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Mainstream, VOL LII, No 38, September 13, 2014

Marginalised Groups and Inclusive Growth

Saturday 13 September 2014, by C.H. Hanumantha Rao

The Concept of Inclusive Growth

The concept of inclusive growth, as stated in the 12th Plan document, focuses on the growth process that is broad-based or in which wider sections of the population, especially those hitherto excluded, participate. This implies, among other things, stepping up the GDP growth rate in the slow growing or less developed regions through the development of infrastructure; greater priority to agriculture which contributes to food security and provides livelihood for nearly half the labour force in the country; and high priority to manufacturing so as to generate greater employment opportunities and ensure rise in wages.

It is recognised that setting sectoral priorities right is not sufficient for achieving inclusive growth. Marginalised groups can avail the opportunities for setting up enterprises and securing jobs in these sectors only when they have access to the resources like land and capital, education and skills without being subjected to various forms of discrimination.

 Inclusive growth, so defined, needs to be distinguished from welfare programmes such as employment guarantee, public distribution of foodgrains to the poor at subsidised rates, etc. Such welfare programmes are, nevertheless, necessary to ensure inclusiveness in develop-ment. In fact, the need for such schemes increases when there is a failure to generate adequate employment and income for the poor in the process of economic growth.

Emerging Characteristics of Indian Agriculture

Agricultural land holdings are becoming smaller and unviable. Over 85 per cent of farmers are now small and marginal (below two hectares) accounting for a little over 40 per cent of the cultivated area. The net area sown, as distinct from the gross cropped area, will continue to decline because of increasing competition for land for non-agricultural uses like industria-lisation, urbanisation and housing.

Redistribution of land to the landless in India, in the 1950s and 1970s, through the imposition of ceiling on agricultural land holdings was not significant as the land so distributed did not exceed two per cent of the total area owned; even this meagre land was of low quality and marginal. However, a major contribution of ceiling on agricultural land holdings has been to prevent the concentration of land holdings in the hands of a few large land owners and agri-business corporations.

 Similarly, water resources are becoming increasingly scarce for agriculture on account of the rising demand for non-farm uses. All this underscores the importance of the total factor productivity (TFP) or productivity of all the inputs combined, for example, land, labour and capital, as a predominant source of agriculture growth in future.

The younger and educated labour force is leaving agriculture depriving this sector of the possible demographic dividend or the productivity advantage arising from the lower average age of the labour force.

The resulting feminisation and ageing of the agricultural labour force necessitates better extension services to improve the skill and knowledge base of the farmers.

Agriculture is becoming capital-intensive and risk-prone due to increasing diversification of agriculture at a time when the ‘credit-worthiness’ of farmers, as traditionally under-stood, is declining on account of their shrinking land base. There is a technology fatigue leading to sharp deceleration in the Total Factor Productivity growth in agriculture during the Ninth and Tenth Plan periods, and only a modest recovery during the Eleventh Plan period.

Greater market uncertainties are emerging: Farmers are suffering significant losses of perishable output like vegetables and fruits due to insufficient storage facilities. Price uncertainty is increasing, because with increasing diversifi-cation of agriculture the Minimum Support Prices fixed by the government effectively leave out the prices of a large proportion of high value output, to be determined by the market forces.

Inclusive Agricultural Growth

Inclusiveness in agricultural growth is determined by the economic organisation of agriculture for small and marginal farmers, that is, their access to land, capital, technology, modern marketing or pricing systems and institutions to cope with yield and price uncertainties.

In view of the existing ceiling on agricultural land holdings, rising income inequalities in the Indian economy in the recent period are attributable mainly to rising rural-urban disparities, and rising intra-urban inequalities in income and not so much to income inequalities within agriculture.

 Since the size of the labour force dependent on agriculture in India is going be quite high for the next few decades, the existing ceiling on agricultural land holdings needs to be continued for preventing the concentration of agricultural

land into a few large holdings or agri-corporations. This is a necessary pre-condition for ensuring inclusiveness in agriculture growth, especially because there is no evidence as yet, that small farmers cannot raise the Total Factor Productivity in agriculture as effectively as large farmers, when adequate public support systems are in place.

However, given the existing ceiling on owner-ship holdings, tenancy needs to be liberalised so that those wanting to leave agriculture—whether large or small land owners—are free to lease out their land without fear of losing their ownership. This would enable those choosing to remain in agriculture to become viable by enlarging their operational holdings, provided tenants have adequate access to institutional credit through the loan eligibility cards issued to them, as recommended by the Koneri Ranga Rao Committee for Andhra Pradesh in 2004.

 It is clear from the Report of this Committee that a promising source for strengthening the land base of the most marginalised groups like the tribal population is to restore to them land illegally alienated from them—it was estimated to be as high as 50 per cent of their land in Andhra Pradesh. According to the Committee, if alienation of land continues at the present rate, tribals would soon become landless.

Under such conducive land relations, high agricultural growth by itself can contribute to inclusiveness through the rise in rural employ-ment and wages and incomes of the small and marginal farmers. This explains why in India the phases of high agricultural growth have been associated with significant reduction in rural poverty.

Yet, there is considerable unexploited potential for more effective participation of the lagging regions like dry land areas and small holders in agricultural growth for achieving greater inclusiveness and thus strengthening food and nutritional security.

In the present phase of high investment under greater uncertainty and risk, there is a need for much greater role of the government than in the Green Revolution days for the provision of irrigation, research and extension, institutional credit, and marketing infrastructure. As the Twelfth Plan document admits, public invest-ment in irrigation during the Eleventh Plan period, that would have benefited all classes of farmers, fell considerably short of the targets: the public investment target of four per cent of the agricultural GDP was not achieved. There is also a considerable shortfall in the outlay on agricultural research and extension which now stands at 0.7 per cent of the agricultural GDP as against one per cent recommended by the ICAR 20 years ago and a high figure of nearly two per cent for China.

