Text of the 1999 Charan Singh Memorial Lecture delivered by Shri
Jairam Ramesh, Secretary, Economic Affairs Department, All-India Congress
Committee, April 1, 1999
I am grateful to my good friend Chaudhary Ajit Singh for having invited
me to deliver this year’s Charan Singh Memorial Lecture. Some years
ago, I showed up at the India International Centre where the noted journalist
Prem Shankar Jha was giving a similar lecture. Mr. Jha started speaking
in English and there was a howl of protest from the audience. So when
Ajit Singhji asked me what language I would prefer to speak in today,
I immediately answered Hindi! But you must excuse my Hindi since I come
from the deep South.
When I told some -of my friends that I was delivering a lecture in Charan
Singhji’s memory they laughed at me. One reaction was how I could speak
in honour of someone who was so anti-modern. Another reaction was how
I could speak in honour of someone with whom I had little in common.
Some others said how could I accept an invitation in honour of somebody
who was so virulently anti-Congress. All these impressions are false.
How can someone who sent his son to study and work in America be called
anti-modern?
How can someone whose four children are settled in America be called
anti-modern? Charan Singh did not betray the Congress. It was, I am
afraid, the Congress that could not understand and accommodate the aspirations
of people like Charan Singh, people from the backward classes, the prime
beneficiaries of zamindari abolition and of the Green Revolution, people
who wanted equal say in governance and were not content to be beneficiaries
of some patronage from the upper , entrenched castes.
For the past several years, I have been saying and writing that if there
is one man who has done the maximum for the abolition of zamindari,
for land consolidation and for agriculture in Uttar Pradesh, if there
is one man who waged a war against the ill-conceived idea of joint farming
and saved Indian agriculture from going the disastrous Russian route,
if there was one man who single-handedly prevented us from following
a self-destructive policy of nationalisation of trade in food grains,
if there is one man who heralded purposive backward class politics with
a define socio-economic content in this country , it is Charan Singh.
Unfortunately, the intellengtsia of this country, barring a few political
scientists like Zoya Hasan, has not understood his contributions fully.
It is only foreign scholars like Paul Brass and Terence Byres who have
handsomely acknowledged Charan Singh’s accomplishments and have written
extensively on his life and works. My presence here is a small token
of my respect for this remarkable son of Noorpur, for this tireless
crusader for the cause of the farmers and for this remarkable politician
of the highest personal integrity. I do hope the country will remember
and honour Choudhry Charan Singh on his birth anniversary in a befitting
manner in the year 2002.
I am, however, not an uncritical admirer of Charan Singh. I believe
that while he is one of the great figures of land reforms and agriculture,
his ideas on industry were wrong. He romanticised village, cottage and
small-industry but in this romanticisation he was not alone, reflecting
as he did the dominant thinking in India which prevails even today.
He was deeply ambivalent towards modern capitalism and in my opinion
his views on urbanisation too reflected emotion and idylls, not facts
and realities. But all this does not diminish Charan Singh. It only
enhances his appeal. Too often in this country we turn our public figures
into gods who can never be wrong. Too often in this country , we are
blind to the failings of our public figures. Honest criticism is seen
as a sign of betrayal and treason. I did not know Charan Singh but I
am sure he would not have been offended since he preferred honesty to
double-talk and double-speak.
Agriculture, the life and mission of Charan Singh, is a vast and complex
subject. I do not propose to make a comprehensive review of our performance
and an assessment of our prospects this evening. Instead, I will confine
myself a , very narrow domain and talk specifically with some numbers
and data on liberalisation and agriculture in India. In doing so, I
am aware that I will not be touching upon the key issue of agricultural
research, education and extension which gave us the Green Revolution
in the 1960s and which needs to be revitalised and given a completely
new lease of life or upon issues of land reforms which have once again
come into focus following what has been happening in central Bihar,
or upon the fundamental need for expanding our irrigation coverage from
the present low level of around 40%. I make no excuses for being deliberately
selective in my approach today since I have felt that a false propaganda
has been unleashed against economic reforms and its impact on agriculture
that needs to be addressed frontally.
Many of you are aware that we carried out major changes in our economic
policy in 1991 largely out of compulsion when we were faced with an
unprecedented foreign exchange crisis. But it would be wrong to see
these changes as mere knee-jerk reactions to some short-term dangers.
