Many of the disastrous consequences of implementing policies demanded by the WTO in a liberalized Indian economy have already been spelt out in Part I. But there are some others too.

 

Not only has Indian food security been put in some danger because of a disturbing decline in self-sufficiency in food (despite being technically self-sufficient in foodgrains, India imports more food today than at any time since the 1960s and, as noted earlier, agricultural commodity imports to India have grown by no less than 400% since the inception of the WTO), the topography of Indian agriculture is undergoing a rapid transformation in the wake of trade liberalization policies enacted at the behest of the WTO. A growing fraction of cultivable land is being devoted to the production of cash crops (such as oilseeds and horticultural crops) and animal meat for exports (including, as mentioned before, such unorthodox items as shrimps). Apart from subjecting Indian agriculture to notoriously wide international price fluctuations, over which Indian farmers have little or no control, this is taking land away from critical areas of production for domestic consumption, such as coarse grains (which accounts, in significant measure, for the decline in per capita availability of foodgrains).

 

With regard to food security, the argument is often made, including by such eminent economists as Amartya Sen, that the gain in export earnings (from cash crops and other sources), especially in a growing economy, can readily be used to import the shortfall in food, should such a need arise. They suggest that self-sufficiency in food production has become a “fetish” and has got confused with food security.

 

Now, an industrialized nation like the Netherlands, which has the adequate economic and political muscle, being a member of the EU, certainly does not need to be self-sufficient in food to enjoy food security. Nor does Japan, for similar reasons. These nations, for instance, don’t suffer from the vagaries of massive fluctuations in the prices of their exports, which tend to be industrial products and services. They do not suffer systematically from what economists call “adverse terms of trade.” Nor do they need, as poor countries do, the bulk of their foreign exchange to get critical imports of capital goods and oil.

 

But, for a number of reasons peculiar to poor countries, and well-known to students of Development Economics, a nation like India is much more vulnerable and is placed very differently in global markets than the Netherlands or Japan. The US and the EU can readily set up tariffs against Developing country exports (textiles exports from India and oranges from Brazil to the US are recent cases in point), without the WTO being able to impose sanctions on the rich nations violating free trade principles.

 

Besides, foreign exchange, despite recent successes on account of financial flows (more than because of a boom in exports), tends to be scarce. It has to be spent with caution. India still imports annually $15 billion worth of goods more (25% more) than it exports. India’s exports (since they still tend in significant measure to be industrial raw materials and agricultural products, although a growing fraction are software, textiles, jewelry and light manufactures) are much more subject to the vagaries of international markets than those of rich countries. This can make foreign exchange earnings quite unreliable. Since the work of Raul Prebisch first brought it to public notice, economists and policy-makers have been well aware of the declining long-term trends in the international prices of primary products. In recent decades, between 1980 and 2001 the international price of rice has fallen from $571 to $179 a ton and wheat from $219 to $131 a ton. Over the same period cotton has fallen in price from $2.60 a kilo to $1.09 a kilo, sugar from $0.80 to $0.20 a kilo and coffee from $4.12 to $0.63 a kilo. (Significantly, only tobacco and timber have succeeded in maintaining their prices!) The declines are only marginally on account of lower costs of production arising from higher productivity. Preponderantly, the long-term fall in the prices of primary agricultural products have come about because of gluts in international markets arising from oversupply by farmers across the world seeking to maximize revenues in the face of falling prices being offered to them by middlemen and representatives of powerful transnational agribusinesses.

 

Frequent IMF-led devaluations of Third World currencies – by making exportables from poor countries cheaper for the rich nations – only contribute further to this tendency of prices received by agricultural producers to fall. (This does not apply to India as much as to other Third World economies.)

 

Moreover, agricultural prices are deeply sensitive to the subsidies being provided by the governments of the OECD countries. Indian farmers, as much as those in other developing nations, have to bear the consequences of this. Between 1995 and 2001, the international price of cotton declined by 50%, wheat by 27% and soybean by 35%, not on account of greater productivity, but because of a rise in agricultural subsidies being provided by Western nations to ensure, among other things, their food self-sufficiency and food security. Of late, a growing fraction of agricultural land in India is being used for cultivation of cash crops for exports, making that segment of Indian exports more vulnerable to international market trends which work in favor of Western nations, while exposing the food security of the country.

