Problem is not with the farms, it’s in the cities around them

Illusions & Delusions

Debates on agriculture have become commonplace. Various forms of commentaries or advisories on what farmers and policymakers ought to or ought not to do have become fashionable. Rarely is it asked whether Indian agriculture could be suffering not because of farmers’ inefficiencies but more because of what is happening or not happening outside the framework of agriculture.

India has the largest arable land in acreage and is also one of the top 3 countries in production. China leads. India and the US interchange ranks in several items. India is the second-largest (after China) producer of horticulture products, as also wheat and rice. Its annual growth in the last two decades, witnessed in terms of output and yields and value realisation, as per the World Bank (FAO) database, has been better than that of the US, China and other peer countries, implying that Indian agriculture has shown better relative improvement to its own past than its competitors.

The primary reason for this is that our policymakers, noting the productivity gap between India and the US and China, have consistently been implementing a mix of supply-side/demand-side interventions. As a consequence, bank credit usage has gone up 20 times or 80% faster than value growth. India now not only has an above-world average fertilizer use intensity but also uses almost double the agricultural water used by the US/China. The procurement prices are now also often higher than world market prices. Yet, the sense of distress amongst the farmers has increased instead of decreasing over the period. We need to understand why this is happening.

The simplest way to do this is to compare our system with that of the US and China. Traditionally, they are held to be different -- one is a communist dictatorship and the other a capitalist democracy. Yet, there are also similarities between China and the US.

If we examine the two antagonists carefully, a common feature is urbanisation; in particular, the type of urbanisation. The US has one of the highest urbanisation levels at about 80%. Its growth model has been constructed around some 250 cities which account for about 80% of its GDP. China, under Deng, basically copied the US model, but still lags, having touched an urban density of about 60%. It is focused on developing over 600-700 cities.

The Indian Urbanisation index was 28.53% in the 2001 census and rose to 34% by 2017, according to the World Bank. Interestingly, Indian horticulture output has also more than doubled in these last two decades.

The problem that India faces is thus unique. Unlike the US and China, India never focused, barring the early planning years, on using urban development as a tool of economic progress. The authorities preferred micro-management in a variety of other things as their main raison d’etre. As a result, not only is the Indian urbanisation index low, but it is also not growing as fast as it could. As a result, the absolute number of persons dependent on agriculture keeps rising, rather than falling as in other countries.

Additionally, the number of well-designed Indian cities are much fewer in number. Precise numbers are not readily available as this aspect of widespread high-quality urban development driving national progress is not as important in India. While the national and state capitals will undoubtedly figure in this list, it is anybody’s guess how many more cities can be added to it – 30, 40, 50? The residual urban centres are not much different from the ‘mofussil’ areas. The phrase ‘shabby urbanisation’ is often used for India. Why is it important?

A larger number of well-developed urban centres means that many more farms become closer to demand centres. Logistical efficiency improves. They thus get better prices. Also, most agricultural specialists (just like other professionals) prefer to live in cities due to living quality benefits. The extension support in nearby areas is thus better. Farm productivity is thus higher. To examine validity, a reader can compare farmland prices/farm productivity in the vicinity of Bengaluru or Delhi or any capital city, with those located further away. Interestingly, horticulture productivity in Tamil Nadu, with its near 50% urbanisation index, is close to US levels. Maharashtra, Gujarat and Kerala and other southern states have higher horticultural productivity compared to other parts of India but also higher urbanisation indices.

It could be argued as a contra, that cereal (wheat and rice) productivity in North India is better aligned to global parameters while other states lag. This could be because the initial impetus for the Green Revolution and the resultant location of most of the public agricultural research institutes and agricultural universities was in North India. Interestingly, the perceived distress among North Indian farmers not situated proximate to the Union Territories of Chandigarh and Delhi is also noticeably higher.

It is therefore worth debating whether the challenges faced by Indian agriculture arise less because of intra-agriculture dynamics and more because of ‘crony urbanisation’ – of a few favourite cities. This can be corrected by focusing effort on securing widespread high-quality urbanisation in a country of over 1.3 billion people. It is entirely possible that if the reform focus shifts more toward overcoming this hidden problem of insufficient provision of public goods across the country, the national sense of agriculture wellbeing may improve faster.

(TCA Ranganathan, the former chairman of the Export Import Bank of India is a banker with a theory of everything)