Research & Publications
Research & Publications
Good afternoon everyone, Chairman Nandkumar, Prof. Unni, Dr. Patel, faculty and students. It is really a great honour to be here at this place, which is, as you know, absolutely unique in many ways and not least because of the really great man whose birthday we are celebrating and in whose honour this lecture has been instituted. I think a lot has been said about Dr. Kurien and everything is true and probably more, I don't have much to add to that and like many of you I didn't have the pleasure of seeing him again. But I want to say two things about him and I hope people won’t take it amiss. I think there is a slightly irreverent way of also recognizing what a great man he was. I am told, for example, that he actually hated milk and given a choice between whiskey and milk there was no contest. Of course I shouldn’t be saying this in this great state of Gujarat (laughter and applause) but I know that he didn't like milk and that he actually started off by doing metallurgy and ended up with milk. I am told that he was asked a question about pasteurization and he didn't really know the answer but went on making it up as he went long. So it was really quite an unusual and accidental set of circumstances that he was exposed to. Something that led to all this that we see and all that we live with every day. On a more serious note, I have been extremely impressed about this whole institution in the context of milk revolution and the white revolution. Former RBI Governor Raghu Ram Rajan wrote a series of papers on foreign aid in which he was basically very critical of foreign aid. In actual fact, amongst the most pernicious and destructive forms of foreign aid are cheap food imports. All over the world you will hear about NGOs getting cheap aid in the form of cheap milk in agricultural products. This destroys domestic industry and places you at the mercy of foreigners. It is truly amazing that Dr. Kurien just flipped out and completely re-defined, what I think, a very strong law of foreign aid. What you get is the worst form of foreign aid that is actually used for exactly the opposite of what it intends to bring about. This is what has happened everywhere in the world. This is developing a thriving domestic industry that was not only importing but actually became a big export around the world. I think this is a really amazing achievement.
I am a South Indian and I drink filter coffee, which is something I love. But when you go to Starbucks, for example, and ask for a Cappuccino they serve it to you with treated, not, fresh milk. I think there is a real opportunity for AMUL here. It can tie up with Starbucks in order to make fresh milk available and better coffee in the process. I know nothing about marketing and this is just a gratuitous piece of advice. Now I want to turn to a more serious issue. I think this is probably a very appropriate time to think about agriculture in a much broader perspective. The reason is two -fold. There is a kind of perfect storm building up in the case of Indian agriculture. It is a perfect storm that is potentially building up because of the confluence of many things that are happening both in the short run and in the medium and long runs. We have had two successive droughts and four bad agricultural seasons after many years and this has actually put farm incomes under stress significantly. This is accompanied by the fact that after many years agriculture did well. World prices were rising; in the last two years agricultural prices declined considerably. You take wheat, milk, cotton, sugar, and rice. All prices are down by 20, 30, 40, and 50 percent depending on the crop. So the combination of declining prices and the ground realities have put farming comes under very considerable stress not just in the more advanced states that produce these crops but also in some of the less advanced states like Orissa. So that’s one big thing that is happening. The second thing is shortage of pulses. We do not get enough dal because dal is very highly priced. This problem actually highlights another long-term development which is that dietary patterns are changing. Fewer cereals and more proteins but at the same time our food policy, as Dr. Nand Kumar said, our food policy is obsessed with cereals so there's a kind of clash waiting to happen. Rather, it is already happening between a cereals’ obsessed policy on the supply side and the demand side which is actually changing very significantly. Then, of course, we have the whole onion, tomato, vegetable problem. The shocking fact is that in India we are still not one market when it comes to agriculture. It is something that we know but talk about only a little bit. I also believe there's something very big happening which I call the ghost of Malthus returning. I don't know whether all of you know that Malthus was a great English economist who had seen calamity around the corner all the time. He had prophesied that the world will reach a situation where population growth will outstrip food supply, that there will be scarcity and hunger and starvation around the world. All this is a bit exaggerated- it has not come about because of technological revolution and so on but we can no longer dismiss the possibility of the ghost of Malthus returning in the form of a long-term climate change. Mr. Nand Kumar had spoken about this. Here is a chart of how agricultural productivity will be affected in about 2080. The dark brown covers areas that are going to be very badly affected and the numbers are scarce. It is not just the climate that is going to change. I think water is going to become scarce, fertility is going to decline; you are going to see much more extreme weather events like we saw recently when the pulse crops were destroyed in Punjab five to six months ago. All of this is going to come together and parts of sub Saharan, Africa, and India are going to be amongst the worst hit. We are looking at something very dramatic. Short-term things are turning adverse but in the medium term, too, things are becoming quite adverse. This ground kind of phenomena people say is going to become much more frequent