NEOLIBERAL REFORMS AND THE AGRARIAN ECONOMY
The acceleration of neoliberal reforms of deregulation, privatization and globalization from 1991, first by the minority Congress government of 1991 and then by all subsequent governments at the Centre and in most states has led to enormous agrarian distress and a deepening of the agrarian crisis. Neoliberal reforms had three key elements. Deregulation, more popularly referred to as liberalization, focused on ‘freeing’ private players from government regulation and releasing them from all norms of accountability in the name of unleashing enterprise from bureaucratic shackles and the so-called ‘permit-license raj’. Privatization involved not only sale of assetsof public sector enterprises, often at throw-away prices, but also abandoning the state’s responsibility in key domains such as education, health and infrastructure and opening up these domains to private entities functioning with profit as the primary if not sole motive.
Globalization involved not only removing restrictions on imports and exports of goods and services, but most importantly allowing foreign finance capital to enter and exit the country at will, thus encouraging huge speculative inflows and outflows of capital as finance while making no contribution to the growth of real output. Of all the elements of neoliberal reform, this had the most far-reaching implications for fiscal policy, as it led to an obsession with reducing the fiscal deficit in order to prevent capital flight. Within the neoliberal framework, such a reduction in fiscal deficit was to be effected only by reducing government expenditures on both capital formation and subsidies and not by taxing the rich.
The neoliberal reforms had major consequences for the agrarian economy. The negative impact of these policies on the agrarian economy and working people in rural India can be summarized thus:
• The focus on reducing the fiscal deficit primarily by expenditure reduction meant that input subsidies – on fertilizers, pesticides, energy - were cut, leading to sharp rise in input costs. This happened immediately after the minority government of Narasimha Rao in which Manmohan
Singh was the finance minister, took office. The practice of periodically hiking fertilizer and energy prices has continued without let or hindrance since then despite constant opposition from farmers’ organizations and the Left parties, with the UPA II regime being particularly savage in this regard.
• The removal of quantitative restrictions on imports of agricultural products and the maintenance of import duties on such goods at well below the bound rates that India had specified in the WTO resulted in a sharp rise in agricultural imports, especially from the late1990s. This, together with the importing of the global deflation in commodity prices led to a crash in output prices in the late 1990s/early 2000s, followed by sharp price volatility.
• Financial liberalization, beginning with the infamous Narasimham Committee on Banking Sector Reforms which called for abandonment of directed lending’ or the very notion of ‘priority sectors’ in the matter of access to bank credit, led to significant reduction in the rate of expansion of institutional credit, very inadequate to the requirements and a sharp rise in real interest rates at which institutional credit could be accessed through most of the nineties and the first half of the decade of 2000-2010.
Matters have not improved dramatically since then, though there has been some increase in the flow of credit to agriculture, much of it grabbed by large capitalist landowners. The rapid expansion of bank branches, especially in rural areas, between 1969 (the year when fourteen major banks were nationalized) and 1991(the year of acceleration of neoliberal reforms) has since been reversed, with rural bank branches declining through the 1990s and the first several years of the new millennium. The dependence of the peasantry on moneylenders and other non-institutional sources of credit has increased considerably over the period of neoliberal reforms.
• Reduction in rural development expenditure in relative terms as part of the drive to reduce fiscal deficit even while providing major tax breaks to the affluent sections and the corporate sector has seriously affected both supply infrastructure (irrigation, energy, storage facilities and so on) for
agriculture and the rural economy, and weakened rural demand, causing a major crisis of the rural economy.
• Cutback in public investment as part of neoliberal reforms has led to significant weakening of infrastructure support, farm extension services and the national agricultural research system.1
Simultaneously, deregulation in the seed sector, weakening of certification processes and entry of multinational agribusiness giants such as Monsanto and Cargill have allowed MNCs to penetrate the agrarian and rural economy in a big way.
• The neoliberal reforms unleashed a serious assault on the PDS. First, between1991 and 1994, PDS issue prices were raised by 90 %. By 1995, this led to accumulation of food grain stocks with the government even while a large part of the population remained under-fed. The targeted PDS created by the binary division in 1997 of households into those above the official poverty line (APL) and those below it (BPL), with differential prices and entitlements was a key contributor to rural and agrarian distress.
The situation was worsened by the decisions taken in the NDA regime in 2001 to drastically hike prices for both BPL and APL households. By July 2001, more than 60 million tonnes of food grainslay as stocks with government while large swathes of the population, consisting of poor
peasants and agricultural labourers as well as artisans suffered from hunger. This, too, was a feature of the severe agrarian/rural crisis and distress that saw its most tragic manifestation in a massive number of peasant suicides, exceeding 250,000 over the fifteen year period between 1997 and 2012.
