In my childhood, in the 1960s and early seventies, most Indians lived one meal away from starvation. Everyone had ration cards and used them to buy rice, pulses, wheat and sugar. Rationing changed national dietary habits since every card drew a mix of rice and wheat. North Indians started eating rice in the sixties, while Bengalis and Assamese started eating wheat.
In 1965, the Calcutta High Court debated through many hearings before it decided that the West Bengal government should not ban the use of scarce milk in sweets. Every so often, there was a famine, or drought, and people died of starvation. A couple of thousand in Bihar, hundreds in Odisha, dozens in Maharashtra – we were used to these stories. Sometimes, somebody died from eating poisonous kesri dal, due to the desperation caused by semi-starvation.
One of the biggest diplomatic levers the US possessed in its often-fractious exchanges with India at that time was that America exported cheap wheat to India for rupee payments under the PL-480 scheme. As a quid pro quo, India toned down criticism of the Vietnam War, and criminalised hashish in the 1960s. It was considered an act of defiance when Prime Minister Indira Gandhi liberated Bangladesh and India stopped buying PL-480 wheat.
The Green Revolution boosted wheat production. Alongside, there was Amul, which brought about the White Revolution. Sugarcane and oilseed production rose, as irrigation improved. India became self-sufficient in food.
Two generations later, better calorie intake has led to multiple visible differences between age cohorts. The majority of 25-year-olds are taller, and better muscled than their parents. (Many are also obese and there is an incipient diabetes epidemic.) Indian athletes run faster and swim faster. Women win wrestling medals. There are Indian fast bowlers galore.
But the memory of food scarcity lives on in our culture. Every Indian from an earlier generation has been taught not to waste food. One of the biggest cultural shocks any Indian is faced with when visiting America is seeing people casually dumping plates loaded with food in the trash.
Farmer distress
The memory of those years lends a horrifying context to the multiple incidents of milk and food being dumped on the roads by farmers in the past two years. Farmers chucking away produce is an act that seems more obscene to my generation than any porn flick could be.
It is not a coincidence that this started with the “Demonetisation Rabi Harvest” of 2016-2017. Rural India (and agriculture in particular) is primarily cash-driven. Demonetisation drove cash out of the system. Farmers were unable to take loans to buy seeds, fodder and hire labour. People could not afford to pay for farm produce.
As a result, that rabi harvest was an unmitigated disaster and farmers threw away food, probably for the first time in India’s history. Demonetisation hit the overall rural economy hard since practically every semi-urban Indian family has exposure to agriculture.
That disastrous season has had a cascading effect. The next two years have seen mounting distress among farmers. Food prices remain low. There has been a glut in the sugar industry. Tomatoes, potatoes and onions are now all trading well below prices of 2017 – and remember that was the year following demonetisation in November 2016. Pulses are cheaper too, due to imports.
Farm distress has translated into lower rural demand, going by poor auto and two-wheeler sales in semi-urban locations, and of course, there have been huge farmers’ rallies and strikes to highlight their distress to the government.
But the BJP continues to double down with a deeply contradictory message. At one level, it continues to claim demonetisation was the best thing to happen since India invented the zero. Meanwhile it is offering huge sops to farmers.
Farm loan waivers have already occurred in the three states where the Congress took over in December after the last set of Assembly elections. More loan waivers are very much on the cards, with every major political formation pencilling them into their manifestos. The Budget is sure to have rural sops as well.
More jobs needed
This cycle of price collapse followed by sharp inflation resembles the self-inflicted wound the Soviet Union and its successor states suffered in the early 1990s when the rouble was demonetised. What happens if agrarian distress continues? Farmers will plant less acreage.
That will lead to a brutal reversal of the price trend because food is a necessary good. As supply falls, prices will spike. Then there will be emergency imports. Farmers will start planting again once they have access to easy loans and food prices seem to offer reasonable returns.
The deflation is causing other problems for monetary policy as well. Since food contributed about 46% by weight of the Consumer Price Index, overall inflation as measured by the Consumer Price Index has fallen to 2.2% year-on-year in December 2018. But other sectors are seeing higher inflation. The core Consumer Price Index inflation, which is calculated by removing food and fuel from the inflation basket, is running at close to 6%.
Normally, central banks cut interest rates in low inflation scenarios in order to stimulate the economy. But rate cuts now could lead to a sudden spike in the cost of everything else (because if you cut rates, demand goes up and prices of other things escalate) without necessarily leading to stimulus for farmers. Of course, in one sense, the political establishment is already selectively cutting rates by waiving farm loans.
It may take more than rate cuts to revive agriculture and it will take delicate management to prevent a sudden spike in food prices if there is lower planting. It also does not help that Indian agriculture suffers from a dozen different distortions at the best of times.
Many states have Agricultural Produce Market Committee – boards that prevent farmers from selling their produce in the open market. The Agricultural Produce Market Committee is the middleman and this system ensures massive profits to the privileged few who buy from the farmer and resell to the consumer. There are also arbitrary controls on food exports and imports. Minimum support prices are set by politicians with little heed paid to the actual demand-supply equations. Besides this, irrigation and water management systems are inefficient and land holdings have been fractured down the generations by inheritance.
These distortions have destroyed productivity and created vested interests that makes it hard for any meaningful reforms. There are also far too many people dependent on agriculture. The sector generates less than 20% of India’s gross domestic product while it provides employment to 50% of the workforce.
Quite apart from finding ways to ease the rural economy out of this crisis, Policy makers need to generate more jobs in industry and services to induce people to move off farms and into those sectors. But that is not going to happen either, while the government continues to stoutly deny that unemployment is an issue.
