Prem Shankar Jha

The new recruitment scheme will slowly change the character of the army and also provide well-trained ‘non-state actors’ to further the political agenda of the ruling Parivar.

PM Narendra Modi. In the background is a train anti-Agnipath protesters set on fire. Photos: PTI and Reuters

In eight years as prime minister, Narendra Modi has made surprise his favoured tool for reinforcing his hold on power. He did this in September 2020 with the farm law amendments. With Agnipath, he has done it again. Its government claims that it is a “transformative military reform”. Supporters say it had become necessary to limit skyrocketing pension liabilities that were preventing the acquisition of modern weaponry. BJP leaders also claim that the 75% of Agniveers who are discharged will return to civilian life imbued with discipline and a sense of national purpose. The country will gain from this. 

If that is so, then why has it been met with a storm of protest? Why are the youth of the country, whom it is supposed to benefit, its main opponents? Why is the protest most fierce, and sustained in, Bihar, UP, Madhya Pradesh, Haryana, and Rajasthan? Are these not precisely the states in which the BJP is in power, or has established a firm presence in the past seven years? 

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In the face of a surplus of cereals and ever-dwindling prices as a consequence, farmers with small and medium sized land holdings have tried to shift to the cultivation of perishable fruits and vegetables. Their incomes, however, are still hamstrung by a lack of rural cold storage facilities in the country.

The Farmers Have Won an Epic Battle, But the Real War Lies Ahead
Farmers return to their homes after their year-long agitation against the contentious farm reform laws, at Dhareri Jatta Toll Plaza in Patiala, Saturday, Dec. 11, 2021. Farmers have called off their agitation after receiving a formal letter from the Centre on Thursday agreeing to their pending demands. Photo: PTI

The farmers of India have won an epic victory. For 15 months, they braved the biting cold, cruel heat, misrepresentation, calumny, assault by the police and the ever-present threat of COVID-19 to wage the most disciplined and peaceful protest against government policy that this country – or for that matter any other democracy – has ever seen. More than 500 of them have lost their lives over this period to natural and man-made causes, but they have prevailed. 

This is not their victory alone; it is a victory for Indian democracy as well, for the most difficult decision that any democratic government faces is to admit that it has made a serious mistake. This is something that Prime Minister Narendra Modi has never, done. The repeal of the farm laws is therefore a first step back for him. His courage – and that of the advisers who persuaded him to take the decision – needs to be acknowledged. 

But winning a battle is not the same as winning a war. The war the farmers of India still have to fight is against the deepening crisis that grips agriculture and continues to endanger their future. This is born not out of shortages, be it of food or inputs, but of mounting surpluses of produce. It is, therefore, a crisis of overproduction, not of under-distribution.

How has this paradox occurred in a country otherwise besieged by shortages of everything else?  The short answer is: it is the unintended product of incorrect policy choices and policy failures in virtually every other sector of the economy. These have resulted in slow GDP growth, averaging just over 5% since 1951 and a highly capital-intensive industrialisation that has created very few permanent jobs and woefully few casual ones. 

Slow job creation has prevented the rural population from moving off the land, as happened during the industrialisation of Europe and the USA and, more recently, that of East and South-East Asia. Farm families have therefore been forced to live off ever-shrinking land holdings by cultivating them more intensively. It is their Herculean efforts, aided by the Green Revolution in cereals, that has created the agricultural economy of surpluses that Modi tried to ‘reform’. The measure of their success is that India today is the world’s largest exporter of rice and sugar and the second largest exporter of onions, potatoes and dairy products. 

A vendor sorts potatoes, at wholesale fruit and vegetable market in Prayagraj, October 27, 2020. Photo: PTI.

The Modi government’s motives for hurriedly passing the three farm bills last year have been condemned by farmers’ leaders  and civil society members as being a pretext for handing over this huge export bonanza to some of his favourite businessmen, who have made no secret of their interest in entering the field of agro-marketing.  Had the Bills gone through, the capture of the Indian agro-market by a handful of large companies would have been the inevitable consequence of the so-called reforms, not their purpose. 

