Paradigm Shift Needed

Published: Thu, 09/08/2016 - 07:42

For many years, the Indian economy has been called a ‘gamble with the monsoon’. This means that if the monsoon fails then with it the Indian economy tanks as well.  For the past two years, precipitation has been precariously low in many parts of the country; reservoirs have dried up, and images of parched and cracked lands have been flooding TV screens. Just before this year's monsoons lived up to the Indian Metrological Department (IMD) prediction of more than normal rain, there was a long list of people who had committed suicide in different parts of the country. Maharashtra was the worst impacted. A news story about a Sarpanch who had tried to kill himself, on failing to provide drinking water to his villagers, showed the gravity of the crisis. Contrary to the criticism that the media does not really report on droughts and other natural calamities, the national media seemed to love a good drought.

The weight of agriculture in the computation of Gross Domestic Product (GDP) may have fallen, but there are so many people who live off it. In statistical terms, agriculture and allied activities have contributed 13. 6 percent in the first quarter of 2016-2017, which in real terms amounts to Rs.37, 4390 crores or $ 6.5 billion. What is troubling is that more than 60 percent of the population actually depends on agriculture and other allied activities and as anyone with any common sense will tell you that there are far too many people that are dependent on tilling the land. The simple takeaway from these figures is that people have to move away from rural to urban areas and gain employment in the manufacturing or the service industry.  In the 70s economist Ranis- Fei postulated that when people move from the rural to the urban areas, then they not only leave surplus food grain behind but they also help drive industrial growth. In other words, it is the agriculture surplus that drives economic growth. The faster the relocation of those who live in villages to the cities and towns, the faster is the growth.  Many growth models consider this submission as a priori and hence it is difficult to believe that even after 65 years of planned growth we in India could not move a large mass of our people to urban areas.

Though in monetary terms the contribution of agriculture to GDP is barely $ 6 billion dollars, would it be prudent to lend its weight in the computation of GDP to only 13 percent when 60 percent of the population is involved?  How does the weight attached to the GDP really impact formulating the economic policies? Does the government devalue the contribution of this sector even when it feeds not just the entire country, but also leaves a surplus for export to other nations? This is a question that has not been addressed adequately. The major reason why agriculture goods are priced less is due to their lower input costs, some of which are subsidised. What is also not factored is the value of water in a water scarce country. For example, in a country like India 3000 litres of water is needed to grow 1 kg of rice, which costs anywhere from Rs. 10 to Rs. 200/kg. When putting a price to the costliest basmati rice from Dehradun there is nothing to suggest that the cost of water is included in it. Similarly, sugarcane and cotton, both cash crops, also consume plenty of water. In their pricing, too, cost of water is not included. If for instance, the cost of water is included in the pricing of various agricultural products then what will be its implications first on the contribution of this sector on the GDP and on the lives of the agricultural economy.

This aspect has not found enough attention except in stray academic articles. If indeed cost of water is included and there are fewer takers for some of these expensive agricultural produce, then it would make more sense for India to import food and preserve its valuable resources when water is scarce. In other words, the government has to announce the price of water- depending on how much of it is available, both rain as well as groundwater, each year so that correct valuation of each agriculture product is made. Such an approach would not just preserve water, but change the way economic policies are framed.

Editor of Delhi's Hardnews magazine and author of Bad Money Bad Politics- the untold story of Hawala scandal.

Read more stories by Sanjay Kapoor

This story is from print issue of HardNews