 

It is well worth asking whether it is not more fair to demand that the rich countries stop worrying about being self-sufficient in food in order to ensure their food security. The EU had initially justified agricultural subsidies by declaring food to be a “strategic good” in the days of the Cold War, a necessity whose supply could be disrupted in times of war and conflict. The US gave similar reasons for its subsidies. (Is the Third World entitled to similar justifications?) The reality is that farmers even in rich countries often constitute significant vote-banks and agribusinesses are economically powerful units with politically influential lobby groups. The US is supposedly committed to phasing out farm subsidies and yet they recently passed legislation for farm support of $180 billion over the next decade. (If they stop making wars on the rest of the world, there will be no danger of disruption of food supplies and everyone could enjoy in a fair way the benefits of free trade!)

 

Shouldn’t Developed countries be forbidden by the WTO to subsidize their agriculture so heavily in order to falsely maintain the illusion of comparative advantage, when in fact the Developing countries are comparatively far more efficient in the production of food (even if the productivity of labor in a far less mechanized agriculture is much lower in the poor countries)? In all fairness, shouldn’t Developing countries have a greater right to subsidize their agriculture and protect their markets than the wealthy countries?

 

Poor countries can least of all afford to make their food security a function of variable and modest export earnings. The present international economic order implies free trade for (against?) the Third World, but protectionism for the Developed world. The rich countries have a hugely greater obligation to level the playing field of international trade before Developing nations can be expected to endure the brunt of free trade and not confuse food security with self-sufficiency in the production of food. It is the rich countries who appear to conflate the two issues. If there is a rationale for subsidizing agriculture at all, it is precisely in the poor countries and not in the Developed world!

 

However, there is a powerful lobby of multi-billion dollar agribusinesses which has its sights set on complete global domination of grain markets, regardless of what theories of comparative advantage in Economics, or underlying practical economic realities, may have to say. They also wish to propagate the myth that the world needs genetically modified foods (over which they have oligopolistic patents) to meet the needs of the hungry billions, when in fact, as we know from the contributions of Amartya Sen himself, people go hungry not because there isn’t enough food to go around (we already dump enough surpluses in the oceans or let them rot in storage), but because the poor don’t have the purchasing power to buy the food which is available (or readily possible to produce with existing technology, if there is sufficient demand). Moreover, hunger also exists, as Sen has repeatedly emphasized, because the poor don’t get a chance to exercise their political voice enough. There simply isn’t enough democracy for them.

 

Of late, it’s only been the political voice of the omnipotent which appears to matter. Listen to the words of George W. Bush’s Chief Economic Advisor, Gregory Mankiw: “outsourcing is just another way of doing international trade.” He goes on to argue, as does the Chief Trade Representative of the US, Robert Zoellick, trying to restore the privileges of the pre-Cancun days, that if America is providing India with jobs (less than 200,000 by the way), “fairness” demands that India should provide free entry to America’s agribusiness exports. Underscoring India‘s “trade-distorting tariffs” in the agricultural sector, Zoellick testified to the US Senate Finance Committee that India had “one of the most closed economies in the world.” So, as has been pointed out by some commentators, the 650 million rural Indians who live by agriculture should be willing to foot the bill for US corporations giving jobs to 200,000 Indians in the cities.

 

Basic economic understanding of the real world has been thrown out of the window! Is outsourcing, in fact, another way of doing international trade? Is labor in the present world traded like any other commodity? Any undergraduate student will be able to attest that outsourcing is more accurately understood as subcontracting within the sphere of production (IBM lays off a 1000 workers in New York State and hires the same number at a tenth of the wage through its subsidiary in Bangalore). The global labor market is anything but free. It is kept unfree by strong immigration laws in rich countries. Outsourcing in fact enables US corporations to take advantage of cheap skilled Indian labor without breaking US immigration laws which prevent a globally free labor market (which would bring down the government overnight). It is not as though American corporations are yielding concessions through outsourcing! On the contrary, they are lowering their labor costs and deriving unpaid advantage from the Indian taxpayer, whose money financed the education of their new Indian recruits (a new form of brain-drain). To use the outsourcing argument as a device to force open Indian markets for American agribusiness is outrageous and presumes guilelessness, subservience or corruptibility on the part of Indian negotiators and decision-makers!