The official purpose of the Bills was to find a way of halting the ever-rising surpluses of cereals which the government can neither dispose of, nor find a use for any longer. It was based upon recommendations, possibly drawn up in haste, by two standing committees of Parliament in 2017 and 2018; and the recommendations of neoliberal economic advisers for whom The Market is a panacea for all economic diseases, second only to God. 

Few of the policy makers who crafted the three Bills realised that the farmers not only understood their predicament but had begun trying to get out of the ‘cereals trap’ almost four decades ago. As a result, the area under cultivation for wheat and rice had first stalled as long back as the early eighties and had then begun to shrink. The first cash crops they turned to were non-perishables, notably sugarcane and cotton. But by the early nineties, farmers with small and marginal holdings but also large families and, therefore, an abundant supply of free family labour, had begun to shift to the cultivation of perishables, notably of vegetables. They were doing so because horticulture, especially vegetable farming, payed more generously. 

Manmohan Singh’s UPA government recognised this and set up a National Horticulture Mission in 2006, tasked with creating infrastructure for storing and marketing fruits and vegetables. Under its aegis, thousands of cold storages were built and a vibrant national and international market was developed for India’s fruit and vegetables. 

By March 2019, there were an estimated 7,645 large cold stores with a total refrigerated space of 150 million cubic metres in the country, capable of storing  37-39 million tonnes of perishable produce. But all of these were in towns and cities. Punjab, for instance, had 379 cold storages in 2018, but not a single one in a village. Other states are no different. 

As a result, all the benefits from the development of this infrastructure have been going to the traders and cold storage owners who bought and stored the fruit and vegetables. The horticulturalists, nearly all of whom were small and marginal farmers, found themselves in exactly the same plight as before: they had to sell all of their produce within days of its ripening, at whatever price the traders were prepared to pay. 

Lack of cold storage facilities has also made it difficult for farmers to sell their apple and pear harvests. Photo: Athar Parvaiz

Data on the wholesale prices of onions, potatoes and tomatoes, published annually by the Indian Ministry of Agriculture, shows that these prices are lowest from January to April every year – when the vegetables ripen – and rise progressively through the summer until they peak, in October and November. Without cold stores, farmers have to sell their crop as soon as it ripens, between  January and April. A study of revenues and costs for potatoes and tomatoes based on a sample survey conducted in 66 clusters of villages in Punjab found that the average price farmers obtained for their potatoes in 2015-16 was Rs. 4.77 per kg. 

This gap gets wider as the produce becomes more perishable. The agriculture ministry’s surveys of horticulture in 2019 showed that over the six years from 2014 to 2019, farmers had seldom received  more than  Rs.4-5 per kg of potatoes and onions and Rs 6-8 per kg of tomatoes. But by the end of the summer, tomatoes were selling in urban markets for more than Rs 60 per kilo. 

In the average Punjabi village, cereal farmers grow 9 tonnes of wheat and rice per hectare and sell it to the Food Corporation of India (FCI) for Rs 1,62,000. In the same village, vegetable farmers, who usually own about a quarter of the land that cereal farmers own, grow 19.93 tonnes of vegetables per hectare of land but seldom receive even Rs 1,00,000 (gross) for their produce. 

That is why, not just in Punjab but all over India, vegetable growing remains the preserve of small and marginal farmers. Cereal farmers who would like to shift out of rice and wheat look at the plight of their poorer neighbours, shudder and buy more fertilisers to sustain their rice and wheat output, clinging even more desperately to the MSP system. 

Stubble burning is a popular practice for getting rid of residues of the rice crop to prepare the land for the sowing of wheat, exacerbated by the emphasis placed on cereal production. Photo: Flickr/2011CIAT/NeilPalmer CC BY-SA 2.0.

The true solution to the crisis of agriculture is the establishment of a cold stores in every village. But cold stores need uninterrupted, stable voltage power and in the last 75 years of supposed economic development, 17 successive Union and state governments have failed to provide this to any, let alone every, village in the country. 

More than six decades of rural electrification have provided villages with an average of 14-16 hours of power supply in a day. But even this is with fluctuating voltages as well as frequent interruptions and break downs. One virtually unnoticed consequence of this has been that there is not a single grid-linked cold storage in any village in India. 

