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Sleeping elephants, charging dragons

By Sunil Jain.
March 31, 2003 12:56 IST
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Almost as you read this column, actually a month ago if you want to be very precise, the Chinese government unleashed the third wave of agricultural reforms -- from the first of March, all farmers have been given firm 30-year leases on the land they are currently tilling, and they are also free to transfer these to third parties.

In other words, with the land now firmly theirs, farmers will now invest a lot more in the land they've been tilling all these years. And if they don't want to till the land, they can even lease it out to firms like Cargil and Pepsi who typically look for large tracts of land to operate on.

So what's the big deal, you might be tempted to ask, Indian farmers have always owned the land they till, and all that China's doing is to reach where we already are.

That is true, but only partially so. It is true that unlike China where the land is owned by the village (even now, it's the right to lease for 30 years that has been granted, not the land itself), farmers in India own the land.

Yet, the Indian farmer is not free to legally lease this land out to others. So, while around a third of land is cultivated today by tenant-farmers, these farmers have no firm rights -- they can be tilling the land today, and they can be thrown out tomorrow.

Understandably enough, the level of investment made by farmers on their land is quite low, and that in turn, means low productivity.

To understand the impact of this fully, it's important for us to travel back to China of the 1950s, when all land was collectivised, and former owners of the land were all forced to cultivate the land for the benefit of the village -- the grain thus got was divided among everyone.

In 1978, the government decided to privatise cultivation -- the land was still owned by the village, but farmers were free to sell their produce at market prices, though after selling a certain part of it to state-owned procurement agencies.

Over the years, even this was relaxed, and today there are virtually no restrictions on the sale of farm output. In free India, by contrast, farmers producing wheat in Haryana cannot take it across the border to sell it in the mandis of Punjab!

Equally interesting, while China had the same kind of subsidies that India has today, most were eliminated by the early 90s. Today, Chinese farmers pay market prices for the water and electricity they consume, and the fertilisers and other inputs they buy.

And while China has import quotas for items like wheat, rice, corn and cotton, the quotas are generally 2-3 times the level of actual imports -- in other words, imports of farm produce is virtually free in China. For these 'in quota' imports, the import duty is just 1-2 per cent.

In which case, the farm sector in China has probably been completely eliminated, right? Wrong. From 1978, when Indian and Chinese agriculture were at roughly the same levels in terms of production, China's output is today more than double that of India -- clearly the freedom to sell output in a free market (as in China) is a better incentive than getting subsidised inputs (as in India).

In 1978, when China's rural reforms began, rural poverty levels in India were around 50 per cent versus around 32 per cent in China. In 1998, India's rural poverty levels had fallen to around 36 per cent while China's had plummeted to 5 per cent. Figure out for yourself which policy was better.

According to Shenggen Fen, Senior Research Fellow at the International Food Policy Research Institute, Washington, rural reforms of the sort just described accounted for more than 60 per cent of the production growth between 1978 to 1984, which is when the main reforms took place. Between 1984 and 1997, the reforms slowed down, but still contributed around a third of the productivity growth.

Equally interesting is analyses done by Fen for both India and China, in terms of where public investment is most effective. His analyses, unsurprisingly, shows the same type of results for both countries -- government-run anti-poverty programmes have among the least impact on either increasing production or reducing the number of poor.

In India, according to Fen, one rupee spent on anti-poverty programmes results in rural income going up by Re 1.09, yet if the same rupee is spent on increased R&D in farm practices, rural income goes up by as much as Rs 13.45 -- even spending a rupee on rural roads is more effective than anti-poverty programmes, as this raises rural incomes by Rs 5.31.

Roads and R&D, similarly, are 5-7 times more effective in reducing poverty than anti-poverty programmes. While the specific results are different for China -- education is the best policy for removing rural poverty in China, but the third-best in India after roads and R&D -- the broad results are similar.

While the Chinese government appears to be moving in the right direction, India's yet to get away from its obsession with anti-poverty programmes. In which case, Chinese exports of rice to India may be the next huge threat, after its toys and batteries.

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