Research & Publications
Research & Publications
Shri Dilip Rath, Chairman NDDB, Mrs. Rath, Dr. Saxena, Madam Amrita Patel ji, former Chairperson of this institute and of NDDB, Dr. Tushaar Shah, Prof. Mahesh Pathak, Member of the Board of IRMA, alumni of IRMA… I am very happy to see Shiv Kumar ji here, faculty members, students, and invited guests. First of all I want to thank IRMA, particularly Shri Rath ji for inviting me to deliver a lecture in the memory of one of the greatest sons of mother India. I feel it is a matter of pride and great privilege for anyone to deliver a lecture in the memory of such a person. One who has made selfless contributions in transforming the lives of millions of voiceless, powerless, and downtrodden people.
Friends, maybe because of age difference I did not have much interaction with Dr. Kurien. But I did have the opportunity to listen to him once on November 23, 1995. It was during the inaugural conference function of the Indian Society of Agricultural Economics. Dr. Kurien had delivered a Chief Guest address. Dr. Montek Singh Ahluwalia was also present and Dr. Nadkarni was conference president.
Dr. Kurien gave his thoughts during his address and I noted some of the points, which is my habit. I would like to share one important thought from that address. He was very critical of armchair economists; he always believed in action, being a person of action himself. The first thing he said was that “this principal of natural comparative advantage is a fallacy supplied by the economists. The comparative advantage is earned: it does not exist naturally. He gave examples to prove his point. In some of my papers I mentioned this thought. How true it is! When you look at growth and agriculture in India, it has been much higher in those regions that are less endowed with natural resources. If you look at the growth of agriculture in Punjab and Haryana, particularly of wheat and paddy… you know the kind of rainfall Punjab and Haryana get and you know the rainfall eastern India gets.
In Punjab, before the Green Revolution, the area under rice cultivation was less than five percent yet today you will find that more than 80 percent of the area is under rice cultivation during the kharif season. The areas that did have favourable rainfall and water conditions used shallow tubewells and other technologies and emerged as leaders of the Green Revolution. Eastern India is still crying in contrast.
Once I questioned the secretary of Bringing Green Revolution to Eastern India (BGREI) who replied that “since they are not taking it we have to grain it!” it clearly brings out the point Dr. Kurien was trying to make. Some of the best natural resources may not give you much comparative advantage if you do not have the right kind of institutional infrastructure. I used to wonder how Dr. Kurien had reached this conclusion. One was, of course, through the institution of cooperatives. I saw that during the White Revolution. I used to argue with Mr. Tushaar Shah that I do not see any advantage of the Green Revolution in Gujarat, yet he made the White Revolution happen here. I also feel that his conclusion was based on his (Dr. Kurien’s) personal experience. Coming from a different background he had no aptitude or liking for dairy but circumstances threw him here and he became the Father of White Revolution. Through your zeal and dedication you can earn comparative advantage. One distinctive feature about the White Revolution was that it was of Indian origin.
The life story and achievements of Dr. Kurien are so great, yet I sometimes feel that we do not recognize our own heroes. We believe that if we buy something from abroad, not China but Europe and the US (audience laughs) it will be of better quality. Many people of the younger generation, including my own children, revere other heroes by reading their biographies but do not even know of Dr. Kurien, which is very sad. People who work for their own uplift are more visible than those who work for the uplift of others. The way Dr. Kurien used the power of regionals and power of markets to make dairy successful in Gujarat- taking milk on a train from Kheda to Kolkata, taking dairy from the crude, small part dairy in this part of the world to the global level through the instrument of markets… sadly, this country did not market him as a legend.
I do not need to say more about Dr. Kurien to this gathering.
What I will now say is that we have been talking about inclusive growth for several years. I will discuss how the emphasis has shifted from growth to inclusive growth- but if you achieve growth through livestock it is inclusive growth. It is a quanti-growth. According to the latest estimates, 50 percent of the poor rear livestock. This shows the importance of livestock in the lives of those we wish to benefit from this growth process. So, the White Revolution brought about by Dr. Kurien not only contributed to the economy and growth but also to those left outside the margins.