This is despite the fact that the solution has been staring us in the face for the past two decades, if not longer. It is to set up a small, 5-10 tonnes-a-day biomass gasifiers in every village (or cluster of two to three villages),  gasify the rice and wheat straw that farmers are now burning to clear their fields  in simple, air-blown gasifiers and use the lean fuel gas this yields to run a back-up generator for the power supply to the cold store. 

Cold stores in the villages are the key to a second Green Revolution that could be far more powerful than the first. By endowing farmers with the power to determine the supply of fruits and vegetables to Mandis, they will double the earnings of potato and onion growers and treble (or more) those of the more perishable produce, such as tomatoes, peas, mushrooms, spinach, salads, and okra (bhindi) and fruits such as mangoes, lychees, guavas and melons .  

What’s more, horticulturalists will not be the only beneficiaries. Biochar (the other product of crop residue gasification) is 80-90% pure, sulphur-free, carbon. It can, therefore, not only replace imported coking coal with a non-fossil fuel in the steel industry, but also replace imported oil as the primary energy source for the production of transport fuels, as Germany did during World War II and South Africa did when trade sanctions were imposed upon it in 1986 to force it to end Apartheid. 

In the 1990s, The Energy and Resources Institute (TERI) – then known as the Tata Energy Research Institute – had developed a simple gasifier, complete with its straw-feeding and gas cleaning systems, for less than Rs 12 lakh. But the Union and state governments never even came to know of it. With no demand from agriculture, a few thousand of these got made and were sold to small and medium scale manufacturers of dried fruit and puffed cereals in the food processing industry. 

Last year, TERI unveiled a more sophisticated – and only slightly more expensive – two-stage gasifier in a village in Odisha, which can gasify not only straw and other crop residues, but also the carbon-rich sludge that is left behind by biogas plants. But once again, no one has thought of linking this to a cold storage to transform the future of rural India. 

Last year, the Modi government drew worldwide criticism when it announced that it would set up four large coals gasification plants by 2030 to produce coal gas from 100 million tonnes of coal as a replacement for the natural gas and Liquified Petroleum Gas (LPG) being imported today. These plants will work far better on cleaned biochar. Moreover, the government has sanctioned the  establishment of nine such plants to produce transport fuels from coal. Not only will these work much more efficiently with biochar briquettes, they will eliminate CO2 emissions and generate vast amounts of regular, salaried employment in rural areas, where it is needed most. 

The Bharatiya Kisan Union has achieved its immediate purpose and staved off disaster but it should now use the bonds it has forged within India’s vast community of farmers to promote policies  and technologies that will enable farmers to break out of the cereals trap on their own and in their own time. Biomass gasification is the most promising of these policies. But as described above, there is a wealth of others to choose from.

Prem Shankar Jha is a senior journalist and former editor. He is the author of Dawn of the Solar Age: an End to Global Warming and Fear (Sage 2017) and is currently a visiting fellow at the Centre for Environment Studies, School of Engineering and Applied Sciences, Harvard University.   

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Last month the RBI  governor Raghuram Rajan  defended his decision not to cut interest rates by saying “ It is not the RBI’s business to deliver booster shots to the stock market so that stock markets can soar for a short while, only to collapse when reality hits….What is important for us is sustained low inflation…the RBI will have no hesitation in delivering once we are assured of the low inflation”.  At the time when he said this wholesale price inflation was minus 4.1 percent; primary product inflation was minus 3.7 percent, fuel and power was minus  12.8 percent and manufactures minus  1.5 percent.   So what inflation measure was Rajan talking about?  The answer is the cost of living index.

But  chief economic adviser Arvind Subramanian pointed out in an article in the Indian Express as long ago as  June 12, that  this is the only index he should avoid  using, because its stickiness, and the widening gap between it and all other measures of inflation,  makes it suspect.   Subramanian had written  that pegging policy interest rates  to the cost of living made sense in “normal times”, but not in ‘unusual times’. ‘From the context it was clear that by normal times he meant those that had  existed till 2007, when the CPI., although much more volatile than the WPI, had traced the same long term path.