A grave crisis was converted into a magnificent opportunity by Dr. Manmohan
Singh who, incidentally, worked closely with Charan Singh during 1978-80
and who I know personally holds Chaudhary Saheb in the highest of esteem
and regard. Since I was in the government those days I can tell you
that the thinking was not just how we tide our immediate foreign exchange
crisis but how do we bring about fundamental changes in our economic
policy to reflect the changing needs and contemporary challenges.
The first and most important change that was initiated by Dr . Manmohan
Singh and Mr. P. Chidambaram was in our trade policy. For forty years,
we had been operating a policy that provided enormous protection to
Indian industrialists. If a product was available in world markets for
say 100 rupees, its price in India thanks to our policies of import
restrictions and duties would be no less than 250 rupees. There was
thus no incentive for Indian industry to become efficient more so since
we also had a first-come, first-served licensing system in place. Now
imagine we are in a country where there are two economic sectors called
industry and agriculture. What happens if you give so much protection
through import duties to industry? It only means that you are discriminating
against the other sector, namely agriculture. And this is what we had
been doing. By pampering industry through huge import duties that made
no economic sense, we were not only giving huge profits to industrialists
but were actually working against the interests of our farmers and our
agriculturists. Therefore, the very first policy change that was introduced
was a reduction in all our import duties. Over the past eight years,
the average rate of import duty has fallen from well over 150% to something
in the region of 30% now. In most other countries, this average is around
10-15%.
What effect has this had on Indian agriculture? Economists use the concept
of terms of trade to measure how agriculture is being treated in comparison
with industry. Normally, what is done is that the ratio of the wholesale
prices of agricultural products to the wholesale prices of industrial
commodities is taken. This is a very narrow concept. Therefore, since
1995, the government has been using a new concept that was developed
by an expert committee headed by the noted agro- economist Dr. A. S.
Kahlon. What this new concept of terms of trade does is take the prices
received by farmers for their produce and divide it by the prices paid
by the farmers for their inputs, for the capital required for their
investments and for the goods and commodities they consume. The movements
in this ratio are then tracked to get an idea of how agriculture is
doing.
TABLE I. TERMS OF TRADE OF AGRICULTURE
| 1981/82 |
88.7 |
| 1984/85 |
93.9 |
| 1987/88 |
97.4 |
| 1990/91 |
101.9 |
| 1991/92 |
105.6 |
| 1992/93 |
103.9 |
| 1993/94 |
103.6 |
| 1994/95 |
106.6 |
| 1995/96 |
105.2 |
| 1996/97 |
102.8 |
| 1997/98 |
102.2 |
Source: Ministry of Agriculture; 1996/97 and 1997/98 are preliminary
estimates
As you will see from this Table, the terms of trade in the 1990s have
not turned against agriculture as is often alleged. In fact, they have
moved steady in favour of agriculture till 1994/95. In 1996/97 and 1997/98
there has been a fall. This is not totally surprising given the fact
that the average import- weighted customs duties fell from over 150%
in 1991/92 to 27% in 1995/96. Subsequently, this average has increased
slightly to 30% coinciding with the period of worsening terms of trade
of agriculture.
The fact that terms of trade have, in fact, been in favour of agriculture
following the trade liberalisation carried out in 1991 and 1992 is reflected
most vividly in the growth of private investment in agriculture. Now,
there has been concern expressed that public investment in agriculture
in real terms, that is after adjusting for inflation has been declining.
During the period 1985/86-1990/91, for example, public investment in
agriculture at constant 1980/81 prices averaged Rs 1346 crores per year,
whereas during the reforms period of 1991/92-1996/97, the average fell
to Rs 1155 per year. There are major problems with the data on public
investment in agriculture put out by the Central Statistical Organisation.
It records only public investment in major and medium irrigation and
does not include investment in other areas of rural infrastructure that
have a direct bearing on agriculture like rural electrification, rural
storage and godowns, agricultural research and rural roads. What has
happened is that as the finances of state govemments have deteriorated,
the investments in irrigation have got squeezed. During 1992-97, as
against a target of about 16 million hectares, only about 8 million
hectares could be brought under irrigation in the country .