and current going forward. So, the prospects of agriculture actually seem quite grim looking ahead and that's what we have to be prepared towards going forward. I am not an expert on agriculture by any means but I have done some amount of research in understanding economic growth and development around the world and the point I want to make is that if you're going to be successful in development that necessarily means a country doing less agriculture. Not more agriculture but fewer people employed in agriculture- not more people employed in agriculture. China and Indonesia today have had 50percent-60 percent of their population employed in agriculture but over the course of 35-40 years they have maybe 10percent to 20percent employed in agriculture. In advanced countries two percent of people live in agriculture but that's a different story. So the point is that I think we should be a little bit careful about romanticizing agriculture. I think development necessarily means that we do less agriculture going forward. There is a famous quote by Mao Tse Tung. He said the way out for agriculture is industry and there is a kernel of truth in it. The key thing is: how do you get out of agriculture? I think there is a good way of getting out of agriculture and a bad way of getting out of agriculture. Talking about productivity you find the East Asia growth story to be a miracle because of very rapid growth of agriculture. Similarly, Europe and North America experienced pretty rapid rates of growth of agricultural productivity but India and sub-Saharan Africa have been less successful in development until recently with low agricultural rates of productivity growth. So we need to get out of agriculture but we need to do it in the context of rising agricultural productivity not declining agricultural productivity. And what are the advantages of doing that? As you know, food security gets addressed if you have more agricultural productivity even with people leaving the farm. What happens is that you have enough food to feed the entire population and that way food security is addressed. The second thing is agricultural growth still remains the best way of reducing poverty. Here is a graph done by the World Bank (indicates the screen). You can see here that the period around 2002 to 2009-10 is one in which we see the most rapid rates of poverty reduction in India in part because agricultural groups grew quite rapidly in that period. For one percent percent growth in agriculture gives you much more bang for the buck in terms of reducing poverty than other things. I think from the point of view of poverty reduction as well also from the point of view of maintaining low inflation for economies to do well one needs to have stable macroeconomics and low inflation. If you neglect agriculture, as we have seen in the last 7-8 years during which we had very high inflation in part because of high agricultural inflation, it dampens growth. The other reason we should do this in the context of rising productivity is because as you get productivity growth in the agricultural sector people become more educated in agriculture, they acquire more human capital and then, when they leave, they are better able to take on the higher productivity jobs be it in manufacturing or in services. To put it very starkly, we need people to leave agriculture but not because they are being forced out of farms but because they want to leave the farm under conditions of relative prosperity. So agriculture has the potential both of being a big part of India's structural transformation going forward but also because it has the potential to hold back Indian agricultural growth either economically through high inflation and lack of food but also politically since 50percent to 60percent Indians still gain some income related to agriculture. If this group does not do well it can be a political problem as well. So, I think it is very important to understand that agriculture can be both a positive and a drag. Therefore, handling it is very important going forward. So, what should we have done differently in the past and how should the past be different from the future?
We have to recognize the fact that India has actually done very well in agriculture and there have been two or three very good phases for agriculture in India. If you go back to the 50s and 60s, especially the 60s, you can't conceive of what agriculture was like back then reliant as it was on imports for food and there was food scarcity in the country. But then we have two very big phases of agricultural growth after the famines in mid to the late 60s. We had total factor productivity growth and then a similar spurt in growth between 2004 and 2005. This went on for about 7-8 years with two periods of very rapid growth. It is interesting to understand what it was that drove these two phases of productivity growth. During the first phase of the famine what happened
was that we had the Green Revolution, which was basically public sector driven. It was the public sector that did irrigation, the public sector did extension, and the public sector provided the technology as well. This is a combination of the international public sector in varieties developed in the ICRISAT and international research institutes. This was very much a public sector driven boom that we had in agriculture. In the second phase, it was very different in 2012 when agriculture did well partly because of external conditions- world prices rose and we were reasonably efficient. Agricultural output and exports soared during this period. So this was a combination of prices with the basic efficiency. Plus there were opportunities provided by globalization and that is what drove the second phase of agricultural spurt and it worked. But going forward it's going to be quite different, I think, and that's what we need to think about in conceptual terms. We have to think very differently about the roles of the Government and private sector and I am going to give you a couple of examples. We have to think less about relying on subsidies and even if you are going to give subsidies it has got to be very different from what it was in the past.
