Understanding Neoliberal India: Conundrum of Rising GDP And Malnutrition

The productivity gains achieved by state expenditure on agriculture in the period of Green revolution, when India became self-sufficient in foodgrain, have been documented in the part-2 of this series. However, as the first round of productivity raising potential was being exhausted, mostly due to ecological limitations, there was an increasing need of higher investment in agriculture to achieve further productivity gains, necessary to ensure that agrarian economy did not fall back again into the grip of the “in-built depressor”. 

At such a time, having to keep the promise made to IMF of maintaining “fiscal discipline”, the state, over the following decade of 90s, halved the proportion of expenditure on agriculture, irrigation, flood control and other rural development works, from 3.8% of the net national product (NNP) prior to the economic reforms in 1991, to 2.6% by the middle of the decade, before further downsizing it to 1.9% by the end of the decade. A few years later, after the defeat of the BJP-led NDA government due to severe agrarians crisis, the newly elected UPA-1 government raised this expenditure to 2.3%. It was, however, “far short of the required doubling necessary to make an impact on rural depression,” Utsa Patnaik wrote. 

Investment in large and medium sized irrigation projects, which, as Kathy walker pointed out, was“instrumental in improving land productivity”, was reduced to less than half of its previous size, downsizing it from 3.4% of NNP in 1980-81 to 1.3% in 2003-04. In the four years from 1999-2000 to 2003-04, the net irrigated area reduced from 57.1 million hectares to 55.1 million hectares. Contrary to the popular belief that public investment crowds out private investment, a strong positive correlation can be noted between the two. In an irrigation-dependant agriculture, Patnaik argued, “private tube-well investment is profitable where the water table remains high owing to seepage from state-built canal irrigation systems, and where community integrated watershed management is encouraged with state-help.” 

The decline in private investment in agriculture resulting from reduced state expenditure was further accelerated because of increasing inaccessibility of credit due financial liberalisation in 1994. While the finance-sector in pre-liberalized India had a policy of prioritizing agriculture and small-scale industries with low-interest credit, the banks, after reforms, were to allocate resources along the line of highest-profitability, in accordance with which “priority sector” was redefined to include “large institutional borrowers”. This caused a sharp decline in credit available for agriculture, at a time when the prices of fertilizers and pesticides were soaring due to withdrawal of subsidies. The resulting decline in the investments on land reduced the growth rate of land-productivity (yields per unit area) by half in less than a decade - from 3.03% per annum in 1993-94 to 1.39% by 2001-02.

In this situation of falling land-productivity and rising input costs, food-prices, along with that of other primary products including cotton and jute, plummeted 40-60% between 1996 to 2001, after the state, having entered WTO as one of the original signatories, progressively dismantled trade-barriers in the name of “free-trade” - which was effectively an arrangement where India had to withdraw subsidies and allow inflow of agricultural commodities from United States, produced with  heavy subsidies, which in some cases exceeded the market value of the total produce. In 2001, for instance, $3.9 billion of subsidy was spent by U.S government on production of cotton worth $3 billion. Again in 2005, when the value of the produced cotton was $3.9 billion, the subsidies spent on it was $4.7 billion, P. Sainath has pointed out. 

While the size of the workforce in rural India expanded from 191 million to 257 million in the 11 years between 1993-94 to 2004-05, the employment growth in agriculture has been virtually zero. Here, it should be warned that one should not assume that therefore industry had absorbed what would otherwise have been agricultural labour. In the words of Utsa Patnaik:

“No-one should imagine that unemployed rural workers are migrating and finding employment in industry: there have also been massive job losses in manufacturing during the reform period and the share of the secondary sector in GDP has fallen from 29 to around 22 percent during the nineties, in short India has seen de-industrialization. The agricultural depression has reduced the share of agriculture in GDP from about a third at the beginning of the nineties to just over a fifth a decade later, but the labour force and population dependent on agriculture has hardly fallen reflecting decline in per head incomes. Thus both the material productive sectors have declined and the only sector which has ballooned in an abnormal manner is the tertiary or services sector which now accounts for over half of GDP. Only a small proportion of the services sector comprises IT-enabled high income services, business process outsourcing, domestic tourism services and the like.”

These high income sectors, which amount to the greatest proportion of the impressive growth rate India has since liberalization, employed only 1.3 million out of a 400 million strong workforce as on 2006. Most of the employment in service sector is still in “low-productivity activities (such as domestic help, for example) in which the rural displaced workers stagnate at low income levels, servicing the requirements of the upper income elites who have been improving their real income position fast.”