I have recently completed a study –along with two colleagues – for Niti Aayog on rural economy. We got some results that were not accepted by my colleagues at Niti Aayog. Indian society and economy may be divided into two broad categories- rural and urban. Two-thirds of our people live in rural India; 70 percent of our workforce lives in rural India. There has always been a disparity between rural and urban India. This disparity increased considerably after 1991 after the process of economic reforms. The level of disparity in 2001-2 was the same as it was during the Green revolution of 1970-
71. After 1994, economic growth accelerated both in rural and urban India. But if disparity were to be reduced then growth should have been higher for rural areas compared to urban areas. But the difference increased from 1.6 percent to 1.9 percent. Because of this, people started questioning the planning process. So, the word “inclusive” was introduced for the first time in the Approach to the 11th Five Year Plan. I was associated with 11th and 12 Five Years Plans in a big way. We were looking to a faster and more inclusive growth. But this did not happen. In the 12th Plan the word “sustainable” was added.
The 12the Five Year plan looked primarily at inclusive growth through social development plans. There was a change in government in 2014; there was a change in the manifesto yet the same thing was said in a slightly different way: “Sabka Saath, Sabka Vikaas.” In other words: promoting growth with the participation of all.
If you read the book I Too Had a Dream you will realize that Dr. Kurien had used these terminologies. He had spoken about these things a long time back, in the 60s.
How can growth be inclusive? We hypothesized in our study that the linkage between growth and inclusiveness is though employment. If growth occurs without employment, then it can’t be called inclusive because wealth gets concentrated in a few hands controlling the capital. So we tried to find out: is this growth leading to employment?
We looked at the literature and found that while there were a lot of studies on how employment is changing in India there was none on how output in rural areas has changed. You know that employment is a consequence of how output changes or happens, not the other way round. So we
looked at the contribution of economy, the composition of rural economy, the growth and employment patterns, the disparities between rural-urban, cultivators versus non cultivators, labour versus farm in rural areas, and agricultural labour and so on. Based on all this we discussed what could be the strategies for employment growth in India.
If you look at the last four decades you will find that the Indian economy became increasingly urban and overtook rural economy around 2000. Some people think of this as a healthy trend since the urban constitutes the modern sector with more growth, capital and innovation… it is seen as a good thing. But it has not been the same story with employment. In fact, unemployment shrunk to a lower degree in rural than in urban areas.
We may further divide the total economy into two categories: agriculture and non-agriculture. In case of non-agriculture, more output started coming in from rural areas because of the industries shifting there, also services to some extent. So, while share in value added-ness increased yet share in employment did not. Only in recent years has it increased slightly. So, while agriculture largely remained a rural activity, rural did not remain agricultural. Today, the share of the composition of the rural economy – between agriculture and non-agriculture – is such that agriculture in 2011-12 accounted for only35 percent of the income generated in rural areas; 65 percent came from non- agricultural activities. Extending that to the next five years I find that the share of income generated in rural areas through agriculture is now only 32 percent; 68 percent of the income generated in rural areas is through non-agricultural activities. Within non-agricultural activities there are three main sectors- manufacturing, construction, and services. There are some interesting factors explaining both agrarian and rural distress. Looking at the share of rural in the output of manufacturing… in 1971 only one-fourth of the total output – when I say output in the hard core sense I mean value addedness
– of the industry was related to the rural areas while three-fourths was related to the urban areas. But today more than 50 percent of industrial value addedness is generated in rural areas while the urban areas are like a junior partner in generating value addedness even in the case of manufacturing. Yet it is not the same story with employment.
The construction sector remained vibrant in rural areas with a greater share in employment. Up till 2015, services were growing at the same rate in rural areas as the urban areas, but after this the services began moving back into the urban areas.