When the green revolution happened we had lots of land and labour capital to expand but now, because of what is happening in terms of climate change and so on, we have to think not about using more factors but actually economizing on the factors. Water is going to be very expensive: already there is scarcity in land. Similarly, all inputs are going to go. Besides, I think, we have to think in the context of the jugad mentality of India. We do not boom but add inputs to get more outputs. We have to rely much more, or to a greater extent, on science and technology. It would be fair to say that there was a greater awareness during the recent Green Revolution. It was technology unadulterated with no kind of fear anxiety about water. But now we are entering a phase where the potential of Science and Technology is huge as it always was and always will be but it does come with more risk and especially in relation to genetically modified stuff and so on. So there is a different kind of approach that we need to have I think. There are probably other ways and the future for agriculture is going to be quite different from the past. So now let me run through a few areas where I think how we need to think very differently. One way of thinking about this is to save subsidies. And invest in food market protection against risks. Then we need to intelligently think about what the public sector should do and what the private sector should do… I think the dichotomy between the private sector and public sector is just a false dichotomy. I mean, anyone who says one or the other doesn't know what he's talking about. It has to be a combination of the two and using the government where the private sector will not come in. The government has an advantage in doing certain things with the private sector; we should be willing and able to give the private sector the freedom to operate. I think one area which is terribly important is the farm incomes under stress and when we think about climate change going forward I think we need to be very careful and very carefully design things to protect farmers against what are going to be much more frequent shocks, especially which are climate related. So I think this whole business of how do we cushion while working on creating an upside for farmers by way of agricultural productivity growth is as important as how do we cushion them against the downside of shock, droughts, and declining prices. This is going to be very important, so sharing risks and reducing risks is going to be primarily a job for the public sector. This is what the government was thinking about- something in terms of crop insurance and other schemes for farmers. You could think of employment guarantee schemes as being kind of related to this as well but even before we think about what the public sector should do and what the private sector should do I think one big area for the public sector is cushioning farmers against periodic shocks going forward. That is one thing we need to keep in mind when thinking about the roles of public and private sectors. On the other hand, we still have an inherent distrust of the private sector when it comes to agriculture. We need to be reminded that in the last 10 years two of the biggest successes – be it cotton in Gujarat – was a private sector revolution and the maze revolution in Bihar that did wonders for Bihar. I think the private sector should do more for the public sector but only the right things and we should also let the private sector do more for the public private sector. On subsidies, I think, we really need to reassess what we are doing. The government has put in a lot of money on subsidies and it is not clear what the returns to these subsidies are. To some extent they have been successful. The minimum support prices have given us a measure of cereal production, given us food security, and stocks so that whenever we have these adverse conditions we are able to use the stocks to keep prices low. But I think that we will reach a stage where we would need to re-assess how we give output subsidies favouring cereals. Now should we do less of that? I think we should. But should we also think about it if we want to ignite a pulses revolution? Should we think about using output? That is an open question. Should we also give lots of input subsidies like fertilizers, water, power… all unambiguously? This has lots of costs not just for farmers but to agriculture more generally. We know the power subsidy leads to declining water tables, we know that fertilizer subsidy has led to degraded land, caused cancer and all other pathologies. And remember input subsidies favour the use of more inputs. As I said earlier, going forward we should think about economizing on the use of these inputs. I've been studying the fertilizers to some extent. I think we really will perhaps end up with possibly the worst world subsidy. Farmers are supposed to get urea at Rs. 50 to Rs. 60 per kilo and according to work based on data from the Ministry of Agriculture and Rural Development the truth is that in India 50 percent to 60 percent of urea is bought in the black market. This benefits richer farmers at the expense of poor farmers who actually end up buying more fertilizers on the black market than bigger farmers. In a sense, the policy that is meant to favour farmers ends up actually hurting them. Especially the poor farmers. It is a similar situation with seeds. I think we have a real scarcity of seeds in the country. The government has intervened heavily in both fertilizers and seeds to the detriment of the farmer without allowing the private sector to have a greater say. I think we do end up hurting agriculture quite significantly and I think we need to know that actually the fertilizer subsidy comes in the way of turning human waste into fertilizer. I think we need to think very carefully about other subsidies is well.
