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Business Commentary/Dilip Thakore

Drought: Urgent need to corporatise rural India

The drought that has ruined the lives of over 100 million people and transformed the interiors of Rajasthan, Gujarat, Orissa, Andhra Pradesh and Madhya Pradesh into dust bowls was a mishap waiting to happen. The politicians' contention that it is a natural disaster is totally misplaced.

This drought is a man-made catastrophe and its seeds were planted several decades ago in the centrally planned development policies of Pandit Nehru and nurtured by nine successive Planning Commissions.

Way back in the 1950s, over 70 per cent of the population of India comprised rural citizens. Half a century later, this ratio of rural-to-urban citizens remains unchanged. Therefore, it would have made good sense to accord priority to the developmental needs and requirements of rural India.

Technology should have been infused into the farm sector to improve yields per acre, a proper storage and cold-chain infrastructure should have been created, an all-weather road network linking farmers to city folk should have been built, and substantial investment should have been made in rural schools.

The consequential rural prosperity would also have created a mass market for industrial goods and services resulting in national prosperity.

Instead, a diametrically opposite economic development model -- focussed on rapidly building an industrial base in urban India -- was adopted. The investible resources that should have been ploughed into rural India were canalised into industry and, especially, into no-hope government-owned a public sector enterprises.

The consequence is that rural India - where the majority of the population of this democracy lives - visibly lacks an enabling infrastructure. If you drive out into the countryside, you won't see grain silos along the railway lines that could have transported farmers' foodgrains to urban markets and the nation's ports. Neither will you see any cold storage plants where farmers could freeze their horticulture produce. The roads of rural India, if they exist at all, are in a pathetic condition of disrepair.

Nor will you see refrigerated trucks and other vehicles transporting rural produce to markets. You will not come across humming food-processing plants and factories as you would expect to see in a predominantly agricultural economy.

Yet for over five decades, India's political class has been telling us that massive investments have been made in rural India to power the green revolution. There is, nonetheless, some truth in this. Large dams have been built and a vast network of irrigation canals has been created, notably in the north. And the consequence of these investments in the rural hinterland is that the nation's farmers have quadrupled foodgrain production from 50 million tonnes per year in 1950 to 200 million tonnes per annum currently.

It is, however, apparent that the cost-benefits of the green revolution are lop-sided. The massive investment in irrigation in the northern states benefited only a small percentage of the rural population. And politically determined procurement prices of foodgrains not only placed them out of the reach of the rural poor, but also made Indian foodgrains uncompetitive in world markets.

Moreover, ill-conceived subsidies on power, water and fertiliser encouraged 'progressive' farmers to adopt wasteful and costly farming practices.

The technology allowed to be infused into rural India was sub-optimal and inappropriate. The emphasis on developing a capital-intensive rural infrastructure, driven by the nation's notorious kickback culture, facilitated the construction of dams, canals and groundwater-tapping projects. But it also resulted in the neglect of traditional low-cost and proven technologies such as rainwater harvesting, and the construction of earthern dams, tanks and bunds.

Very little attention was paid to the maintenance of rural assets. For example, in the fiscal 1999-2000, the state governments averaged a mere 6.18 per cent of their budgetary outlay on irrigation and flood control, 2.4 per cent on sanitation and a pathetic 0.38 per cent on soil conservation and water management! Astonishing neglect, if one bears in mind that the great majority of the population in every state of India lives in the rural hinterland.

Yet, the greatest folly of India's central planners has been to encourage agriculture production without creating a marketing infrastructure for the nation's 700 million farmers. Poor road networks, inadequate transportation, lack of storage silos, cold chains and persistent refusal to de-licence the growth of a downstream food processing industry has resulted in every sale of farm produce being a distress sale.

It is estimated that almost 40 per cent of the horticulture produce of rural India, valued at Rs 250 billion annually, rots before it gets to the market. The consequence is that there is virtually no capital formation that could tide rural families over a bad agriculture year in rural India.

But, there are lessons to be learnt in adversity. The silver lining is that the present drought has highlighted the necessity of extending the industry liberalisation and deregulation initiative to Indian agriculture. There is an urgent need to corporatise Indian agriculture by abolishing all restrictions on the sale and transfer of rural holdings and completely de-licensing the construction of grain storage silos, cold-chain storages and promotion of food-processing enterprises.

Moreover all taxes on processed or value-added foods need to be abolished to encourage the growth of India's insignificant food-processing industry. This will not only reduce the massive waste in Indian agriculture, but also ensure better farm-gate prices and capital formation in rural India.

The long-suffering and neglected majority in rural India will, undoubtedly, survive this drought as it has done the preceding calamities. But at a deeper level this tragedy is a millennial red alert. Not so much to somnambulistic governments as to the power of public opinion which alone can move - and remove- governments.

(Dilip Thakore was the founder-editor of Business India and BusinessWorld, and is currently the editor of EducationWorld.)

Dilip Thakore

Business