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An unproductive idea

india Updated: Jul 15, 2012 21:29 IST
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Recently, at a rally of gram panchayat chiefs, agriculture minister Sharad Pawar told the audience, “Improving the well-being of farmers is difficult unless agriculture sheds some of its population. At least one member from the farmer’s family should seek livelihood opportunities outside agriculture.” He has often made this appeal to farmers in Maharashtra, pointing out how rich industrial countries have a small proportion of their labour force in agriculture in contrast to that in poor countries. However, he did not bother to discuss whether the movement of labour out of agriculture is a cause or effect of the agricultural development in these countries.

Most of today’s rich countries have an agrarian past; 200 years ago most of their population was engaged in agriculture-related activities. As they developed, new activities in industry and services emerged and a greater part of the labour force moved to industry and services. However, this could not have happened unless those who remained in agriculture produced at least as much food as before. In other words, the movement of labour out of agriculture could not have taken place unless the productivity of farmers had improved correspondingly. In fact, it is easy to see that an increase in agricultural productivity allows fewer people to produce the food required by the population and facilitates labour movement to other sectors. This is true of all countries except city-states like Singapore and Hong Kong, which can import most of their food requirements.

The other side of the labour market is employment outside agriculture. What would make industry and services hire the people leaving agriculture? One possible answer is a rising demand for non-agricultural goods and services either from the domestic economy or from abroad. India, unlike China and other East and Southeast Asian countries, is not yet an export-driven economy. Over the last few decades, India has taken huge strides in boosting exports in some sectors such as software and business services. But these sectors are skill-intensive. The labour moving out of agriculture will not have the skills to fill these jobs until our education system is miraculously transformed overnight.

The story is the same for our domestic demand; the increase in demand for non-agricultural goods is mostly from a thin layer of urban population that is experiencing income increases. Typically, when their income goes up, they tend to spend it on the kind of things that the poor moving out of agriculture can’t produce. Much of the income increases are likely to go into expensive goods and services that are skill-intensive. It is for this reason that the proportion of labour force in agriculture is declining at a snail’s pace. The absolute number of people in agriculture may not be declining at all. India, in this respect, cuts a very different picture from the economies of East and Southeast Asia, which managed to transform their economies in a matter of two decades.

What will create rising demand for unskilled labour? It is more likely that if farmers experience increases in their incomes, they will demand the kind of goods and services that low-skilled labour moving out of agriculture can produce.

Importantly, an increase in agricultural incomes has a direct impact on poverty, as a large proportion of the poor are still trying to eke out a living in agriculture. All this brings us back to improvements in agricultural productivity. First, improve rural infrastructure — irrigation, roads, extension services, functioning credit institutions; second, make new technologies available to farmers; and, third, open up new markets for farmers and let them diversify into high-value crops. The inevitable consequence of this will be a diversification of the rural economy and labour from agriculture will be absorbed much more rapidly.

About 110 years ago, both Canada and the US had around 40% of their population in the agrarian sector. Those figures are around 2-3% today. This massive population shift was triggered primarily by rapid agricultural development caused by public investment in irrigation and agricultural research. The process was also helped by better prices received through grain exports to meet the demand of industrialising Europe.

China is a more relevant example for us. Martin Ravallion and Shaohua Chen have analysed China’s success in poverty reduction during 1981-2001. These are two decades immediately following the initiation of the economic liberalisation in China. In 1981, 53% of the Chinese population was under the poverty line. This came down to about 8% by 2001. Ravallion and Chen show that nearly 80% of this whopping poverty decline was due to agricultural growth.

Had we succeeded in improving agricultural productivity in our country we would have witnessed a natural movement out of agriculture along with declining poverty. Asking agriculture to shed its population in order to raise farmers’ income is putting the cart before the horse.

Milind Murugkar is Food and Agripolicy analyst with Pragati Abhiyan, a non-profit development organisation

The views expressed by the author are personal

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