Another controversial area is science in agriculture. This is a controversial area, as I said, for reasons mentioned earlier. This is a situation in which some policy choices are really difficult to explain and this goes back to the previous government. Maybe genetically modified stuff is, on balance, more harmful than the outputs. But I also think we are at a stage where we don't allow scientific trials. Prof. Raj Krishna, the great agricultural economist, said that India is kind of knowledge proof. I would say that we don’t even allow knowledge to be produced as proof against anything. I We have to use science in the first instance to establish the knowledge provided by evidence. Then we can take decisions on whether this is good or bad. I think what is hurting us quite a lot is that we cannot use the potential of science in Indian agriculture. Let us also be acutely aware of the risks from inactions we have taken in terms of more insecticide use and more fertilizer use. We now have fewer resistant varieties. So, finally, there is going to be a delicate cost benefit calculation that the government has to make. I think it is a calculation that has to be based on good regulations of the government. Even if we allow the private sector these things the government should be up to regulating these things. To be a little bit politically incorrect, part of the reason is that these kind of things do face opposition both from the left and right; so there's a lot of opposition to this and it's going to be really challenging to overcome that but I think this could be ongoing for agriculture if you don't have a more balanced and more open approach to Science and Technology. Remember cotton is genetically modified and also rice has some strains. Maze of course is not a GMO but it is still of hybrid variety. So, you really need to think carefully about all of this stuff.
Water: now there is another thing to think about. I don't know how many of you have thought about this but this is something that I have been more and more concerned about. I take the Economic Times and in one of the inside pages in which I read about the progress of the monsoons - that was the first thing I would read every morning - I learnt that there is rain deficiency to the tune of 16percent or 15percent or 14percent. This is a reflection of how little we have done over the last 65 years. We still have to scan our skills and still have to rely so much on the monsoons for agriculture. We need to conserve water engaging in drip irrigation to a greater extent and think of conserving water. This is going to be absolutely critical going forward and something that we need to spend much more time on.
I was just seeing this film Parikrama which begins with farmers not getting good prices in Kheda district. We are not one market; we are not 29 markets; we are not 300 markets. We are something like 5500 markets in India- that is India fragmented and segmented in agriculture. Even today the farmers are forced to sell at the local APMC. This shows that freedom for the farmer is restricted by whom one can sell to, where one can sell and that freedom has grave consequences for the farmer. I'm in the throes of writing a report on the GST and I have to submit it to the finance minister on Monday. I will not the report the findings but the GST is about creating a common market not only in goods and services but also in agriculture.
The markets are dominated by the local constituencies and local inner politics and this is really a shame. It is this that is responsible for the onion tomato vegetable inflation that we see periodically because you can't get a smooth movement if prices are high and they cannot go from a surplus state to deficit state. If we are going to create more opportunities for agriculture and farmers, if we want to make them part of an efficient value added change both on the government side and on the regulatory side, we need to get rid of these restrictions across the movement of agricultural goods across states. Yet at the same time you also need more investments all along the value added chains. And you know that kind of investment can be public and private. It can be foreign as well but we need all kinds of investments to improve and make India part of the value added chain. This is about market creation. This is something that I don't know much about but I know it is very important and in a place like Anand I don't think you can come here and not talk about institution changing and behavioural change. I also think that it is fair to say that in the case of research our public institutions are not delivering value for money. I think that we need to really expand the scope to allow much more freedom for institutions within the public sector. I think it is a challenge for the entire higher educational system in general that we don’t decentralize enough; we don't give enough freedom to research institutions and that is something that we need to address. So the more we can do the better we can achieve on that score. I have a couple of small new ideas that I would like to share. Just to give you an idea: why can't we have for something called advance market commitment? Basically we say that anyone who invents pulses will get x crore Rupees as a prize. And you can design this in such a way that you can make it happen. So that's an idea that I want all of you to pursue. Can we have a kind of pull attracting research into pulses, for example, through prizes and through awards? Advance market commitment has been done for some diseases, especially pulmonary diseases. What happens is that the donor community says that hundred million dollars will be available for breakthrough research in TB or Malaria, or whatever.
