सोमवार, 20 अप्रैल 2015

Need for land reforms in the Indian agricultural sector - Part 1 - land ceiling



Why do you only rarely meet a rich farmer? Why are our farmers committing suicide? There are a bunch of issues, but in this article we’ll focus on land.

First let me help you develop an understanding into the circumstances prevalent at various times. Decades ago the business of agriculture was devoid of economies of scale. Ploughing was done using bulls, irrigation by monsoon, and harvesting by hand. In this devoid of technology scenario the expenses scaled linearly with land holding size.

In modern times, the business of agriculture has strong economies of scale. Powerful tractors can do dozens of acres a day, canals and tube-wells supply water on demand, and there is scope for using mechanized harvesters. What this means is that today's farming is very much a fit case of scalability = sustainability.

In the times when land ceiling was introduced, the planners were probably blindsided by incoming votes to do some research on where farming as a business/sustenance activity was headed in the future. So they put up a maximum agriculture land holding rule per family. Large landowners as well as farm laborers became equal sized via allotment of lands to the poor and SC/SC communities. Perhaps a combination of fear of old landowners forcefully taking the land back via forced transactions as well as vote bank greed motivated introduction of provisions in the SC/ST act that eliminated the option of an SC/ST selling agricultural land to other castes. What that has ensured is that they almost never get market rates for their land as the eligible buyers know that the seller has limited options.

The impact? With time, business case went out of farming. Farmers who had been laborers had no grip on the business aspects of farming. So when failures came, whether due to droughts, disease or otherwise, they were unprepared for consequences. Given the stratospheric cost of capital in India (read this blog post about cost of capital in India), they were pushed into debt (or should they be called be debt traps?) either at the hands of the local money lender or the banks.

With land holdings this small, there's not even a business case for storage of produce in order to benefit from seasonal rate increases. Same is the situation with food processing units.

To counter this disaster (and also somewhere influenced by leftist ideas) we came up with cooperatives. The idea was good. In fact it was too good. It attracted the politicians, and we all know what came out of it. To this date, to be appointed as a cooperative's board member is a lucrative thing.
The average farm is so small that even with basic mechanization, there is not much work for the whole family, except for during time of harvest. And that is most of the guards outside our offices go all of a sudden. Confirm it with a guard next time you see one.

A more effective way was discovered by some innovative farmers in Punjab. Here a couple would get a divorce, just in order to double their legal land holding, as now the ex-husband and ex-wife are both allowed individual land ceilings. so in order to work towards sustenance, families have to resort to such gimmickry.

Overall, it is shocking to know that what is still over 60% of the country's livelihood makes no business sense. It is also the reason why farmers are fidgety about land acquisition - it's their only asset.

The government has to look at farming as a business and more importantly the farmer as a vulnerable businessman. Policy overhaul is required, especially in terms of land ceiling.