 

To return to the changing topography of Indian agriculture: another effect of the liberalization of the economy on agriculture has been that rural land on which no well-defined property rights exist (for example, the village commons) are being arbitrarily fenced off (without taking note of their informal local, often ecologically sensitive, uses) and export crops are being sown either directly by the agri-businesses or by the farmers they contract. A sharp increase in prawn culture has often made many adjoining plots saline and unsuitable for cultivation, forcing their owners to give up and join the ranks of landless labour. Rapid growth of exports of animal products also means that a greater proportion of the stagnant or declining grain output is being used as fodder.

 

One of the challenges before the new UPA government is to insulate the rural economy from the shocks and fluctuations it is now exposed to as a result of the greater export orientation of the economy (which, incidentally, does not imply that exports have grown significantly, barring in areas like IT).

 

 

 

 

 

Does India have to bow before Neo-liberal bosses?

 

There is a certain wisdom nowadays, popular in some quarters of the Left, about the virtual inefficacy of all Third World governments, even those with a popular mandate, to evade the harsh consequences of Neo-liberal economic policies. Examples are listed from Brazil and Argentina to South Africa of well-meaning left-leaning governments unable to turn the tide against the severe consequences of IMF-dictated austerity policies and open-economy trade policies pushed by the WTO. Without denying the large element of truth in this observation for most Third World countries, and without underestimating the enormity of the pressure exerted by multilateral institutions working largely on behalf of the interests of transnational corporations in rich countries, it is also worth remembering that India is not nearly as leveraged an economy as the countries named above. India’s situation is, perhaps anomalously, different.

 

For instance, Brazil has an external debt of $223 billion, and Argentina of  $142 billion, while India of $95 billion. One may judge the significance of the debt by considering debt as a proportion of GDP. South East Asian economies like Malaysia and Indonesia have debt-GDP ratios of 50-100%, thanks to the financial crises they suffered in 1997-98. In Latin America, while Brazil owes 39% of its GDP as external debt, the figure was 51% for Argentina a few years ago, before the financial crisis. Now the figure is 170%, much like some of the African nations. By contrast, India’s external debt as a proportion of GDP has fallen from close to 40% at the start of the 1990s to about 18% today, indicating a considerably greater ability to repay.

 

Moreover, while governments like Argentina’s and Brazil’s have 64% and 26%, respectively, of their overall debts denominated in foreign currency, the Indian government has only 10% of its debts payable in hard currency, again implying that the IMF has less real leverage over the Indian government.

 

It is true that Manmohan Singh, and his Finance Minister, P.Chidambaram are the original architects of India’s liberalization policies. They were the ones who took the opportunity of a short-term payments crisis in 1991 to remodel India’s economic policy in a Neo-liberal direction for the long term. Can one expect them to act differently from what they did during their first tryst with power?

 

I believe that one can. First of all, if there is political wisdom with the Congress and its allies, they have got to feel as chastened by the recent election results as the BJP alliance. As argued earlier in this article, they have received a highly conditional mandate from the people. They will not be forgiven for lack of performance, particularly in the agricultural sector. If they prefer to be “disciplined” by markets rather than by the electorate, they will have only themselves to blame when the time comes to renew approval at the ballot box next time. It is for this reason that the new government is eagerly announcing new programmes for the rural poor every week in order to implement its Common Minimum Programme.

 

Secondly, at the time that the Neo-liberal reforms were introduced in 1991, India’s foreign exchange reserves were down to a few weeks of imports and thus the bargaining position vis-à-vis the IMF and the World Bank was weak. India’s annual imports today are $74 billion. This implies that India’s foreign exchange reserves of $100 billion are equivalent to 16 months of imports.

 

Moreover, while external debt in 1991 was $83 billion, foreign exchange reserves were $5.8 billion. The situation today could not be more different, with over $100 billion in foreign exchange available to the government, set against an external debt of roughly the same magnitude, with short-term debt being only 4% of the total. 

 

In fact, India’s foreign debt position is so good that the government has actually been able to make premature payments of $3 billion of high-cost loans to the World Bank and the Asia Development Bank. Since July 2003, moreover, India is a net creditor to the IMF, surely an enviable position compared to most poor countries! There is certainly no obligation to practice the standard austerity recipe.

 

Finally, while as of 2002, there are some trends towards financial liberalization, India, much like China and Malaysia, has a relatively closed capital account for foreign transactions, making financial crises less likely than in other places.

 

India is a large Third World country with a rapidly growing economy, of increasing  interest to the world. There is no reason for Indian negotiators at WTO summits or at meetings with the IMF to sell the country short. Given the recent dynamism in the economy there is really not much risk of the country not attracting loans and foreign funds for investment.