That's a way of attracting more research regardless of where it comes from - private or public sector. But there is another idea that I've been thinking about recently. You know, when speaking of subsidies and all the distortions that it creates think of the Commission on Agricultural Costs and Prices, which every six months comes up with lists of prices. Maybe the Commission on Agriculture Costs and Prices should simultaneously come up with what the social costs of production are. If, for instance, you produce more rice in Punjab and it depletes the water table, uses more electricity, and uses more fertilizers …then look at the cost of depleting the water table, the cost of more incidents of cancer, and the cost of soil degradation. I live in Delhi so you don't know that after the harvesting they burn wheat and rice which significantly adds to air pollution in all of northern India. So, as a transparency exercise and as a way of getting citizens involved, let’s force the government to save not just the private cost of production but also the social cost of production. Maybe that is one of the research projects that you should take up. You could say what should be done if we produce wheat at the cost Rs. 00 to the farmers but then we produce it at the cost of Rs. 10 for the citizen of Delhi and Rs. 20 rupees for the farmer and so on. We can get a true evaluation of government intervention. Transparency is a way of creating change, which is something you should think about much more seriously. I have spoken for a long time and I want to end with what I think is actually the most difficult thing for me. It is the question that I least understand, which is also the problem with most economists. It is like the NIKE ad which says “Just do it”. In other words, “change subsidies” or “change prices’ but the question is: if this was so obvious to do why is it happening in the first place? If it’s the case of the farmers going to be much better off using drip irrigation why don't they do it themselves? If the government thinks that by eliminating agricultural market restrictions farmers will be better off: why don’t they do it in their own political self-interest? So I think that the big question is: why isn't good agricultural economic policy also good politics for politicians? Change comes about in India through the political system, through the democratic process. We need to understand how we can change the political process.
Part of the problem with change is that not only do you have to do new things but you also have to undo existing things. So, if you have been giving high minimum support prices to farmers, taking that away is not going to be very easy. I call this the ‘chakravyuha’ challenge of Indian capital. Remember that Abhimanyu could get into the ‘chakravyuha’ formation but he couldn’t get out. So how do you get out? You could argue that we have been probably over-producing cereals and we have probably been over-producing sugar. We still need to produce them but perhaps at rational levels. But how do we get out? I think that’s the big problem. The political economy of that is actually very complicated and it is something that we need to think about. Just think about the changes that happened after the 60s. It seems that a lot of change happens after crises. You could argue that now we are not in crisis but I think things are fairly stressful in agriculture and perhaps that itself will produce some impulse towards contemplating better agricultural reform policies.
In some ways, I think, the agitation around the land law is actually symptomatic of something much deeper. If farmers think that farming is no longer such an exciting activity then their anxieties about land will increase because all they are left with is land. One can interpret their education around land and land law as symptomatic of deeper anxieties regarding the prospects for agriculture.
Now I want to end here. I am the government spokesman so you know that I can’t afford to be pessimistic but I do think there are grounds for optimism, which are twofold. We have the Pradhan Mantri Krishi Sinchai Yojana in recognition of the fact that water is very important and agriculture is very important; there is a strong push towards pulses. There is a growing recognition that agriculture is important and a lot needs to be done about that. But my deep grounds for optimism are two-fold: one has to do with technology and the power of example. I am not sure but I think a very large proportion of farmers probably use WhatsApp now. So that’s technological revolution. If you think about the 60s, the opportunities existing today are vastly different. Through technology one can do direct benefit transfers for example. One can spread information about crop practices much more easily. There is now dynamism in the private sector; there is financial inclusion even in agriculture. A lot of dynamism comes from India's technological possibilities and entrepreneurial possibilities which I think is very promising and hopeful. The last thing I will say is that I think the politics also are going to be more and more hopefully going forward and why I say this is because if you look at the last two or three election cycles, both in the states and at the centre, you will see that on average governments that deliver on development, growth, and agricultural progress do get rewarded in the polls. So, good economics including good agricultural economics is slowly becoming good politics. At least we can hope with some measure of confidence that it is becoming good economic politics. On this I want to end with a small anecdote that my finance minister told me a few months ago. He said that the only governments that have been re-elected more than two times in India in the last two to three election cycles are actually governments that delivered seven, eight, and nine percent agricultural growth. On that hopeful note I want to thank you all very much. Thank you.