicabiliy of success experiences in sustainable development and disincentives for perverse developments (Alagh 1999, 2008). On environmental issues, there were interesting policy questions raised when Jairam Ramesh was Minister for Environment and Forests. For example, on Bt Brinjal, the Minister went to great length to defend his rejecting the decision of the Genetic Engineering Advisory Council of approving Bt seeds (see Alagh 2016b). Brinjal, being around a tenth of our vegetable production and vegetables and fruit, led what was called food inflation, so it was important. The approval process, which was set up in the mid Nineties when the author was a Minister (Science and Technology, including Biotechnology), was developed then on the basis of a Swaminathan Committee. Almost two decades later, the Minister correctly decided that it needed to be improved and started thinking of setting up a Regulatory Authority. This never saw the light of day. In the meantime, it was important that the extant law of the land was upheld. The Minister did not do so. There are always exceptional clauses introduced in laws which permit you not to follow the standard case. He decided to use this option, obviously as an adventurous Minister. Other issues were ignored. The earlier hybrids (Shankar variety) and then the Bt seeds played a major role in India’s cotton supply for the textile sector. Even in the nineties, India was dependent on expensive imports for long staple cotton, thereby jeopardizing its competitive advantage in cotton textiles and mixed fabric textiles and their use in made-ups. Cotton requires good soil and regulated water, and in both the country faced resource constraints. This made India vulnerable to competition from the better placed US, Europe and some Asian countries. The research effort under the direction of the Indian Council of Agricultural Research (ICAR) was concentrating on dry land cotton and the attempt was to build a seed base that can take on rainfall failure or delay. This was a tall order and needed advanced technological research. The Department of Biotechnology and ICAR had the competence to lead such research but the resources required for it would need public private partnerships, and the Bt companies had to be a part of this process. There was therefore going to be the important question of pricing. Many States issued price control orders under the draconian Essential Commodities Act which the NDA constituents had earlier said would be abolished. The seeds price control order issued by the ministry of agriculture in the middle of this decade was under this Act. Since royalty and trait value will also have to be regulated under the new dispensation, bio-technology companies obviously wanted freedom in pricing seeds. From the angle of economic policy, this argument would not hold since, given the innovative nature of the product, companies would hold monopoly power on pricing. Earlier, in such cases, well informed government regulatory bodies developed what the Bureau of Industrial Costs and Pricing in the 1980s called Long Range Marginal Cost Pricing. This kind of pricing recognized that the free market does not exist in innovative commodities where large funds are

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needed to develop new products and hence entry is selective. The answer then was for the regulator to take into account the costs, including for R&D, of developing such products and including them in the price formulation process.

5.4.1 Emissions Issues Jairam Ramesh as Minister also described in detail the introduction of a blueprint for an Emission Control System and how that led to development in states like Tamil Nadu, Gujarat and Maharashtra. Transparency has definitely been introduced. His work on bamboo trade in sustainable forest development particularly in the areas where there was insurgency was important. In the coastal zone regulation, he definitely made a contribution by integrating with sustainable policies the livelihood of the small fishermen. The Minister in his writings discussed in details the use of sustainability as an argument in global trade negotiations. The support he gave to large scale models working out growth impacts on air pollution and the development of alternate policy comes, building on the modelling done in the beginning of the century (see Audinet 2000) was a major contribution for his successors. Apart from Nehru, he had interesting discussions on Indira Gandhi and environmental issues. The Silent Valley ecology as well as preservation of historical monuments were brought out in detail. One of Indira Gandhi’s last official acts was signing an order for laying down that the development of the Andaman and Nicobar Islands, must be balanced with the requirements of the rain forest and the population of the Jarawas.1 In a consequent BICP2 study, the author had worked out that almost a couple of acres per person was needed in those days to sustain the inhabitants then. On the coal question and forest cover, the official steps taken then were reversed by the present NDA Government. But this is a controversial question with the Indian Courts also taking positions.

5.5 Policies on Agriculture, Rural Development and Poverty This book’s policy prescriptions are largely written in Chap. 2 in some detail and there is no point in repeating those details. Brief general comments may be in order. At one level the book’s stance on agriculture is on the relationship of the agricultural and rural economy to the rest of the economy and to the global economy. There is therefore the question of international flows, perverse food and agriculture policies as a constraint to aggregate growth, terms of trade, rural urban continuums, long term modelling of agriculture and diversification in relation to income growth. At this 1A

tribe of indigenous people living in Andaman Islands of India for about 50,000 years. of Industrial Costs and Pricing, India.