FEATURES OF THE AGRARIAN CRISIS
The period of economic reforms has seen a sharp slowdown in the rate of growth of agricultural output. We had noted earlier that agricultural output grew at a compound annual rate of growth of 3.3
% between 1950-51 and 1965-66 and 3.2 % between 1964-65 and 1974-75. The growth rate fell to 2.6 % between 1974-75 and 1984-85, but rose to 4.1 % between 1984-85 and 1994-95, just before the impact of neoliberal reforms had begun to bite. However, the growth rate fell very sharply to just 0.6 % per annum compound between 1994-95 and 2004-05. It can thus be unambiguously stated that neoliberal reforms have been associated with a drastic fall in the rate of agricultural growth. Since 2004-05, there has been a bit of a recovery in the rate of growth of agriculture, but this recovery is both halting and far from sustainable.
An examination of the rates of growth of output and yield per acre for major agricultural crops over different time periods brings out sharply the negative impact of neoliberal reforms on agriculture.
Table 1 shows the annual rate of growth of output for the periods 1967-81, 1981-91 and 1991-2010. Table 2 shows the annual rate of growth of yield (output per acre) for the same crops over the same
periods. Except in the case of cotton, the rates of growth of output fell sharply for all other crops between 1991 and 2010, the period of reforms, as compared to the decade 1981-1991. In the case of cereals and of food grain, the rates of growth between 1991 and 2010 were even lower than in the period 1967-81 when the green revolution had just begun to spread. Likewise, except in the case of cotton, the rates of growth of yields have declined significantly for all crops between 1991 and 2010, the period of neoliberal reforms, as compared to the period of 1981-91. As far as cereals are concerned, the rate of growth of yield is the lowest in the reform period, lower than in 1967-81 when the green revolution had been initiated and had begun to spread. The story in the case of food grain is shown in Table 3. As with all the major crops, we can see that there was little growth in output or yield of food grain for nearly a decade from the late 1990s. It is interesting to note that area under food grain has also been stagnant, except for a dip in the drought year of 2002-03. Within the
area under food grain, it appears that there has been a shift from nutritious millets to paddy and wheat, but pictures of large extents of arable lands in India having been diverted from food grain to other crops or to non-agricultural uses are not validated by the official data
on area under food grain.
The acceleration of neoliberal reforms of deregulation, privatization and globalization from 1991, first by the minority Congress government of 1991 and then by all subsequent governments at the Centre and in most states has led to enormous agrarian distress and a deepening of the agrarian crisis. Neoliberal reforms had three key elements. Deregulation, more popularly referred to as liberalization, focused on ‘freeing’ private players from government regulation and releasing them from all norms of accountability in the name of unleashing enterprise from bureaucratic shackles and the so-called ‘permit-license raj’. Privatization involved not only sale of assetsof public sector enterprises, often at throw-away prices, but also abandoning the state’s responsibility in key domains such as education, health and infrastructure and opening up these domains to private entities functioning with profit as the primary if not sole motive.
Globalization involved not only removing restrictions on imports and exports of goods and services, but most importantly allowing foreign finance capital to enter and exit the country at will, thus encouraging huge speculative inflows and outflows of capital as finance while making no contribution to the growth of real output. Of all the elements of neoliberal reform, this had the most far-reaching implications for fiscal policy, as it led to an obsession with reducing the fiscal deficit in order to prevent capital flight. Within the neoliberal framework, such a reduction in fiscal deficit was to be effected only by reducing government expenditures on both capital formation and subsidies and not by taxing the rich.
The neoliberal reforms had major consequences for the agrarian economy. The negative impact of these policies on the agrarian economy and working people in rural India can be summarized thus:
• The focus on reducing the fiscal deficit primarily by expenditure reduction meant that input subsidies – on fertilizers, pesticides, energy - were cut, leading to sharp rise in input costs. This happened immediately after the minority government of Narasimha Rao in which Manmohan
Singh was the finance minister, took office. The practice of periodically hiking fertilizer and energy prices has continued without let or hindrance since then despite constant opposition from farmers’ organizations and the Left parties, with the UPA II regime being particularly savage in this regard.
• The removal of quantitative restrictions on imports of agricultural products and the maintenance of import duties on such goods at well below the bound rates that India had specified in the WTO resulted in a sharp rise in agricultural imports, especially from the late1990s. This, together with the importing of the global deflation in commodity prices led to a crash in output prices in the late 1990s/early 2000s, followed by sharp price volatility.
