The new kulaks

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Financial Express | Jun 03, 2009

Mahesh Vyas

Investment was at the core of India’s growth story in the past five years. And, investment will play a central role in the economy’s revival in the coming years again. Investment has diversified from an overemphasis on manufacturing during the mid-1990s to a more balanced distribution between manufacturing, electricity, other infrastructure and construction including real estate development.

The missing link in all this is agriculture. Lack of investments in agriculture shows in the sector being the laggard in terms of growth compared to other sectors. As a result, agriculture’s share in overall GDP has declined from 30% in 1988-89 to 16% in 2007-08. Many see this as a natural and welcome process of structural shifts in the economy. Labour and capital are used far more efficiently in industry and so a decline in agriculture is nothing to complain about.

Indian agriculture merits a better deal than this summary dismissal of sorts. Here are some reasons:

1. India is home to the second largest arable land on earth. It is second only to the US. The country is also endowed with climatic conditions that permit three crops a year in most places. No other country has this exceptional natural comparative advantage. It is up to us to exploit this advantage.

2. Today, arable land is at a premium. It is not only the source of food but is increasingly becoming the source of fuels. Arable land can provide greater opportunities for India to base its future growth on.

3. A greater focus on development of rural India, where the arable land is located, ensures a more balanced growth. Else, we are likely to be condemned to living in overcrowded cities with choking infrastructure.

Agricultural land being used for industrial purposes or for development of commercial properties, often with the government playing a coercive role in this transfer, has become a sore point in recent years. Farmers who are made to part with their land feel cheated of having got a raw deal. As opportunities compete with each other, development turns into a breeding ground for fixers and activists alike. Fixers try to work deals with governments keen to see development. Parallely, resentments turn into political movements by the opposition.

In this messy road to development, agriculture is completely out of the picture. India’s bountiful arable land, its tropical climate, its cheap labour and its vast market for farm produce are not even under discussion. We must correct this.

Agriculture should not be allowed to remain poor. The picturisation needs to change from an ill-clad, ill-fed farmer living off less than one hectare of holding to large farmlands with modern irrigation and mechanisation; from archaic mandis to modern commodity exchanges that are well integrated with financial markets. Only large modern institutions with sufficient capital and a willingness to invest in technology, land and labour upgradation can make this transition a reality. Corporatisation of agriculture is the way forward.

The kulaks have withered away as generations of division of land have rendered agriculture an unviable business proposition. The average landholding is 1.33 hectares, with 63% of the holdings averaging only 0.4 hectare. In comparison, the average landholding in Australia is 3,232 hectares.

This is an outlier. But, even the others are way ahead of India. The average landholding in Brazil is 73 hectares; in Argentina, it is 582 hectares; in the US, it is 178 hectares and in neighbouring Pakistan, it is 3.1 hectares. We are truly at the bottom of the heap. Understandably, our farm productivity is amongst the lowest in the world. Given the natural advantage we have in terms of arable land, this is a colossal waste.

Agriculture in India suffers because of a lack of organised enterprise. It needs to undergo the same transformation that the film and construction industries have been through recently. Both these industries were unorganised and were channels through which ill-gotten wealth flowed. Both are undergoing a metamorphosis now. We need companies to run agriculture business much like Adlab runs its films business and Larsen & Toubro runs its construction business.

Corporatisation of agriculture does not mean displacing labour. It is more likely to mean the better harnessing of labour with injection of capital. Capitalists of the world are cornering land in emerging markets. BusinessWeek reported recently that the UK-based Sun Biofuels secured land in Ethiopia and Mozambique for the cultivation of Jatropha, Sweden’s Skebab secured 100,000 hectares in Mozambique for biofuels. Land roughly equal to the area of Germany “is in play and at a cost of tens of billion of euros.”

Fifty million acres of land have been acquired in Africa, Russia and Ukraine. South Korea has acquired 1.7 million acres in Sudan for wheat cultivation while the UAE is acquiring 0.9 million acre in Sudan for corn, wheat and potato cultivation. Saudi Arabia is seeking 1.24 million acres and China has purchased 6.9 million acres in Congo for palm plantations.

While the world goes into an overdrive to exploit the planet’s land resources, India should quickly focus on building the institutional framework that would deploy the resources fruitfully and without the stress that gets created in the making of SEZs. We need not wait until international agencies start lecturing us on the need for “reforms” (and FDI) in agriculture.

The author heads the Centre for Monitoring Indian Economy
Original source: Financial Express
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1 Comments


  1. Natasha Chart
    04 Jun 2009

    You're seriously going to compare Indian farmers to the Kulaks, and then propose as a solution exactly the sort of industrialization that would push them off their land? The mind boggles. Perhaps the division of land there has indeed gone to far, there can be too much of a good thing. But small, diversified farms represent a better ideal of agriculture, one more able to weather the climate crisis and provide for local needs, than the export-oriented plantations of S. America. There isn't enough water left in India's aquifers to turn it into the American Midwest and you should know that. There isn't even enough water left in the aquifers of the American Midwest to sustain the current model of industrialized farming. So while I agree that farming needs to be more respected as a valuable use of land and that there need to be changes, I can't agree with your vision of what those changes need to be.

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