Times became ‘unusual’ after  2007.  Except for a few months  at the bottom of the global recession in 2010-11, the gap between CPI and WPI has widened steadily from 3 percent in 2010 to an  unprecedented 8 percent in August.  What is more this has happened inspite of the RBI using every monetary instrument to squeeze demand  and force prices down. The only conclusion one can draw  is that whatever is keeping the CPI inflation up, it is not an excess of demand.

If not demand then what is it measuring? There is only one remaining candidate: shortages of supply. The association of inflation with excess demand is so hard-wired into our thinking that it is often hard to remember that inflation can also be caused by  shortages in  supply. The idea of politically inspired, artificially engineered, shortages that last for long periods, is alien to economists’ thinking because it comes from the dangerous realm of political economy.  But once we open ourselves to this possibility it does not take long to see that it is, indeed, the reason why the behaviour of the CPI has changed so radically.

Foodgrain and cash crop prices ( hich account for more than 40 percent of the CPI) have become progressively less sensitive to  demand because   state governments  are setting minimum support prices for  more and more commodities. Today there are procurement , or minimum support, prices for more than 20 groups of food and cash crops, and the central and state governments have been raising these by  five  to seven  percent every year for more than a decade.

The rise in price of urban housing, which  accounts for 9.77 percent of the index,  is  almost entirely accounted for by the  growing shortage of urban land.  Tariffs on  transport, fuel and lighting, which   account for  another  17.1 percent, rose sharply  because of a  revival  of international oil prices till mid-2014,  a 40 percent fall in the value of the rupee after 2011;  a simultaneous removal of subsidies on diesel, gasoline and LPG, and a growing reliance on coal, imported  at four times the domestic price, for power generation.  All these are cost push factors that get  translated into an increase in the cost of living  through  administered changes in price.

Health and education make up another  9.04 percent. The cost of the former has risen because of drug price decontrol – another administered price change  — and because of a growing reliance on private health  services. The rise in the latter reflects the final collapse of the public schooling system.

In sum , whatever the  cost of living index may signify  in  countries where more than half of the population lives on pensions,   in  India it is an index not of excess demand but of the  failures of past governments. To use these  as a yardstick of inflation and curb industry  is to destroy India’s future and administer the kiss of death to its poor.

The right policy is not to leave   interest rates solely to politicians but link them to a measure that has been purged of all pressures caused by administered prices and  shortages of supply. The only one in India  that fully does this is   CRISIL’s Core  rate of Inflation Index (the CCII) .

The CCII is derived from the RBI’s Non-Food Manufactures Index (NFME) but excludes oil and metals because their prices are heavily influenced by global price trends. But it also  includes manufactured foods and beverages, which the NFME excludes. This measure of inflation has stayed close to the wholesale prices index, but is far more stable. In September 2014 when the fall in oil prices had just begun to bring down all indices of inflation, the RBI’s NFME fell to 2.8 percent and the wholesale price index to 2.38 percent, CCII index will not have fallen as much as the WPI but is almost certainly also showing deflation. Today, India desperately needs investment in infrastructure, and therefore the lowest possible long term interest rates. With the CCII at a long term rate of at most two percent thus there is not an iota of economic logic for keeping bank lending rates at 12 percent.

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Four months ago Narendra Modi rode to power on a promise to revive the Indian economy and restore to the people of India the future they had lost. But tendrils of doubt had begun to surface well before he completed his first hundred days in office. In the last week these have hardened into certainty.

In normal circumstances four months would have been too soon start judging the performance of a new government. But the BJP came to power in a moment of crisis on a huge wave of anger against the UPA government. Economic growth had crashed, industrial production was contracting, and almost no new jobs had been created since 2008, leaving an estimated 40 million new job seekers stranded. None of those who voted for Modi had expected an instant miracle, but they had expected the new government to unveil a credible, well worked out plan to revive the economy.

They didn’t get one. There was no hint of any change in the macro-economic policies that the UPA had followed in Finance minister Jaitley’s budget speech and there was none in Mr. Modi’s Independence Day speech. Instead as the government’s 100th day approached it’s spokespersons plucked at straws to showcase its success – a 3.9 percent growth in Industry and, on its back, a one percent rise in GDP growth from 4.7 to 5.7 percent. July’s data for industrial production pricked this balloon. Not only had year-on-year industrial growth fallen to 0.5 percent and manufacturing contracted, but the 3.9 percent growth in the first quarter turned out to be a statistical illusion. To those on the ground for whom nothing had changed, this began to look like proof that nothing would change in the near future.

