Farm sector economics in India – 2

indian economy
Farm sector economics in India – 2

Continuing from last week………

The issue of laborers migrating from large cities and industrially developed towns to villages & towns of industrially backward UP, Bihar, Jharkhand, Chhattisgarh, etc has caught everyone’s attention in past few weeks. This migration is being widely seen as a fall out of COVID-19 induced lockdown of socio-economic activities. Indubitably, the lockdown has prompted many workers to wind up their household and move back to their home towns. But it would be a grave mistake to assume that lockdown is the only reason for the migration.

The rate of unemployment amongst migrant and other workers was rising consistently since past few years. Demonetization and GST dealt a major blow to the jobs in unorganized and MSME sector. Besides, these workers were faced with the double whammy of stagnant to declining wages and rising cost of living. To highlight my point, I would cite my favorite example again.

The rikshaw fare from the nearest metro station to my house in Delhi is stagnant at Rs20 for past 6years. The number of rikshaws has increased almost 3x while the passenger growth is less than 50%; the cost of living has risen at least by 30%. The rikshaw pullers/drivers have been forced to live in sub-human conditions.

The only lure that has kept them in the city is a better future for their children. If they are assured of MNREGA wage and city like education in their villages, they would have migrated long back. While making a strategy for farm sector growth, it is important to note the following:

(a)   The employment elasticity of growth in manufacturing, agriculture and construction sectors has been decreasing consistently. This trend shall only accelerate in future. Most of the growth shall come from higher productivity through automation, innovation and consolidation. Elimination of redundancies and economies of scale shall lead the growth effort. The number of jobs, especially unskilled and low skill jobs shall remain limited.

(b)   Implementation of a common GST, nationwide agriculture market, ecommerce, automation (AI) etc., are leading to business consolidation in a major way. This may potentially eliminate millions of unskilled and low skill jobs in next decades of or so.

(c)    The historical transition of farm workers to industry during the developing stage of growth may not work in the current Indian context. The so called developed economies have transited the labor from farm to factories, when industry and mining were still labor intensive and global competition was not much. The productivity gains were immediate and tangible. It is no longer the case. The industry in India is already capital intensive. Even traditional labor intensive industries like gems & jewellery, textile, leather, mining and construction are becoming increasingly automated to stay viable against the global competition. Emulating China model may not work in India, as our political and economic model is entirely different. Moreover, the skill and training requirement for modern industry do not allow a straight farm to factory transition. So the options get limited to unskilled construction sector jobs and building industry around farms where the skill of the farmers could be suitable employed.

While MNREGA and ambitious rural road program is taking care of unskilled construction jobs, there is little effort to take factories to farms.

The ambitious Make in India program mostly aims to substitute imports. We are trying to compete with manufacturing powerhouses like China, Vietnam, Taiwan, etc. This defies the basic principle of making economic decisions, viz., everyone should do what they can do best to optimize the resource utilization.

….to continue tomorrow

Author: Midas Finserve

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