INDIA IN TRANSITION. Fix farm woes to power inclusive growth

Inclusive growth — also called “pro-poor” growth — has become an important idea in the development discourse in India. It has widespread support because it combines the two most important ideas in development: income growth along with a progressive (or more egalitarian) distribution. The term was first embraced in the early 2000s by the UPA-1 government under PM Manmohan Singh. It has since been taken up by the NDA government under PM Narendra Modi. But is “inclusive growth” anything more than a slogan like “Sabka Saath, Sabka Vikas?”

In light of the objective of the Government to double the income of farmers by 2022, we examined the issue of “Sabka Vikas” by analysing the National Sample Survey Organization’s Situation Assessment Survey of Farmers (2003) and Situation Assessment Survey of Agricultural Households, 2013. Because agriculture employs close to half the labour force in India, but generates the lowest per capita output (and hence is associated with the highest levels of poverty), it is clear that if there is to be inclusive growth in India, it has to begin in the agricultural sector.

If there was overall income growth between the surveys, and incomes at the bottom end of the income distribution (of small and marginal landholders) grew faster than at the higher end (of large landholders), it would be possible to conclude that inclusive growth had taken place. We looked for evidence on the inclusiveness of growth in the agricultural sector. Between 2003-13, we found evidence of overall income growth by a factor of 1.34 in real terms. However, we also found that the land-rich saw incomes grow the fastest; the -poor, the slowest. Households with over 10 hectares of land (the largest landownership class) saw their incomes double. In fact, all households with at least 1 ha of land saw their income increase by at least 1.5 times. The slowest growth of income was among the smaller landholders; marginal landholders (less than 0.4 ha) saw their incomes grow by a mere 1.1 times.

In general, the smaller the landholding class, the slower the income growth. As far as land ownership is concerned, the opposite of inclusive growth — a regressive growth — had taken place.

These differences in averages were indicative of high income inequality. We used the Gini Coefficient — a popular measure of inequality that takes a value between 0 and 1, with a value of 0 for perfect equality and higher values indicating higher levels of inequality — to measure income inequality. We found a Gini Coefficient of about 0.6 for income between 2003-13. This is expected to be an underestimate because surveys are typically unable to reach households at the very top of the income distribution.

To put it in context, if this level of income inequality were to hold for the whole nation (and it is more than likely), then it would be among the highest levels in the world. There is a serious warning here that goes well beyond the agricultural sector — income inequality in India is extremely high, far higher than the utterly misleading inequality estimates derived from expenditure surveys that range between Gini Coefficients of 0.29 to 0.38 (in rural and urban sectors, respectively). Our findings provide narrow but robust support for an emerging consensus that income inequality in India is very high.

The stagnation of incomes in a couple of States (Bihar and West Bengal) and lack of diversification of income sources in many major States speak directly to the question of inclusive growth and inequality at the sub-national level. In 2013, cultivation provided 49 per cent of the total income, and more than half the income in several important States (Punjab, Haryana, Karnataka, Telangana, Maharashtra, Assam, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, and Bihar).

While wages were important (providing 31 per cent of incomes in 2013), they had grown more slowly than income from cultivation. The least significant income source was non-farm business (8 per cent). Importantly, non-farm businesses did not provide more than 10 per cent of total income in any but three States (Kerala, West Bengal, and Tamil Nadu). The patterns we found do not square with the assertion in a recent Niti Aayogpaper that “about two third of rural income is now generated in non-agricultural activities.”

How optimistic can we be of the possibility of inclusive growth given the low levels of income from cultivation (and agriculture, in general) and the continuing fragmentation of agricultural land? From 2010-11, the average landholding size was 1.15 ha. In the 40 years that the agricultural census has been undertaken, the average landholding size has decreased by about half, and the number of marginal landholdings has grown three-fold.

This continuing fragmentation of land has had serious consequences for both income generation and income inequality in farming. We found that land possession was the key variable in determining income from cultivation, which accounted for half of income inequality in our calculations, and was the key variable in explaining income inequality.

In a recent column, Niranjan Rajadhyaksha pointed out that back in 1936, the manifesto of the Independent Labour Party, formed by BR Ambedkar, highlighted the problem of “fragmentation of holdings and the consequent poverty of the agriculturists.” We are also reminded of the judgment delivered three decades ago by Sukhamoy Chakravarty, who was closely involved with Indian planning, “that no sustainable improvement in the distribution of incomes is possible without reducing the ‘effective’ scarcity of land.” That has not happened, and neither has there been a significant shift of agricultural labour to rural non-farm or urban work. A telling sign of this stagnation in agriculture is the fact that cultivation income outgrew both wage income and income from non-farm business between 2003-13.

Given the difficulties faced by small farms in realising scale economies, accessing credit, or getting into market-oriented farming, it is likely that most policies geared toward increasing productivity will benefit larger farms. This is not an argument against increasing productivity, but simply a reminder that small landholders will benefit the least from big ticket policies that aim to “double farmer income by 2022” in a business-as-usual scenario without addressing the issue of land fragmentation.

Even if a doubling of income for farmers was feasible, it would almost certainly be based on the income growth of large landholders. The continuing fragmentation of agricultural land all but ensures that inclusive growth will not be possible in the agricultural sector (and, as a result, possibly all of India) by the year 2022 (or the foreseeable future).

Chakravorty is Professor, Department of Geography and Urban Studies, Temple University; Chandrasekhar is Professor, IGIDR, Mumbai; and Naraparaju is Assistant Professor, IIM-Indore. This article is by special arrangement with the Center for the Advanced Study of India, University of Pennsylvania