So, while manufacturing and production moved to rural areas manufacturing related jobs remained in the urban areas. The growth rate of the rural economy has not been bad overall- between 1971 and 2001-12 it increased seven times. But employment has not even doubled- 191 million jobs only. This means that more wealth has been generated in rural areas without its being distributed among the people. Growth rate of manufacturing in the rural sector has accelerated over time- first it was 5.18 percent then between 1994-05 it increased to 8 percent; in 2005-2008 it increased to 15.87 percent. Industrial output has been rising at the rate of 16 percent per year. This is because of availability of land in rural areas. It is a way of decongesting urban areas. That is why growth rate of industrial output in rural areas increased by 16 percent- by four times the growth rate of agriculture. In contrast, deceleration has been occurring in the area of employment in the rural sector, particularly between 2005 and 2012. Growth rate of employment is 05.76 percent with output growing at 15.87 percent. When people say “jobless growth”, they are not wrong. Industry in rural areas has followed a completely jobless growth. I collected evidence that showed that industry in rural areas has followed a more capital intensive approach compared to the urban areas. It appears counterproductive that
industry demands more labour in rural compared to urban areas: that we should be deploying more capital in rural compared to urban areas.
But the construction sector has been very good for the rural sector. After 2005 there has been a boom in construction with jobs growing faster than the output. So the construction sector has been more employment intensive.
In the services sector, however, the story has been different with both growth rate and employment declining very fast after 2005. Jobs shrunk overall in rural India. Between 1971and 1994 employment in rural India saw about a two percent growth, then to 1.5 percent but then after 2005 the growth was negative. For the first time, labour in agriculture declined. Manufacturing growth output accelerated- I have spoken about it.
We have seen employment insensitive rural growth in India became the main cause for rural distress. Now agriculture is not as deep as it used to be. Rural employment fell after 2004-05 despite 7.5 percent growth in output overall. This decline was not only evident in the workforce but also in the labour force. If there is a decline in the workforce but not in the labour force the unemployment rate increases. But we found the decline to be of the same magnitude with the labour force as well. It is important to look up why people chose to withdraw from the labour force in rural areas. The female participation rate declined from 33 percent to 25 percent, which is a matter of serious concern. This did not just happen in well to do categories. A hypothesis exists according to which farm households that start prospering begin to withdraw their women from agriculture encouraging them to undergo education instead. But we found the decline occurring even in the case of labour, which was worrying. So, where did all those who withdrew from agriculture go? There was one positive sign: we found that one-third of the reduction in the female labour force was accounted for by education; there was 100 percent reduction in the case of males who were going in for higher education. In the case of females, however, this number was only one-third with the rest unexplained. The rest preferred to stay within domestic activities. So, the question is: why do women of agricultural households that are mostly below the poverty line, chose to stay at home? We looked at possible explanations because empirical evidence was not available. Field studies need to be conducted in this area.
One possible explanation is increase in reservation wages. When MGNREGA was introduced in 2009-10 – I am not criticizing the policy – all I am saying is that increased wage rate and non- availability of suitable work could be one reason.
The second reason is that while many industries came to rural India a lot of them took the jobs away from home. In rural India it is very difficult to tell a young girl to take up an employment that takes her out of her house. Many manufacturing jobs became available but they were all away from homes; there were no transport facilities carrying villagers to urban areas and back.
The third reason is lack of skills for finding well-paid jobs. The fourth reason is the tension arising between agricultural labour and the farming class- something we are not ready to admit. You see this during peak times when labour begins to ask for higher wages. I had many discussions with Dr. Swaminathan who suggested that “labourers are also farmers”. I raised the contention that if you raise the wages of farmers, labour gets inversely affected. Neither can they be benefitted by a common policy nor are their interests common, so it is not right to keep both in the same category. Now a lot of papers are being written on how labour hiring arrangements are under stress.
There are many reasons for this, one being feudal backgrounds. Farmers still want labourers to work on their fields like servants. When we compiled data on the educational level of labourers and farmers we found, in many instances, that labourers were more educated than farmers. That is why they do not want to work in a master-servant framework but they are willing to work in an employer-employee framework. These are the kinds of tensions taking place in rural society.
I will now discuss rural and urban share in incremental output and employment. There is evidence that ICOR, or incremental capital output ratio, is much higher in rural than in urban areas. We also looked at why the manufacturing sector, which has been growing, lags behind in labour absorption. We believe that the skills the industry is seeking may not be available in rural areas. It is less difficult to get skilled people in urban areas than in rural areas because skilled people in rural areas will have moved to urban areas. In 2004-05, only 14 percent males had undergone vocational training and in 2011-12 the increase was only 15.4 percent in rural areas. Where women were concerned, the percentage declined even further. This factor may also be attributable to the decline of women workers in the industrial sector.