2 Bureau

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level, there should also be emphasis on agro climatic planning and the agricultural sub models of the Five Year Plans and long term plans for self-reliance, the WTO trade dominated policies. These trends emphasize • Maintaining and increasing agricultural productivity, particularly in intensive cereal production releasing land for diversification • Integrating tariffs with price policies • Improving the efficiency of water withdrawals for agriculture • Environmental degradation: for example in February 2018, India’s Fertilizer Minister tweeted that Nitrogen prices will not be increased until 2020; since Potash and Phosphatic fertilizer prices are set by import prices, this means that a policy of balanced fertilizer use becomes impossible (Kumar 2018) • Solving special problems in distressed areas (100 Districts) • The increasing importance of rural non-farm employment and income in projections of growth • Enhancing scientific literacy and decision making by farmers • Involving community-based organizations in improving production and linking to markets • Getting small and marginal farmers and their groups more involved in emerging supply chains (Producer Companies) • Focus on implementation and accountability and effective local plans for infrastructure Infrastructure has to orient to market towns to which large migrations are taking place but are ignored because rural urban migration is to Census Towns which are not even classified as towns although they have the characteristics of urban areas as defined in the Census. Chapters 2 and 3 show the incongruity that at last the plans have changed the base numbers of rural urban work force but not the future projections. If the projections and policies are remedied our work models that large scale productive employment will be generated leading to more than a quarter increase in the incomes of poorer people.

5.6 On Technology and Governance At one level, the book has worked on the sectoral and policy aspects of technology and growth in open economies; at another, on strategic technologies and choices for a large economy. At the first level, the questions that must be posed today for research, concern the impact of the global transformation—technological and economic—that is taking place; and the extent to which this process is being understood, and the manner in which it relates to concepts such as sustainable development in economic, social and cultural terms. If ‘impact’ studies are not to be just descriptive, emphasis should be put on analytical studies and, if possible, should propose alternative development paradigms. It is suggested that this should be the context of sustainable human development. This theme would draw from both the concepts of

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economic development based on technological progress, and of sustainable development as an environmental concept of optimal utilization of local natural resources, but it would be different from both. The attempt now should be proactive in terms of looking at the natural resources, the technological and socio-economic aspects, and institutions and actual operating rules which govern their working, as seen in studies of either the ‘crisis’ or the ‘benign’ aspects of ‘developments’ taking place. If this is not done and economic and technological processes, or environmental and cultural ‘developments’ continue to be examined separately, ‘facts’ will run ahead of theory and it will become difficult to understand and explain many global and regional developments. Development such as the interrelation of global technology and economic restructuring with land and water and peasant societies, or of industrial and trade restructuring with the small artisan communities, could, for example, provide the framework of interdisciplinary and comparative analysis. The complex interrelationships of these classes of issues, in which very non-linear and previously unknown developments are already taking place, with concepts of “restructuring” of economic and technological policies, at the national or regional level, in the Neo-Fordist era, is a somewhat more abstract level at which we have described Indian industrial development, for example. It is at this level that the question of global economic and technological transformation and its impact on regional and local issues can be examined. The World Science Conference squarely tries to face this issue (see the author’s description of this problematique in the Millenium’s First Science Conference; Alagh 2000d). These questions also have significance for the operational aspects of policies relating to macro-economic restructuring and special sectoral policies such as agricultural trade policies. If our arguments are founded, in terms of describing socioeconomic phenomenon, there cannot by definition be a ‘universal’ set of policy rules for development. However, knowledge, technology, investment and trade are powerful influences at play and can be ignored or underplayed only at the risk of showing a lack of realism in the understanding of contemporary reality. This then leads to the concept of ‘phasing’ and ‘transitional’ strategies, which individual communities, initially relatively self-reliant, use to ‘cope’ with global influences. Is it possible to give a concrete context to this concept? Or is it an empty box? The crisis in money markets in East and South Asian economies lends urgency to such questions. The issue is discussed here in the context of a debate which has developed in India over what is called the ‘level playing field’ argument. This concept builds a rigorous economic framework for a phasing and transitional strategy. At the second level are issues like the Fast Breeder Test Reactor (FBTR), the development of the Super Computer on account of President Reagan’s restrictions on India, the cryogenic engine, Bt seeds, the technological and human aspects of large irrigation projects and the National Power Grid. On governance the recruitment and training of the higher civil services and on local self-government is driven by the imperatives that as the State withdraws from direct delivery, governance would need to establish a regulatory framework for the functioning of the economic and social sectors; and also lay down the institutional framework, the incentive and disincentive mechanisms and fiscal structures for civil