 But stepping up public investment alone is not enough. Public support needs to be supplemented in a major way by the increasing participation of the organised private sector like agro-processing firms and organised retail for the provision of these services including insurance to the farmers with appropriate regulations by the government. Such partici-pation by the private sector would contribute not only to strengthening the resource position and knowledge base of farmers but would also create an environment of greater certainty in regard to prices and yields.

However, to be able to deal with the organised private sector on favourable terms, the small farmers need to be organised into cooperatives or groups for specific purposes, especially for marketing and insurance. Hopefully, the high profitability of collective endeavour in the ensuing phase of agricultural development will provide enough incentives for small and marginal farmers to organise themselves into such groups.

Food Security: The Issue of Direct Cash Transfers versus Public Distribution of Foodgrains (PDS)

The avowed objectives of the PDS are three-fold: first, to provide implicit income support to the beneficiaries to the extent of the difference between the PDS price and market price; second, to ensure sufficient availability of foodgrains in periods of scarcity, particularly in the remote areas; and third—rarely brought in the present debate but, nevertheless, crucial for ensuring nutritional security—to alter the relative prices in favour of foodgrains for the poor consumers so that they may end up by consuming more foodgrains than they would if they have to buy the whole of their requirements at free market prices.

 Direct cash payments to the beneficiaries in lieu of price subsidy can, at best, meet the first objective of income support. Even this is doubtful in periods of inflation because of the need to keep track of the rising market prices for fully compensating the consumers. Besides, there is the well-acknowledged difficulty of such compen-sations reaching the women who run the household. Availability of foodgrains in the market on private account in sufficient quantity in periods of scarcity, especially in the remote areas, is highly problematic. The third objective—perhaps the most important one—of ensuring nutritional security through the substitution effect by making foodgrains cheaper, cannot be met through direct cash payments.

 However, direct cash payments in the case of subsidy on fertiliser like urea may be desirable, as the resulting higher market price may discourage its excessive use.

Social Inclusion—The Present Status

The incidence of poverty has been most pronounced among the SCs, STs, and Muslims. According to the India Human Development Report 2011, the SCs, STs and Muslims suffer the most on account of their poor health status: the most striking shortcoming of our public health system has been the failure to reach out to the bottom of the pyramid, to the 300 million people who are often excluded.

The problem of illiteracy in both rural and urban areas was most pronounced among the SCs, STs, and Muslims, and relatively more pronounced among females. The Report points out that the combination of low public expenditure on both health and education has had serious, long-lasting adverse consequences for India’s human development levels, and suggests that establishing publicly funded educational institutions alone can ensure greater participation from among the educationally disadvantaged communities.

Some Recent Developments

However, of late, there are certain encouraging developments in regard to social inclusion—a ray of hope, so to say—pointing to the possible factors responsible for such favourable outcomes and the direction in which policies can be focused for accelerating the desirable changes.

One good news, according to the Human Development Report 2011, is that all the three groups, that is, the SCs, STs, and Muslims have been converging towards the national average in terms of literacy rate. Health indicators for the these marginalised groups are also converging with the national average, although in absolute terms, the overall situation continues to be worrisome. Over the same period, that is, between 2004-05 and 2009-10, the unemployment rate among the workers belonging to these three groups declined in both rural and urban areas. Poverty has declined for these groups at an accelerated rate between 2004-05 and 2009-10—which is higher than the overall or average annual rate of decline.

Basing on the data from the same source, which covers a decade beyond what was captured in the Sachar Committee Report, the gaps between Muslims and the national average on most human development outcomes are narrowing, reflecting their improving condition.

These encouraging developments should not come as a surprise. The year 2004 was a watershed after 15 years of economic reforms when the government at the Centre made an explicit commitment, for the first time, to implementing economic reforms with a human face. Among many policy initiatives taken in the social sector, two major ones are the Mahatma Gandhi National Rural Employment Guarantee Programme and the Programme for the Welfare of Minorities. On all accounts, these two programmes had a distinctly better impact.

 At the State level, according to the HDR 2011, “the experience of Kerala and Tamil Nadu demonstrate that the ‘destiny’ of population can be changed through appropriate policies that address the needs of the marginalised communities. The analysis makes a strong argument for all State governments to act as agents of change to make the development process truly inclusive.” It may be noted that in both Kerala and Tamil Nadu the system of Public Distribution of Foodgrains has been functioning successfully. These States also ensure better accountability of programme performance through the Panchayati Raj Institutions.

Governance 

The observations on governance in the Twelfth Plan document are worth mentioning as they are based on an in-depth analysis of past performance: ”The experience with Plan programmes has clearly established the central role of a socially mobilised and aware community as a decisive determinant of success.... The States that have emphasised the role played by social mobilisation and have made specific financial and human resource provisions have, invariably, succeeded. It is the participation of users in planning, implementation and social audit of these programmes that has proved critical to their success.”

But the basic issue is a political one of ensuring much quicker response of our democratic system to the needs and aspirations of the poorer and marginalised sections of society. The shift in policy towards economic reforms with a human face and the strategy of inclusive growth adopted in the Eleventh and Twelfth Plans did represent the response of our democratic system to the growing discontent among the poorer sections. But the pace of change has been too slow, halting and even retrogressive sometimes because of the resistance from the vested interests.

The author is the Chancellor, University of Hyderabad, and an Honorary Professor, Centre for Economic and Social Studies, Hyderabad.