The policy change needed to restart growth is a simultaneous, very sharp lowering of interest rates and a firm containment of the fiscal deficit. The interest cut will revive consumer spending, especially on durables, start a rise in share prices, and bring down the cost of new investment. If synchronized with a reduction of the fiscal deficit it will bring about a non-inflationary transfer of resources from government consumption to corporate investment.

The time for making this shift of policy could not be more opportune. The balance of payments deficit has been brought down from an unsustainable 4.7 percent of GDP in 2012-13 to a healthy 0.8 percent in the last nine months of 2013-14. Exports are growing at 10.2 percent, and engineering goods exports at 22 percent. Foreign exchange reserves have crept up in the past 12 months from $ 279 billion to $ 320 billion. The threat that a sudden rise in investment and consumption will trigger a foreign exchange crisis has therefore receded. In his budget Mr. Jaitley made a determined bid to contain the fiscal deficit by increasing tax collections, and announcing plans to improve delivery and save money. But he made no mention of interest rates. His budget announcement therefore became a bird with a broken wing.
One has only to look as far as the Reserve Bank of India to see why. In his latest Policy Review the RBI governor, Raghuram Rajan, again did not lower interest rates, even by a fraction. Instead as one justification for keeping them high has dissolved, he has hurriedly replaced it with another. Today the wholesale price inflation is at a five year low of 3.7 percent, and consumer price inflation has fallen to 7.8 percent, but commercial bank lending rates (including bank charges) remain at 13 to 14 percent even for financially sound companies. This gives a real rate of interest for manufacturers of 10 percent — a figure unheard of in mature market economies even in good times and suicidal in times of recession. Even by the yardstick of CPI inflation the real rate is over five percent, a rate at which investment is not possible. Is it surprising then that bank lending has grown by less than ten percent this year against 23 percent five years ago; that there have been only six new share issues so far in 2014, against an average of 110 in the same nine months of 2006 and 2007, and that the sales of all consumer durables, from autos to TVs, computers and office equipment has fallen by eight to fourty percent in the last one year?

In his 14 months at the RBI, Rajan has not mentioned economic growth. This may be kosher in the West, which does not strictly need growth. It is not kosher in India, where people have to earn something before they can start worrying about how much their money will buy.

Prime Minister Modi has promised to give India world class roads and ports, high speed trains ‘smart’ cities, rural electrification and water supply. These are all infrastructure projects, and infrastructure devours capital. In the best planned and executed projects the ‘bare’ construction period, when the money has actually to be spent, stretches from five to 12 years. Where will Mr. Modi find Indian entrepreneurs willing to take up such projects when interest charges alone can add 25 to 100 percent to his costs?

The answer, of course, is nowhere. So Raghuram Rajan must give up his obsession with inflation, and his attempt to fight it single-handed by choking India’s economic growth, or he must leave. If the Modi government cannot persuade him, and has not the courage to fire him, then the people will fire it at the next elections.

