Liberalization Of Agriculture In India And Possible Fallout Economics Essay

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The Introduction: India's Political History Post-Independence. India during the 1990's has practiced high economic growth rates and has also found a forte in global markets through the rise of computer and service related industries. Before rolling out round of applause in favor of liberalization reforms, it is important to consider the adverse impacts of what is being lauded as "progress". In the agricultural industry, the groups of problems left in the wake of economic reform are essentially bound up into India's integration into the world economy. Especially hit hard by globalizing forces, liberalization movements, and technological change are rural farmers who are now committing suicide at an unprecedented rate. This paper intends to contextualize the phenomenon of liberalization in India as it occurred in three major episodes: 1966-69, 1985-87, and 1991-1994. Special emphasis will be given to the 1991 reforms and their relevance to agriculture and farmers suicides. The plight of the rural farmer will be considered as it has been affected by political-economic change over time. Concepts at play include poverty related themes and dependency theories.

Early Agriculture and Government Policy: Starvation and Famines

Historically, the success or failure of agriculture in India has been contingent upon monsoon seasons and drought cycles. Subsistence farming, low yields, and primitive techniques characterized India for centuries. Famine and starvation were frequent. In fact, it is believed that famine contributed to India's low population growth of 0.4 to 0.5 percent between 1800 and 1921 [1] .The Bengal Famine in 1943, in which millions starved to death, remains as a stark reminder to the importance of agricultural and economic responsibility. (Patnaik 1999) In effort to understand and perhaps forecast a famine, quantitative economists rely on "the Malthusian focus of food supply per head" which has recently been criticized for its oversights. (Sen and Sen 1982,452) Amartya Sen argues that famines are a result of compounded social and economic disarrangements, explaining: food availability per head is a very poor indicator of starvation [2] . Major famines have taken place without any significant reduction in the ration of food to population, and indeed some famines have occurred during years of peak food availability. Furthermore, the Malthusian focus has contributed to some of these famines not being anticipated, thereby causing a great many more deaths.

Famines, then, are argued to be a result of widespread unemployment where a large demographic group has lost its ability to establish entitlement to purchase food. The focus of analysis should instead include the various "ownership patterns of different classes and occupation groups and on the exchange possibilities - through production and trade - that these groups face". Starvation and famines need to be understood in the context of how they affect various occupation groups. In rural India, it should be noted, that occupation groups are traditionally defined along caste lines and so the problem definitely has cultural implications. The "food supply per head ratio" is an aggregate index; it assumes that everyone is the same. Any elementary textbook on India would quickly refute this assumption. From the first ideas of Purusha the Cosmic Man in Vedic times until today, caste and class stratification in India, in conjunction with competing nationalities, religious groups, and language groups, has created a society that is anything but homogenous. For instance, it has been observed that because landless rural laborers can only sell their labor power, if they are unable to find employment then they would starve even while food is available around them [3] . Concisely put, "There probably has never been a famine in which every group has suffered" because "There is, indeed, no such thing as an apolitical food problem

The Green Revolution and India's First Philander with Liberalization

In 1965-66 the United States "bailed out" India from another famine episode except only under the condition that India would "devote more of its resources to agriculture and eventually to achieve self-sufficiency in food grain production [4] ." This was all done under the PL-480 agreement [5] . There was also pressure from the U.S. for India to liberalize its economy, and for the first time since Independence, under the leadership of Indira Gandhi, economic reforms were set into motion. Many of the state-run enterprises were turned over into the private sector; however, they would not endure forever. Indira Gandhi, due to overwhelming opposition and criticism, doubled back on her liberalization efforts. For agriculture, the brief reforms included: increases in private foreign investment, decontrol of fertilizer production and distribution, and reductions in state-owned industries. In this context the Green Revolution was born. Despite the later reversal of most of the liberalization efforts in 1969, Green Revolution technology continued to permeate throughout agricultural sectors. The relationship between the Green Revolution in India and its brief encounter with economic liberalization is a direct one. By tipping the terms of trade away from industrial growth and towards agricultural growth and through the dropping of agricultural-related restrictions, the government created an environment suitable for the reception of crop-enhancing, high-yield plant varieties through foreign investment [6] .