 

On the political level, as the 2004 election results demonstrate, India’s economic policies have to be perhaps uniquely sensitive to the concerns and interests of the rural majority. Two-thirds of India lives by agriculture and India has the largest farming population in the world. These facts, quite distinct from what is true of countries like Brazil, Argentina and South Africa, make it uniquely possible and necessary for India to defeat the imposition of the Neo-liberal agenda of the IMF and the WTO.

 

In other words, not only does the UPA government have no excuse to repeat the errors of the BJP-led coalition, which went overboard in trying to please its self-imposed Neo-liberal bosses, it has to obey the political imperative of restoring the economic confidence of the Indian farmer. In fact, after Cancun, it has become obvious that the only way to tackle First World hypocrisies on tariffs and subsidies is for the large poor nations – such as China, India, Brazil and South Africa – to stand united in their interests and forge an effective South-South cooperation.

 

 

 

The upcoming budget and Indian agriculture

 

In light of the approaching Union Budget to be announced by Finance Minister P.Chidambram in early July, the UPA government needs to be reminded that it should not try to address the growing fiscal deficit in the central government’s budget by cutting funds for rural development or by slashing subsidies for food or agricultural inputs. It needs to reverse the trend, induced by the IMF and the World Bank, of deflationary fiscal policies and resume active state support for agriculture.

 

As it is, government expenditure on rural development has declined from almost 15% of the GDP in the pre-reform late 1980s, to 6% during the last 5 years. This decline in public support for agriculture has had far-reaching consequences for growth in agricultural productivity and rural employment, the decline in the latter having deepened rural poverty and hastened migration to the cities. (This has had a disproportionate impact on work for women, since it is men who migrate more readily to the cities.)

 

Moreover, in the past 6 years, thanks to the growing indebtedness among small and marginal farmers (who obviously have not been in a position to take advantage of “hi-tech horticulture and precision farming”) there has also been a dramatic increase in the number of landless laborers, as afflicted cultivators have had to forfeit their lands.

 

If the crisis in rural unemployment is to be addressed (and the ensuing migration to urban centers is to be stemmed) with any hope of success, the government needs to invest far greater sums of money than has become customary in the post-reform era in such areas as irrigation, water-management and the supply of cheap electricity. Without these forms of public investment in agriculture, the complementary private investments by farmers (in such things as cattle, farm implements and tube-wells) are also not forthcoming. Both growth and employment in agriculture will suffer unless public investment in agriculture is sharply increased. Employment can also be raised significantly through food-for-work programmes, something the Singh government is trying to implement through the scheme of guaranteeing 100 days of employment annually to one member of each household.

 

The fate of Indian farmers was left to the vagaries of international markets and the Monsoons by the BJP government. While the safety nets which protected the Indian peasantry from price fluctuations in the international market were dismantled, 60% of the 143 million hectares of Indian farmland agriculture have continued to be rain-fed, a fact which we were reminded of in the year 2002, when the Monsoons failed and agricultural production, growth and employment plummeted.

 

It is these parameters of Indian agriculture, which have to be altered rapidly if lasting improvement in the lives of the rural poor is to be brought about. While famines haven’t happened in democratic India, as Prof. Sen would predict, farmer suicides on a historically unprecedented scale indeed have taken place and agriculture has become a significantly more risky undertaking than it used to be in the pre-reform era. Moreover, thanks to the BJP’s severe mismanagement of the food buffer and its neglect of the Public Distribution System for the supply of affordable food to the poor, hunger and malnutrition have been on the rise during the past half-decade.

 

The UPA government does not have much time to reverse these trends.

 

The UPA government also needs to learn that agriculture can contribute far more to the central government’s budget – as India’s corporate managers are avidly pointing out nowadays – if fundamental tax reforms are introduced and the tax shelter that has always been there for the rural rich (top 20% of the farmers) is removed. Enhanced growth in agriculture, spurred on by public investment, will automatically yield higher tax revenues.

 

Furthermore, growing rural incomes, by inducing greater demand for industrial products through what economists call “multiplier effects”, will give an impetus to industrial growth too. If agriculture becomes more productive, critical raw materials for industry, such as raw cotton, can be cheapened in cost. True to the theory of economic development, if growth in agricultural productivity releases labor from agriculture over time, it can be educated and trained to work in the service sector, if not as industrial labor. Agricultural prosperity can in these and other ways contribute to growth in the rest of the economy. In fact, managed properly, agricultural and industrial growth can feed off each other and a virtuous cycle of growth can be induced both in the countryside and in the cities if a judicious set of policies is adopted by the UPA coalition.