TABLE II. GROSS CAPITAL FORMATION IN AGRICULTURE (constant 1980/81 prices,
Rs crore)
| Public | Private | Total | |
| 1981/82 | 1781 | 2722 |
4503 |
| 1984/85 |
1674 | 2875 | 4549 |
| 1987/88 |
1458 |
2956 | 4414 |
| 1990/91 |
1154 | 3440 |
4594 |
| 1991/92 |
1002 | 3727 |
4729 |
| 1992/93 |
1061 | 4311 | 5372 |
| 1993/94 |
1153 | 3878 | 5031 |
| 1994/95 |
1316 | 4940 | 6256 |
| 1995/96 |
1268 | 5693 | 6941 |
| 1996/97 |
1132 | 5867 |
6999 |
Source:
Central Statistical Organisation
As can be seen from Table II, private investment in agriculture has
been steadily increasing while public investment has fluctuated depending
on the pressures that the central and state govemment budgets are being
subjected to. In the 1990s, public investment has accounted for about
20% of total investment in agriculture, down from its historical average
of about 30-35%. But because of improving terms of trade, private investment
has kept up its momentum. If terms of trade had not moved in favour
of agriculture, this simply would not have happened. And the terms of
trade would not have moved so much in favour of agriculture had not
economic reforms not taken place in 1991-92. I should, however, enter
a note of caution here. The terms of trade have moved in favour of agriculture
largely because of the significant increases that have taken place in
procurement prices. Between 1991/92 and 1998/99, the procurement price
for wheat has doubled from Rs 275 per quintal to Rs 550 per quintal
and for the common variety of paddy it has increased from Rs 230 per
quintal to Rs 440 per quintal. The initial years of reforms, 1991/92,
1992/93 and 1993/94 saw huge increases in procurement and minimum support
prices. In 1992/93 alone, procurement price of wheat went up by 32%
and of the common variety of paddy by almost 18%. This cannot be sustained
for long. In the long-run, the improvements in the terms of trade must
be driven largely by productivity and yield increases. This assumes
special significance particularly in the dryland areas of the country,
areas that comprise some 100 districts in the westem, central and south-western
part of the country. Even if we develop our irrigation potential fully,
some 40% if India will still be rain- fed. It is this that provides
the greatest challenge to our farm scientists and technologists.
Improved terms of trade is not the only factor that has sustained the
momentum of private investment in agriculture. Successive years of good
monsoon would also have had their positive effect. Another factor that
has helped is the increase in credit flow to agriculture. It is not
my case that credit flow is at desirable levels. Studies have shown
that the total credit flow into agriculture from cooperatives, financial
institutions and banks that in 1997/98 was around Rs 34,000 crore which
is probably around one-third of what is needed. But with economic reforms
introduced since 1991/92 the ability of banks to provide more credit
has been progressively increasing. In 1991, govemment took away Rs 56
out of every Rs lOO crore of deposits in commercial banks leaving just
Rs 44 for lending. Over the years, this pre-emption by the govemment
has been declining and today it is at around Rs 35 for every Rs 100
of deposits. Around 55% of term credit to agriculture is provided by
commercial banks. However, let me say here that we need a major policy
initiative on rural credit. The cooperative credit system on which the
entire system of rural credit rests is in a poor financial condition.
Today, it provides just 60% of the short-term and about 40% of the medium
and long-term credit needs of fanners. It seems to me that we have not
realised a fundamental truth-that the availability of adequate and timely
credit is more important than its cost. Fanners will pay more provided
they get the money they need on time and in the amounts they want. It
is only politicians who do not want to fanners to repay. It is this
that has led to the mounting problem of overdues that threatens the
very viability of credit institutions.
But why is the share of public investment declining? As the sources
of agricultural growth move to the backward regions of the country like
East UP, North and Central Bihar , Orissa, West Bengal and Assam, the
need for stepping up public investment can hardly be over-emphasised.
The reason why we are reaching the limits of growth in public investment
in agriculture is simply that govemments are spending more money in
subsidies than in investment in infrastructure. Richer fanners and richer
regions are benefitting from this pattem of public expenditure. Right
through the 1980s, the rate of growth of subsidies has been three times
the rate of growth in infrastructure investment. Input subsidies are
now over 150% of Plan expenditures on agriculture. It is this imbalance
that the economic reforms of 1991 sought to correct. Subsidies are needed
for small and marginal fanners and for fanners in backward regions.
But the open-ended subsidies that we have provided for fertilisers,
credit, water , power and other inputs have eroded the capability of
the govemments to substantially step-up their investments in agriculture.