Available for purchase in India by 1966-67 were the newly introduced high-yielding varieties (HYV's) that were expected to greatly increase production of 5 major food grains: rice, wheat, maize, jowar, and bajra. The benefits of these new plants are that they responded to fertilizer better, the heads do not topple when heavy with matured grains, and they are mostly drought resistant. More importantly, their faster rate of growth allows for the cultivation of a second major crop, both having yields four times that of indigenous varieties In fact, statistical analysis shows that increased use of fertilizer and irrigation are closely associated with higher agricultural productivity. By 1972, more than 50 percent of sown land and nearly 75 percent of total production were the result of HYV's. During this time, fertilizer use increased nine-fold, pesticide use climbed, more wells were dug, demand for irrigation went up, and land values rose [7] . Loans had to be taken out to compensate for these increases in overhead costs, and so, farmers must produce and sell a surplus to repay the capital borrowed. This means the small, peasant farmer must adopt large, commercial farming practices to participate in the Green Revolution. The implications are that while overall agricultural production rose, such progress was carried out by those who could afford the heavy investment, thereby limiting the rural poor farmer's access to new technologies in terms of wealth. In other words, overall agricultural output indexes obscure the fact that only the wealthy farmers are profiting while smaller farmers are actually becoming worse off.

The Green Revolution is best seen as a top down process, spreading unevenly throughout the arrangement of India's agricultural sectors. Politicians and the mass media have done well to promote new fertilizer and pesticide practices, often interpreting them as "signs of modernity". The movement favors large scale, commercial farming ventures that are made possible by their potential to generate export profits. Commercial farming of genetically modified mono-crops requires more chemical input, and so, the relationship of dependency on fertilizer and pesticide, largely imported or made available through transnational corporations, began during the Green Revolution [8] . As for the rural farmers, well, they are more often being pushed into the "ranks of the landless", bankrupt and selling out to larger land-holders. Agriculture in India, thus affected by Indira Gandhi's quick flirt with liberalization between 1966 and 1969, would be even more affected by later liberalization attempts.

Liberal Liberalization: The 1980's and 1990's

Rajiv Gandhi won the December 1984 elections following the assassination of his mother, Indira Gandhi. Rajiv is described as "urbane, pro-western in matter and technocratic in style" and that "because he had not previously been involved in politics, he made no fundamental compromises to become prime minister." Going above and beyond the liberalization measures of his mother, Rajiv made policy changes in these areas: "less restrictive licensing of industrial investments, easing of some import regulations by replacing certain quotas with tariffs, stimulation of exports through duty drawbacks and tax concessions, financial market liberalization by raising interest rates on government securities." Despite these more drastic reforms, Rajiv's liberalization movement was thwarted in 1987. After becoming involved with the Bofors scandal, Rajiv lost the political initiative and was essentially blocked by political opposition.

The August 1990 invasion of Kuwait by Iraqi forces produced a cascading set of troubles for India. Economic policymakers in New Delhi had long counted on repatriated earnings from Indians working in the Persian Gulf region [9] . Not only did these earnings flows stop in 1990, but there were major costs in rescuing the workers and bringing them back to India. In addition, oil prices soared, further increasing inflation and using scarce foreign exchange [10] .

The Gulf Crisis came to be called "the largest civilian airlift in history" where an estimated 112,000 expatriate workers were moved out of the Middle East and back to India. Besides, the Soviet Union had just collapsed so aid from Moscow was simply not available [11] . In fact, India partially lost a consumer goods market during the collapse and experienced problems getting spare parts for all of its Soviet equipment and machinery [12] . Internal problems were developing inside India at the same time. Religious nationalists, in the name of Ram, destroyed the Babri Masjid and excited communal tensions between Muslims and Hindus. Amidst all of this turmoil, it was up to Rao to rewrite the "Economic Gospel [13] " of India. It is explained that, the "gospel according to St. Marx had clearly failed" and while there wasn't exactly great faith in "the gospel according to St. Market", India really had little choice but to accept prescribed conditionality's handed down by the World Bank and IMF. With the help of finance minister Manmohan Singh, and through the neo-liberal platform called the New Economic Policy, liberalization efforts enacted include the devaluation of currency, domestic economy restructuring, balancing budgets, liberalization of licensing, and relaxing regulations on foreign collaboration. There were many criticisms of these policies, but between 1994 and 1995, "imports and exports rose from an average of 15 percent of GDP in the 1980s to 23 percent" thus encouraging policymakers to continue the reforms.