Now, we look at disparities: it is evident that urban workers draw more wages compared to rural workers. Rural non-farm workers get more money than cultivators and cultivators get more money than agricultural labourers. So the disparities showing up in 2011-12 either increased or stayed the same causing distress.
So, what is happening with the farmer sector? When we were discussing farmer incomes we realized that there were no estimates of farmers’ incomes in this country. So, we prepared a series from 1983 onwards; it is available at the national level. At the state level, however, I have not come across estimates. Between 2004-05 and 2011-12 agricultural output was growing at more than 4 percent; labour shift was occurring from agriculture to non-agriculture and the terms of grade were improving for agriculture in that period; the cumulative effect was that farmers’ incomes increased – in real terms – by 7 percent per year. This had not happened earlier. But looking at factors like distress, the changes are not very evident. We examined the reasons for this. According to my hunch, which was proved later, some farming sub sectors are growing at a very high rate while others are not growing at all, if not actually declining.
So, we divided farms into three categories: the traditional farm sector consisting of cereal, oil seeds, and pulses; the modern farm sector consisting of horticulture crops; third comprises livestock. When we focus only on non-horticulture crops you will find that after 2007-08 the growth rate of cereals, oil seeds, and pulses not only remains stagnant but also steadily declines. And you would know that more than 80 percent farmers do not grow horticulture crops. Livestock compensated to an extent by growing more than 4 percent but non-horticulture crops were not growing and (therefore) contributing to the distress.
Then we drew some conclusions. First: India’s rural economy is no longer dominated by agriculture and non-farm activity contributed 65 percent in 2016-17. Manufacturing is no longer concentrated in urban locations, more than half the production takes place in rural areas now. These changes have not brought about corresponding expansion in employment. Rural manufacturing follows more capital intensive production than urban manufacturing. Reasons are: more pay, job commutes to rural-urban areas and back, greater skill dearth in rural compared to urban areas, no link between rural industry and rural raw material except in dairy, and no rural specificity in type of industrial activity in rural areas.
After looking at all this, we raised an important question: should we look at employment differently? According to traditional theory, it is agriculture that grows first, then industry, then services and so on. That sequence has been proved wrong in many countries where the services’ sector became the engine of growth after agriculture and in some manufacturing is the leading sector. It is the services’ sector that has become the main source of growth in many countries over the last 25-30 years.
It is a similar case with employment. As opposed to what traditional economic theorists have told us: labour has to move from agriculture to industry and services with fewer and fewer people in agriculture. With the kind of technological changes happening all over the world – think of the fourth industrial revolution – and changes in machine language, it is now being predicted that industry related jobs will go down. The call of the hour is to create more gainful, attractive, and lucrative jobs linked to agriculture. This is because agriculture is much more labour intensive with regard to output per unit compared to any other sector.
So, can we think of some value addition in agriculture as, say, in the milk industry? Can we think of putting similar value changes? Otherwise, I’m afraid, we are going to have a serious situation on our hands in terms of employment. We are already faced with such a situation. The time has probably come to look at employment with a different approach.
Secondly, we need to look at the role of skill. I know we have things like Skill Mission in place. I don’t know how it is working on the ground but at least such an initiative has been launched. We need to take full advantage of the Kaushal Vikaas Yojana and link it to modern agriculture and modern civilization.
The last point I wish to make is: we need to look seriously at rural economy. We have been planning for agriculture, rural development… but looking at the activities related to rural development, they are not in line with planning for the generation of rural employment or productivity. We are looking at constructing three crore houses over the next seven years or rural sanitation, for example. These things are important, no doubt, but they are not about looking at rural activity as related to rural development. Lately, the growth of food manufacturing has been lower compared to the growth of total manufacturing. While the inputs are high the output is not.
So, with rural development, agriculture, and food processing we need to start an integrative approach. Otherwise it will be very difficult to generate (rural) employment. And this, to my mind, is more serious than food security issues, nutrition and so on.
Thank you very much.