With a big bang announcement about a fortnight or so back of Rs 20 lac crore comprehensive economic package, Prime Minister Modi has unveiled a vision of epic proportions which takes development of India to her roots, of what we know as Bharat, her villages. It is not the value of the package aka Rs 20 lac crores that is of any importance – in size, it is huge and does cover all the sections of the economy – however, what is of immense importance and is of epic proportions is the what it seeks to accomplish with the sector that employs the biggest chunk of Bharat’s workforce i.e. her farmers in the villages. Agriculture currently employs nearly 50% of Bharat’s over 50 crore workforce or as much as 25 crore people yet it contributes to only about 17% of her GDP of nearly $3 trillion or about $500 billion or so – in real terms, this means that a worker in sectors other than agriculture generates nearly 5 times more GDP than his/ her counterpart in the agriculture sector! No wonder, agriculture isn’t an attractive career for the youth and thus people moved from Bharat to India: from her villages to her cities and thus the cities are bursting at seams with fledgling slums and shantytowns.
So, what is this vision of Modi that has been unveiled? With the big bang package, PM Modi has broken the shackles agriculture has been tied down with for decades together – though, some claim that it has been so for hundreds of years! Whatever the truth, two major reforms in agriculture sector have been unleashed by PM Modi: one, the doing away of the binding on a farmer to adhere to Agriculture Produce Market Committees (APMC) act which stipulated him/ her to sell their produce mandatorily at the Mandis – s/he was not free to sell anywhere and to anyone; and two, major agriculture commodities are now excluded from the strictures of the Essential Commodities Act of 1955.
Now, how will these changes be gamechangers for the farmer?
Firstly, with APMC Act gone, the farmers will now be free to sell their produce anywhere and to anyone – this will open up the market for them. As of now, the farmer has to sell at the Mandi to the buyer via a Aadti (middle man) who took a commission from both the farmer and the buyer just because the Mandi system operates this way and instead of helping the farmer, it exploited them. This commission ranges from 8% to 20% and on top this, the price in Mandis is generally rigged by the Aadti cartels and thus the farmer is always shortchanged. With APMC gone, the farmer is freed from the Aadtis and the exploitative Mandis that their cartels ran! Further, the farmer can now also engage in contract farming for big institutional buyers (food processors, big retailers et al) wherein they can know the price of selling their produce upfront and thus doing away with the vagaries of price volatility too, ergo, the farmer can know the return on investment before they sowed the fields!
Secondly, the exclusion of major agriculture commodities from Essential Commodities Act means that private storage facilities can be built to store perishable agriculture produce and wastage can be reduced dramatically – currently, over Rs one lac crore worth of perishable agriculture produce is lost annually because of lack of proper storage facilities. With Essential Commodities Act out of the way, there will be a huge push towards building of storage facilities that will help sell farmer produce well into the lean season thereby further increasing their income. You may be wondering how the Essential Commodities Act stifled creation of storage facilities. Well, because of this Act, no private entity created large scale storage facilities for commodities that the Act covered as there was a storage ceiling these entities had to adhere to and hence, no economies of scales were ever achieved – now, this ceiling is gone! So, all the large retailers and food processors who deal in perishables will be free to create large storage facilities and store the produce to sell in lean seasons as well as to further process them as value-added produce.
Now, how will things play out from here?
This is where things get interesting – with Covid-19 pandemic and the ongoing lockdown, there has been a huge movement of migrant workers from industrial belts back to native states of UP, Bihar, MP, Rajasthan, Odisha & WB. It is estimated that a few crore of the migrant workers have gone back to their native states – do note that India has nearly 10% of her population as migrant workers which translates to nearly 12-13 crore workers. The return of this workforce back to the native states is going to create a lot of burden for these states. Unless the state government does something dramatic to create jobs en masse, this can create a lot of issues for these states. PM Modi’s Rs 20 lac crore package amongst other things has increased the allocation in MGNREGA by two-thirds, which essentially means that whilst earlier, the program was going to support nearly 2 crore workers - now, it will support additional 1.3 crore workers! This should help with temporarily resolving the need for jobs for part of the migrant workers who have gone back. Further, many states (Gujarat, MP, Haryana, HP, Rajasthan and Punjab)
have recently announced significant dilution of all the labor laws – this too should spur attracting industry to these states. With companies wanting to move out of China and considering India actively this should help – recently, a German footwear maker Von Wellx moved its factory lock, stock, and barrel from China to India (Agra, UP) where it will generate 10,000 jobs! Further, UP CM Yogi’s administration is conducting skill mapping of the migrant workers – this will help it to showcase the same to all potential investors – clearly, the workers coming back from industrial belts of Maharashtra & Gujrat would have significant skills and mapping them would lead to creating a compelling skill bank that can be used along with incentives like dilution of labor laws as well as others such as easy land allotments etc., to attract investors into the state in a big way.