In a desperate attempt to survive, these “self-employed” - the size of whom swelled fastest under the neoliberal regime, totalling 260 million - ruthlessly exploited themselves by “doing longer hours of work with little extra earning”, and thus add to productivity growth, “augmenting corporate profit, and human misery,” as Amit Bhaduri said. The average real daily wage rates for the regularly employed men in urban areas have declined between 2000-2005 by 4.8% and for the casually employed by 2.8%. The decline has been even more drastic for women: 21.4% for the regularly employed and 4% for the casually employed.

In times of such desperation, the PDS system, which was previously pivotal in raising the average calorie consumption of the population in spite of the falling real-incomes of the majority of rural households, was also downsized. “Counseled by IMF and World Bank in accordance with their stated position that ‘states should not sell at prices other than global prices’”, Kathy Walker wrote, the state in 1997 changed the nature of PDS system. It was no longer universal and demand driven, but targeted at those “arbitrarily defined as “poor” by the government”, requiring those deemed to be above the poverty-line to pay the market prices.

As a result, millions of actually poor were excluded from access to affordable food grains, with only 28% of the rural poor receiving any type of government food assistance. Even those that received food-grains through PDS, had to pay double the price they did before the state reduced food-subsidy, rising the issue prices of food grains through PDS to twice its previous level in a span of only three years. Consequently, rather than an increase in the amount of food-grains sold at subsidized rates in the ration shop - which one would expect to happen given the increasing population - grain sales in these shops actually fell from 21 million tonnes to 12.1 million tonnes in the decade after economic reforms, as Madura Swaminathan has pointed out.     

As a result of the combined effect of declining real-incomes, withdrawal of subsidies and institutional credit to small cultivators, and the downsizing of welfare programmes for poor, the small peasant producers increasingly resorted to borrowing from moneylenders and traders for survival. This increasing demand for loans allowed the lenders to charge usurious rates, as high as 100 percent in many cases.

Thus, this period witnessed a decline in profit that could be made on capital investment in agriculture due to falling rate of growth of land-productivity, rising input costs and declining food prices, while the profits that could be made by lending money to desperate borrowers was, on the other hand, sharply rising -  phenomenon which arguably nudged the agrarian economy back toward the in-built depresor, which, as explained in the first part of this series, was a situation that discouraged investment in agriculture. Consequently, the growth of output of food grains as well as other crops reduced in 1990s to half the rate in pre-reform 1980s, falling below the population growth rate in 2002 for the first time since the short-lived agricultural crisis of 1960s.

So severe was the decline, that the gains made by the post-independence developmental state over a span of four decades in rising the annual per capita foodgrain availability from the abysmally low 155 kg soon after independence to 177 by the beginning of 90s, was offset within a mere 12 years of neoliberal policies, bringing the availability back down to 155 kg by 2003-04. Within a decade and a half through the reforms, the already low annual foodgrains absorption by an average Indian family had further dropped by 115 kg. Given the increase in urban calorie intake as indicated by government data, annual intake of an average rural household is bound to have reduced by more than 115 kg. Consequently, in the decade following reforms, the proportion of rural households that were undernourished rose from 48% in 1988-89 to 67% in 2001-02, Kathy Walker has argued.

It is bound to have worsened further for years since 2002, as the growth rate of food output fell behind the rate at which population was growing, causing an enormous rise in hunger. At this time, the lowest 40 percent of the population ranked by expenditure (a class whose highest expenditure is on food) had a lower per capita real expenditure than they had in 1995-96, and that of the next 40% was stagnating. As a consequence of this declining expenditure on food in the domestic economy, resulting from inability to afford the prices due loss of real incomes, the public stocks of food grains piled up to 63 million tonnes, which was 40 million tonnes over the buffer norms.

In a Kafkaesque distortion of logic, the mainstream economists implied from this abnormal build-up of stocks that there was an overproduction of foodgrains in the economy (at a time when growth of food output had fallen below that of population), and the government, in order to bring this “overproduction” under control, withdrew the support prices for farmers. Instead of distributing the accumulated foodgrains through food-for-work schemes to alleviate rising hunger, the BJP-led NDA government, in 2002-03, exported 22 million tonnes of foodgrains at a highly subsidized price of Rs. 5.45 per kg for the purpose of feeding it to cattle in Europe, while those below the official poverty-line in India had to pay Rs 6.40 per kg. Thus it was that an agrarian thinker once said, “the dream of the Indian farmer is to be born a European cow”, which, as Sainath pointed out, is the most food-secure creature on the planet, with an average of $2.7 spent on its food every day.