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After pushing up interest rates yet again by another quarter percent our flamboyant governor of the Reserve Bank, Raghuram Rajan said, “ we are vigilant owls , not hawks or doves”. Owls he pointed out were wise. The RBI, by which he meant himself, was doing what was necessary for the economy. This was to control inflation. When asked whether the hike would not further impair economic growth he said “ the juxtaposition of growth and inflation is not correct …. Higher levels of inflation cut into household budgets and constrict the purchasing power of individuals. This discourages investment and weakens growth. Therefore inflation has to be brought down first, in order to create the environment for growth”.
Rajan’s reasoning has so many flaws that one does not know where to start pointing these out. Inflation does constrict consumption as he claims, but only if the consumers’ money income remains unchanged. Rajan therefore starts by assuming that purchasing power in the economy will remain static. This means that he starts by assuming that there will be no growth in the economy. Since high interest rates reduce consumer spending on durables and Capital expenditure, they inevitably slow down growth. Raising interest rates to curb inflation therefore automatically ensures that consumers’ money incomes will remain unchanged. This turns Rajan’s policy into a self fulfilling prophecy.
The truth is that it is the RBI’s policy since March 2010 of ‘targeting inflation’ without regard for growth that has created the conditions that are ‘constricting the purchasing power of individuals’. That is why industrial growth has turned negative in the past seven months after having been nearly static during the previous two years.
The most Rajan should have claimed was that price stability creates a better environment for sustained industrial growth and that he was prepared to sacrifice short term but unsustainable growth for long term, sustainable growth. But to be valid, this argument needed to show that high interest rates were indeed curbing inflation. But data for the last seven, and not just four years show that raising interest rates has had absolutely zero effect on prices. In fact for the entire period inflation and interest rates have moved in the same direction! So all that Rajan is doing now is to put the gloss of academic jargon on a policy that has failed since January 2007 !
But just suppose , for the moment , that he might prove right this time – that conditions now exist in which high interest rates can indeed bring down consumer cost of living. Then why has Dr Manmohan Singh set up the 7th pay commission exactly one week after Rajan tightened the reins on credit? For another pay commission means another Rs 100,000 crores added to the centre’s non- development expenditure and another huge surge of purchasing power in the economy two years hence. Therefore, if Dr. Rajan’s reasoning is right, to another jump in consumer price inflation.
The havoc that former pay commissions have wreaked on the Indian economy has been documented over and over again. The fifth Pay commission increased the combined central and state government expenditures between 1997 and 2,000 by 80 percent to the then colossal sum of Rs.133,381 crores. This wrecked the finances of the state governments and brought all maintenance expenditure , on roads power transmission lines, dams and canals to a grinding halt. The World Bank called this the single most adverse shock to the Indian economy.
When the Left front, now a UPA partner, raised the demand for a sixth pay commission in 2004 Dr. Manmohan Singh set up a committee under the cabinet secretary to study it. The committee turned down the proposal stating that the Centre might not be able to bear the additional burden. The 12th finance commission went a step further and recommended that the government should stop appointing Pay commissions every ten years.
Inspite of this Manmohan Singh succumbed to the pressure of the Left ( and populists in his own party , and appointed the 6th Pay commission. This led to another sudden jump in the country’s consolidated fiscal deficit of one percent over the 1.5 percent caused by the fifth Pay commission.
This time, undaunted by the huge fiscal deficit and the faltering of revenue growth because of industrial stagnation, Dr. Singh has announced another Pay commission, and he has not waited even 10 years to do so!
It does not take a genius to figure out why. The Congress is in a panic: every opinion poll taken so far, not to mention its disastrous showing in the December state elections, shows that it is on its way out. The more optimistic predictions suggest that it will win around a hundred seats. The setting up of yet another Pay Commission only seven and a half years after the last one is its desperate bid to woo the votes of its 80 lakh central government and public sector employees. It has done so now because in about six weeks the election code will come into operation and the time for handing out candy to the voters at the taxpayers’ expense will run out.
This raises an important question: does the left hand of government know what the right is doing? Did Rajan know when he raised interest rates last week that the government was going to announce a measure that would shortly put another 1.5 percent of GDP worth of purchasing power into the hands of its central and state employees barely two years hence. And if he did know then how, last week, could he claim with a straight face that he was raising interest rates to control inflation?
Now that Rajan knows, and since he will still be around what will he do when the Pay commission releases another flood of money into the economy,? Will he ratchet up the interest rates again and again to control “inflationary expectations” ? And when that kills industry instead of merely putting it to sleep , while continuing to push consumer prices up and, will he raise interest rates to control inflation again , and again , and again? The plain truth is that while Rajan may consider himself to bean owl, Dr. Manmohan Singh has turned him into a jackass.

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Till as recently as two years ago India was enjoying a dream rate of growth, of close to 9 percent a year. Then the bottom fell out, and it happened so suddenly the few people even now fully understand why. In my WIKI I have posted an article that appeared in “The Hindu” ( all editions) on why this happened and why the situation is far from hopeless. If you are interested, I would greatly appreciate a feedback.

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