That said, all this will take time – but if played well along with increased MGNREGA allocation as well as breaking the shackles for agriculture and attracting populace back to agriculture as a viable career option, it will be a gamechanger for these states. What these far reaching policy changes as well as pandemic’s side-effect of migrant workers’ return to home states can lead to is not just this! I am going to now paint a scenario that this vision can achieve for Bharat.
Three trends are likely to play out in parallel from here on.
One, and the most important as well as the pivotal trend is the revival of agriculture as a result of the policy changes supported by private investments as well as new interest from a brand-new breed of agriculture-entrepreneurs who will foray into this hitherto unattractive sector in a big way. Smaller and marginal farmers can get together and form Farmer Producer Organizations to scale up their production and investment abilities and share equipment, marketing reach as well as profits – they can also go for forward integration and get into value addition through food processing. Apart from increasing the income of existing farmers and spurring new ones to join the ranks, this will also encourage the migrant workers to stay back and encourage many of them to get back to agriculture with improving income prospects. With success of agriculture, we will see more and more people staying back in the villages and also encourage those who had left the villages for cities, to return back – this story should fully unfold in about a decade or even earlier but we will see credible offshoots within the next few years. To draw a parallel, do note that the milk revolution saw India double per capita milk production in 30 years (or nearly a four-fold increase in milk production between 1970 & 2000) – with technological advances along with information revolution, this kind of growth should be doable across the agriculture sector in a decade or even less. I say this because India’s per hectare yields in all crops from cereals to pulses is less than half or one-thirds the best that is there in the world. With the breaking of the policy shackles and focused push on agriculture with government and private involvement, there is no limit to what our farmers can achieve. This will have an immense impact on the rural economy leading to increase in per capita income like never before. As much as Bharat’s villages, this will have a huge impact on India’s cities that were bursting at their seams because of increased migrations from villages to cities leading to creation of slums and shantytowns – all this should reduce dramatically in the coming decade as people will prefer staying back in villages and some more of the migrant workers will return and engage in agriculture and allied services.
And, this is what will spur the second trend that will run in parallel: the increase in per-capita income in Bharat’s villages will lead to higher consumption driven by rural markets, which will spur industrial growth like never before. Till now, the industrial growth was driven primarily by urban and middle-class demand albeit there was secondary factor of rural demand driven by how agriculture fared in the said year. However, with the kind of growth we will see in agriculture in the coming decade and that too driven from grassroots involving nearly 70% of Bharat’s population, we will be witnessing demand generation at unprecedented scale. This will fuel India’s industrial and services growth at a different level pushing the overall GDP growth well into double digits pulling all of her populace out of poverty in the coming decade!
The third trend, a minor one albeit equally significant in its impact and one that will run in parallel to the other two and support them is the huge push towards renewable energy – India is already leading the International Solar Alliance and there is recent news of India taking lead in setting up the World Solar Bank, which will spur development of renewable energy projects in 84 countries that are already part of the ISA, mobilizing US$1 trillion. India has already achieved sub-Rs 3 per unit cost of electricity via renewable sources – with advances in technology this can and will further be improved upon. All this will help establish India as a leading force in renewable energy sector globally – a sector that will for the foreseeable future be a very important for all the nations. Then there is the accelerated adoption of electric vehicles in the coming decade because of improvement in technology as well as significant reduction in costs. All this will result in reduced dependence on fossil fuel by the end of this decade leading to reduced emissions and consequent environmental dividends. Availability of cheap and clean energy will help fuel industrial and agriculture growth throughout this decade without the fear of environmental impact. Reduced petroleum imports will also have a positive impact on Rupee which could see levels of 60 or even stronger vis-à-vis US Dollar too by the end of this decade – this essentially means that the Indian Rupee will have a higher buying power by the end of this decade.
These three trends having well played out by the middle of this decade we will see emergence of an atmanirbhar Bharat which, by then will be taking roots deep into India!
