What Modi's win says about the farm crisis

Annual GDP growth fell from 6.9% in 2017-18 to 6.8% in 2018-19. Worse, GDP in the latest January-March 2019 quarter slowed to just 5.8%. Yet Narendra Modi swept the general election. The BJP’s national vote share rose from 31.3% to 37.5%. In the seats it contested, its vote share rose to 46%. Contradicting conventional wisdom on agrarian distress, the BJP actually boosted its vote share in rural areas to roughly 46%, double the Congress’ 23%.This suggests that talk of agrarian distress is much exaggerated. The latest data shows that agricultural growth in 2018-19 was 2.9%. Growth fell quarter after quarter — 5.1%, 4.9%, 2.8% and -0.1%. Clearly a good rabi and summer crop in 2018 was followed by serious slowing because of drought.But the annual average of 2.9% is the highest ever in a drought year. This heart-warming achievement reflects increasing irrigation plus diversification into animal husbandry, fisheries and tree crops that are less monsoon-dependent. Indeed, traditional crops now account for barely half the agricultural output. Maharashtra was the worst-hit drought state in India, yet the NDA won 41 of the 48 seats there, and the Congress only one.Congress apologists argue that Modi diverted voter attention from agrarian distress to the Balakot bombing, highlighting the need for a strongman to enhance national security. But the very fact that economic issues could so easily be overwhelmed by security issues proves that the economy is not in such bad shape. Yes, there is a slowdown. That always causes some pain. But it does not amount to a crisis. That word is seriously overused.No country has managed more than 3% agricultural growth over a long period. The main reason is that you can build more factories to boost industry and more offices to boost services, but you cannot create more land to expand agriculture. Indeed, with growing urbanisation, India’s cultivated area is falling. So, all gains have to come from higher productivity.Globally, agricultural productivity has grown historically at barely 2% a year. India’s potential is higher than in some other countries because of catch-up possibilities. Yields in India are far below those in China or Egypt. Even so, calling India’s agricultural growth of 2.5 -3% in the last decade an “agrarian crisis” is simply wrong.Between 2004-05 and 2011-12, India raised 138 million people above the poverty line. We still await the 2017-18 data. But the World Poverty Clock, an internationally recognised source of quick estimates, says the number in India below the World Bank’s poverty line of $1.90 per day has fallen from 218 million in 2011-12 to barely 50 million in 2018. That would be impossible if India really had an agrarian crisis.Farmer agitations have risen. They are equally common in rich countries where farmers earn 100 times more. Rising agitations reflect rising returns from demonstrations as governments give in, not distress. Distress was worst in the twin droughts of 1965-66 but there were no agitations, just starvation.The main rural problem is that rising population has reduced the average farm size to 1-2 acres. Prosperity on such tiny plots is impossible. Agriculture accounts for barely 13% of GDP today but almost 50% of employment. The answer is to move people massively out of agriculture into industry and services.India has failed there. Its labour laws have prevented the emergence of giant factories (as in China and Bangladesh) with tens of thousands of workers. So, ironically, the biggest rural problem is labour legislation. A massive shift of people out of agriculture would help double or triple farm size.In poor Bihar and eastern UP, villagers say farming and MNREGA occupies them for only a few months in the year. This looks insufficient to account for rising ownership of cellphones, TVs and motor cycles. Villagers say this is explained by virtually every rural family having one or more members working in a town, often within commuting distance, sending or bringing home remittances. This rural diversification is not captured by statistics. Besides, the arrival of roads, electricity and telecom in almost all villages has created many new rural economic opportunities, from dhabas and repair shops to agro-processing.Doubtless Modi’s charisma is the overwhelming reason for the BJP’s electoral success. It lost state elections in Rajasthan, Madhya Pradesh and Chhattisgarh five months ago when voters were choosing a chief minister. But even there the BJP vote share was almost as high as the Congress. There is indeed short-term distress because of the drought and long-term distress because of shrinking land per person. But to call this a crisis is very misleading. Modi’s victory proves that.

from Economic Times http://bit.ly/2WaqNKY