Saturday, August 31, 2013

Indian economy has been redefined

Observing the events of the past few weeks, with a sharp focus on the two most critical ones - the passage of the Food Security Bill 2013, and the dip in Indian GDP growth rate (first quarter) - I realise that these two events will ensure that the Indian economy stands redefined in a fundamental way. I clarify that my personal conviction is all for food security for those who really need it, but not at the cost of taking a huge risk with the fundamental economics of the whole nation, which includes people who do not need it (the food security as promised).

To set the background right - I am very proud of Indian agriculture. Despite so many hurdles, India is the biggest producer of milk and pulses in the world, and leads in at least 10 other areas substantially. We have world-class research institutes, and sincere scientists, politicians and farmers. 

Let me now list the reasons I feel that the Indian economy has been redefined.

Issue 1. The successful passage of the Food Security Bill 2013 This clearly implies a huge change in the way the agricultural economy in India works. And since more than 50% of people depend on it for their direct incomes, that's profound. Even more significant is the fact that 67% of Indian population will be directly covered by the handouts of this Bill's promise.

Issue 2. The central role of Indian farmers
The HUGE promises made in the Bill require massive procurement of foodgrains (wheat, rice, coarse cereals) which means our farmers need to work really hard to produce more (since imports are ruled out). Given the extremely low productivity of agriculture in India, this means that in a few months or years from now, the strains will start showing. 

Issue 3. Why our farm productivity is not going to improve anytime soon
The table clearly highlights the structural problem with Indian farm productivity. Majority of the farmers are stuck with very small landholdings due to social, personal and family reasons. Consolidation is the crying need of the hour, but since that entails huge social readjustments, I do not see that happening quickly. Maybe in another 10 - 20 years, but not now.