 

Moreover, in the era of high technology, industrial recoveries and growth are often “jobless” on account of automated productions systems. This is true in the developing world as in the developed one. Thus, the employment potential of industry is, in fact, not very high. 13 years after the inception of the reforms, 92% of Indians are still employed in the informal, unorganized sector, three-quarters of them in agriculture. Evidently, agriculture has a key role to play in employment generation in the years ahead.

 

 

 

With the latest election results the otherwise voiceless millions have sent a wake-up call to India’s political elite who, apart from feathering their own nests, in their post-reform affluent slumber, were busy pandering to the demands of the financial elite and the international multilateral institutions who have been bargaining on behalf of the giant corporations in the rich countries. They had all but forgotten the existence of the peasantry and the poor. The election results demonstrate in the loudest possible way the politically disastrous consequences of a theological faith in trickle-down Economics, which seems to have eyes only for those sectors of the economy which give rise to conspicuous consumption. Trickle-down promises have proved to be more promises than trickle-down. In fact, given the rate of loss of land by small and marginal farmers to private moneylenders, the rich peasantry, large agribusinesses, or the government itself, and the general mania for privatization of public assets nurtured by the BJP government, it is sometimes necessary to acknowledge the “trickle-up” implications of trickle-down economics in practice.

 

In the end, the Prime Minister and his government are accountable to the people of India who have given them the mandate to govern in the interests of the latter. They are not to answer to the stockbrokers on Mumbai’s Dalal Street, or to the Chief Trade Representative of the US or to the IMF, the World Bank or the WTO. Moreover, there is no economic need to pander to the vagaries of the stock market, or for that matter to the others who the BJP had gleefully taken as its masters. India is a large enough, growing developing nation to assert its economic autonomy.

 

The Congress and its allies need to appreciate the fact that they have not received an unconditional mandate from the people. In case they persist with the follies of the BJP, and patronize the interests of the financial and global elites, they will end up sooner than they may anticipate where the BJP is today, and the game of electoral musical chairs will resume yet again.

 

Indian farmers need water to drink and farm, not pesticide.

 

 

 

Jai Kisan, not Jai Jawan, Jai Kisan

 

The UPA government needs to distinguish its policies sharply from those of its failed predecessor. There has to be a clear shift in priorities and approach on both the domestic and the external fronts.

 

The Sub-Continent needs to demilitarize and the governments of India and Pakistan need to keep open the pathways to peace, despite the occasional provocation from Kashmiri militants. In his first press conference Manmohan Singh, when asked about the possibility of peace with Pakistan, responded with wise optimism, saying that India sought “most friendly ties” with its largest neighbor. He held out the hope that if the Berlin Wall could collapse, anything was possible! Since then, more positive steps in the direction of lasting peace have been taken, with the leaderships of the two countries setting up a hotline to avoid nuclear disasters and organizing talks over Kashmir.

 

Pseudo-nationalistic militarism as an electoral strategy has evidently failed. The slogan Jai Jawan is a pathetic lie. The BJP tried to offer, in American-Republican fashion, psychological compensation to the ordinary people of India for the real material losses inflicted on them by its own senseless policies. It also, following Marie Antoinette’s lead, gave them cake instead of bread, Coca-Cola instead of water. Too bad for the BJP that the ordinary village peasant with sun-baked fields could not appreciate why grapes from France and apples from New Zealand are being sold in Indian cities while he is unable to water his crops and has to wait an eternity to get a small loan to buy seeds and fertilizers. There are hard lessons here for the Congress and its allies.

 

Ruling parties and coalitions (and the so-called intelligentsia in general) need to have far greater regard than has become customary in post-liberalization India, for the political sagacity of common people. The BJP was willing to needlessly endanger the lives of tens if not hundreds of thousands of soldiers by drumming up war hysteria against Pakistan and ordering an unprecedented build-up on the border. This was a pseudo-patriotic charade to make up for the ravages its policies had wrought on millions of people.

 

The UPA government has to amend Lal Bahadur Shastri’s slogan of the mid-sixties for our times if the ordinary person’s India is to survive and common people have to find a semblance of peace and happiness in it: “Jai Kisan!” not “Jai Jawan, Jai Kisan!” is a more apt motto for the precarious times we have come to live in.

 

Go to Part I.

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