• Financial liberalization, beginning with the infamous Narasimham Committee on Banking Sector Reforms which called for abandonment of directed lending’ or the very notion of ‘priority sectors’ in the matter of access to bank credit, led to significant reduction in the rate of expansion of institutional credit, very inadequate to the requirements and a sharp rise in real interest rates at which institutional credit could be accessed through most of the nineties and the first half of the decade of 2000-2010.
Matters have not improved dramatically since then, though there has been some increase in the flow of credit to agriculture, much of it grabbed by large capitalist landowners. The rapid expansion of bank branches, especially in rural areas, between 1969 (the year when fourteen major banks were nationalized) and 1991(the year of acceleration of neoliberal reforms) has since been reversed, with rural bank branches declining through the 1990s and the first several years of the new millennium. The dependence of the peasantry on moneylenders and other non-institutional sources of credit has increased considerably over the period of neoliberal reforms.
• Reduction in rural development expenditure in relative terms as part of the drive to reduce fiscal deficit even while providing major tax breaks to the affluent sections and the corporate sector has seriously affected both supply infrastructure (irrigation, energy, storage facilities and so on) for
agriculture and the rural economy, and weakened rural demand, causing a major crisis of the rural economy.
• Cutback in public investment as part of neoliberal reforms has led to significant weakening of infrastructure support, farm extension services and the national agricultural research system.1
Simultaneously, deregulation in the seed sector, weakening of certification processes and entry of multinational agribusiness giants such as Monsanto and Cargill have allowed MNCs to penetrate the agrarian and rural economy in a big way.
• The neoliberal reforms unleashed a serious assault on the PDS. First, between1991 and 1994, PDS issue prices were raised by 90 %. By 1995, this led to accumulation of food grain stocks with the government even while a large part of the population remained under-fed. The targeted PDS created by the binary division in 1997 of households into those above the official poverty line (APL) and those below it (BPL), with differential prices and entitlements was a key contributor to rural and agrarian distress.
The situation was worsened by the decisions taken in the NDA regime in 2001 to drastically hike prices for both BPL and APL households. By July 2001, more than 60 million tonnes of food grainslay as stocks with government while large swathes of the population, consisting of poor
peasants and agricultural labourers as well as artisans suffered from hunger. This, too, was a feature of the severe agrarian/rural crisis and distress that saw its most tragic manifestation in a massive number of peasant suicides, exceeding 250,000 over the fifteen year period between 1997 and 2012.
FEATURES OF THE AGRARIAN CRISIS
The period of economic reforms has seen a sharp slowdown in the rate of growth of agricultural output. We had noted earlier that agricultural output grew at a compound annual rate of growth of 3.3
% between 1950-51 and 1965-66 and 3.2 % between 1964-65 and 1974-75. The growth rate fell to 2.6 % between 1974-75 and 1984-85, but rose to 4.1 % between 1984-85 and 1994-95, just before the impact of neoliberal reforms had begun to bite. However, the growth rate fell very sharply to just 0.6 % per annum compound between 1994-95 and 2004-05. It can thus be unambiguously stated that neoliberal reforms have been associated with a drastic fall in the rate of agricultural growth. Since 2004-05, there has been a bit of a recovery in the rate of growth of agriculture, but this recovery is both halting and far from sustainable.
An examination of the rates of growth of output and yield per acre for major agricultural crops over different time periods brings out sharply the negative impact of neoliberal reforms on agriculture.
Table 1 shows the annual rate of growth of output for the periods 1967-81, 1981-91 and 1991-2010. Table 2 shows the annual rate of growth of yield (output per acre) for the same crops over the same
periods. Except in the case of cotton, the rates of growth of output fell sharply for all other crops between 1991 and 2010, the period of reforms, as compared to the decade 1981-1991. In the case of cereals and of food grain, the rates of growth between 1991 and 2010 were even lower than in the period 1967-81 when the green revolution had just begun to spread. Likewise, except in the case of cotton, the rates of growth of yields have declined significantly for all crops between 1991 and 2010, the period of neoliberal reforms, as compared to the period of 1981-91. As far as cereals are concerned, the rate of growth of yield is the lowest in the reform period, lower than in 1967-81 when the green revolution had been initiated and had begun to spread. The story in the case of food grain is shown in Table 3. As with all the major crops, we can see that there was little growth in output or yield of food grain for nearly a decade from the late 1990s. It is interesting to note that area under food grain has also been stagnant, except for a dip in the drought year of 2002-03. Within the
area under food grain, it appears that there has been a shift from nutritious millets to paddy and wheat, but pictures of large extents of arable lands in India having been diverted from food grain to other crops or to non-agricultural uses are not validated by the official data
on area under food grain.
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