At this point, it becomes clear that changes made by governmental institutions, under the auspices of liberalization reform, constitute a specific influence on the agricultural sectors. With this in mind, changes observed in rural agricultural can be followed from a local scale all the way to a global level. Essentially, this is the sort of methodology that political ecologists use when trying to reveal who the winners or losers are during political-economic change. Robbins explains that political ecologists "follow a mode of explanation that evaluates the influence of variables acting at a number of scales, each nested within another, with local decisions influenced by regional policies, which are in turn directed by global politics and economics." Decisions made by rural farmers to purchase GM seeds and additional fertilizer, for instance, can be traced to governmental encouragement at the local and regional level, which was crafted in policy at the national and international level. So at higher scales, it is important to notice how institutions are influencing people on local scales Post 1991, individual states within India took on more important roles in dealing with the World Bank as the central system of government controls loosened its grip. The internationalization of economic relations is believed to have this effect on India, that its ability as a coherent nation-state is being "eroded". (McMichael 1992, 344) As a result, "states must now compete with one another for private investment, both Indian and foreign."

Farmer's Suicides and the Aftermath of Liberalization

A major issue at the international level in all of this economic reshuffling, in respect to agriculture, is the fertilizer subsidy policy. The World Bank and other multilateral agencies mandate that nations must remove their agricultural subsidies and engage in open-market-style free trade in order to receive loan monies. For Indian farmers though, subsidies have been something that farmers there have depended on for survival [14] . It is assumed that in the process of liberalization, subsidies would not be necessary due to increases in profit. After the adoption of the New Economic Policy, farmers were exposed to changes in the prices of import and export products. Fertilizer inputs, especially, are the "costliest and most significant input other than irrigation for most crops." While these inputs were going up, the prices of agricultural goods on the world market were going down, especially cotton, corn, wheat, rice, and soybeans, which all enjoy subsidy protection in developed countries, like the United States [15] . Having been thrown into opposition with the world's top agricultural producers, India's poor farmers, to reimburse for falling prices, tried to increase output to make up for loss of incomes. With little access to low-cost credit, rural farmers have turned to private moneylenders for loans to pay for the extra seed, fertilizer, and pesticides required to stay competitive. The interest rates charged by these moneylenders are outrageous and trap rural farmers into vicious cycles of debt. Usually farmers are committing suicide upon defaulting on a loan and losing their land, which may be a testament to certain culturally defined attachments to land ownership its relationship to social respect and power. To reiterate, after liberalization, agricultural input costs went up while output prices fell. Small farmers, trying to keep up with larger farms, took out risky loans to buy extra GM seed and fertilizer. These factors are believed to be the main contributors to the phenomenon of farmer's suicides in India, which are mostly occurring among the poor, rural farmers.


Rural farming in India is at a great turning point characterized by great distress among the poor. In fact, since the 1990s, rural poverty rates have gone up relative to urban. If liberal trade agreements and open-market policies are, indeed, at the root of the problem, then an analysis of India's liberalization movements and their effects on agriculture is important. In sum, liberal reforms in 1966-69 have heralded the Green Revolution which, arguably, encouraged wealthy, commercial farmers and discouraged poor, small farmers. Because "full liberalization" was not embraced at this time, residual subsidies and government protection were enough to sustain small farmers. The reforms of 1985-87 were thwarted by Rajiv Gandhi's political mismanagement and a rising debt crisis. The crisis of the late 80's rolled into the causes of the 91-94 reforms, which saw the full range of liberalization reforms enacted under Narasimha Rao. When we talk about possible fallout of the agriculture liberalization, the agony of Indian farmers comes into focal point. The Economic Policy of 1994 is believed to be the underlying cause of stress on farmers, especially poor farmers. The issue of whether or not India's open-market progress in agriculture will enhance the welfare of farmers looks grim. Considering the adverse effects on India's rural farmers, it may be necessary to begin questioning if this kind of progress is worth pursuing in the future.