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society institutions to function, like decentralized, local institutions of Government, Cooperatives, NGO’s and newer ‘mixed’ forms of similar organizations (Alagh, 1999, 2000g). In a report prepared by the author’s team for the Training and Reform of the Higher Civil Services in India, there were suggestions that • Non-renewable resource scarcities will be far more severe—particularly of resources like water and quality land—and energy and sustainability concerns will be acute. • There will be a much greater emphasis on the rights of individuals and groups, including participatory forms of decision making. This in turn will demand greater fairness and self-restraint in the use of Government Power. Related to it will be demands on transparency and right to information. • There will be the demand for protecting vulnerable groups, either the historically underprivileged, or the victims of marketization, concerns for human rights and particularly of specific groups such as women, children, the minorities, the adivasis,3 the mentally and physically challenged. • On the flip side, modern technology will be seen as providing cutting edge knowledge based solutions to emerging scarcities or problems, and therefore greater use of information technology, biotechnology, systems networking, the new materials and strategic management responses. • Thoughtful groups will see security concerns becoming more acute, arising from socio-economic political dichotomies and resultant tensions, as also the more basic issues of energy security, food and water security and institutional dimensions of addressing these. Let us end with a prayer that we make continual progresss on resolving these great problems.

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Alagh YK (2000/01) Water and Food Security in South Asia, Invited Plenary Lecture at World Water Forum and Ministerial Meeting, Hague, subsequently published in the Journal of Water Resources, Jan 2001 Alagh YK (2000a) Global sustainable future and developing countries. In Lo FC, Tokuda H, Cooray NS (ed) The sustainable future of the global system, Tokyo, OECD-UNU, Chap. 19, pp 323–333 Alagh YK (2000b) Sustainable development policies for developing countries, Keynote Address, UNU/IAS-OECD Conference on Sustainable Development, Tokyo Alagh YK (2000c) Coping with global economic, technological and environmental transformation: towards a research agenda. MOST Discussion Paper No. 45, Paris, UNESCO, Management of Social Transformation, 2000 Alagh YK (2000d) The social contract with science in developing countries, science for the twenty first century: a new commitment. World Conference on Science, Budapest Alagh YK (2000g) Report of the high level committee on legislation for corporatisation of cooperatives. Ministry of Company Affairs, New Delhi Alagh YK (2002) Agricultural investment strategies: prioritising land and water. In: FAO, Investment in land and water, RAP Publications 2002/09, March 2002, pp 67–78 Alagh YK (2004) Policy Without Theory, India in a Globalizing World. Economic and Political Weekly, April 24, pp 1748–1753 Alagh YK (2008) Macro models of the Indian economy from command economy studies to behavioral studies. In: Essays in the Honour of VKRV Rao, Academic, New Delhi Alagh YK (2016a) For Bt’s Sake Lets Have A Strong Watch Dog, Hindu Business Line, 22 February Alagh YK (2016b) Book review of Jairam Ramesh, ed., Green Signals, Ecology, Growth and Democracy in India, Anvesak, January, vol 46, No 1, pp 119–120 Alagh YK, Kashyap SP (1987) Policy modelling for planning in India. In: Cohen SI, Cornillise P, Teekens R, Thorbecke E (eds) The modelling of socio-economic processses Alagh YK, Lele U, Saxena N, Mitra (2000g) Forestry in India. An Evaluation, Washington, World Bank Anantha Kumar (2018) Blog on Fertiliser Prices, Financial Express, February 20 Audinet P (ed) (2000) Essays on sustainable. Development Delhi, Manohar Goldman Sachs (2003) Dreaming with BRICS: The Path to 2050, Global Economics Paper 99, Goldman Sachs, New York Government of India, Finance Ministry, 2018, Economic Survey, Vol. 1 and II, New Delhi, Mgr. of Publications Joshi V (2016) India’s Long Road. Oxford University Press, Oxford Kirton J (2002/2004) Toward multilateral reform: the G20’s contribution, conference on “The IdeasInstitutional Nexus: The Case of the G20,” Centre on International Governance Innovation, United Nations University, FLACSO and the University of Waterloo, Buenos Aires, May 19–21 Krugman P, Obstfeld M (2000) International economics: theory and policy. Addison Wesley, New York Mukherji R, Chattopadhyay M, Neogi C (2001) Productivity, human development and basic needs in India. Indian Statistical Institute, Calcutta Panagriya A (2005) Hindu growth vs. reforms, Financial Express Special, Nov 7, p 2, based on his NBER Working paper Pitcher H, Yangi (2000) Global modelling and future scenarios. In: Lo FC, et al, op.cit Pronk J, Haq M (1992) Sustainable development: from concept to action. UNCED and UNDP Sharma A (2007) India and energy security. Asian Affairs 38(2):158–172 Shirai Sayuri (ed) (2004) Economic development and human security, UNU, 21st century center of excellence, program. KEIO University, Tokyo Stopford JM (1994) The impact of the global political economy on corporate strategy, Pittsburgh, Carnegie Mellon University, Carnegie Bosch Institute, Working Paper 7 Taylor L (1988) Varieties of stabilization experience. Clarendon Press, Oxford (see paper by Abhijit Sen)

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