Subsidies cannot be removed over-night. But what the economic reforms
programme introduced in 1991 attempted to do was to target subsidies
in a highly focussed manner so that more public money can be released
for physical and social infrastructure to benefit fanners and their
families. Reform of public expenditures is thus a key aspect of economic
reforms. In fact, this is what liberalisation is all about. If the present
pattern of public expenditure is not changed dramatically, govemments
will just not have any resources required for agricultural expansion.
Take the state of UP, for example, Charan Singh’s punyab1wmi. Total
expenditure on salaries, pensions and interest payments on past loans
is now over Rs 10,000 crore per year, while the state is able to generate
tax revenues of around Rs 8000 crore per year. With the current fiscal
system both at the Centre and in the states, the country will just not
be able to increase investment in agriculture. Proponents of agriculture
must therefore become more aggressive champions of economic reforms.
Let me now turn to a third area where economic liberalisation has impacted
on agriculture, namely exports. The last few years, particularly the
mid -1 990s, saw an export boom again largely because of the rupee was
devalued in July 1991. Agricultural exports are still tightly controlled
and regulated, subject to quotas and periodic bans. We still lack a
clear, long- term policy on agricultural exports. We export only at
a time when we have a domestic surplus. If there is one area where the
WTO agreement works to our advantage it is in the area of agricultural
exports. The United States and Europe are required to reduce their level
of subsidies in the farm sector and this will undoubtedly help to open
new markets for us, that is, provided we work consciously to develop
export markets. But even in the absence of a clear and long-term export
policy, our performance in agricultural exports in the 1990s has been
impressive. Between 1980/81 and 1985/86, agricultural exports grew by
a negative 1 %, that is they actually declined. Between 1985/86 and
1991/92, the export growth rate of agricultural products was slightly
over 5%. Between 1991/92 and 1995/96 when our exports also boomed, the
growth rate of agricultural products was 16%. Economists in India have
tended to look down upon agricultural exports and all our policies have
been oriented towards diversifying our export basket to manufactured
goods. Over 40% of US exports are accounted for by the exports of agricultural
goods and products. In India, the proportion is now around 20%. The
export of rice from India is a success story in recent years. In 1980,
India’s market share in world trade in rice was about 4%. This increased
to about 6% by 1990. In 1995, it touched 19%. But while some of our
agri- exports have grown, it is a matter of some concern that our market
share in world markets in some other items is actually declining. In
tea it is down from 26% to 11% in the past decade. Even in spices, our
market share is down from 15% to 11% and we are being threatened by
countries like Guatemala which do not have the advantages that India
has.
Although agriculture has certainly not been hurt by liberalisation as
many have claimed, I should point out that we have not carried out a
major decontrol in agriculture. All we have done so far is tilt the
incentive framework in trade policy in favour of agriculture but that
too in an indirect manner. Farmers continue to be subject to many regulations,
controls, quotas, bans and restrictions. In February , 1997, Mr . Chidambaram’s
Budget made the fIrst moves to bring liberalisation directly into agriculture.
The Budget abolished the Rice Milling Ind ustries Regulation Act, the
Ginning Pressing and Factories Act and the Cold Storage Order. I t also
introduced futures trading in jute, cotton and pepper. In order to bring
modern technology into agriculture, it also de reserved some industries
that were reserved for the small-scale sector like agricultural implements
and edible oil processing. But we have a long way to go. The Central
and state governments retain many controls which depress the incomes
of farmers. For example, the Maharashtra govemment’s monopoly procurement
scheme is hurting the interests of lakhs of cotton farmers in the state.
We must systematically review all such laws, Acts and administrative
orders that go against the welfare of farmers and simply abolish them.
There is no earthly reason why India should be importing sugar .Yet,
because of our own policy stupidities every second year we import large
amounts of sugar when it has the potential for being a major exporter
of sugar. In fact, some years back it had a quota of over half a million
tonnes of exports under the International Sugar Agreement which it could
never fulfill.
India’s economic future is crucially dependent on fundamental reforms
in agriculture. This does not mean that industrialization, particularly
labour-intensive manufacturing does not have importance. In point of
fact, rural prosperity depends more on accelerating off-farm employment
rather than simply on-farm employment. I believe that the type of industrial
structure that we are trying to create through liberalization is the
foundation for a whole new dynamic agricultural policy as well.
