Changing Agrarian Structure in Indian Economy

When the famous British historian Eric Hobsbawm declared in his Age of Extremes: ‘The most dramatic change of the second half of this century and the one which cuts us forever, from the world of the past is the death of the peasantry’, he did not of course mean it literally. He was only referring to a spectacular decline world over in the proportion of workforce engaged in agriculture.

Sub-Saharan Africa and South Asia proved to be exceptions to the rule. In India, from 1950 to 1970 the distribution of workforce in agriculture, industry and services more or less remained unchanged and Byres has termed it as ‘structural stasis’. Even after that the shift of workforce away from agriculture was slow and jerky.

Source: T.J. Byres (2003), ‘Structural Change, the agrarian question and possible impact of globalisation’ in Jayati Ghosh and CP Chandrasekhar ed. 'Work and Wellbeing in the Age of Finance.' Tulika.

Source: (1) Indian Journal of Labour Economics, Vol. 39, 1996.
(2) Economic and Political Weekly, March 17, 2001 (pp. 931-940).

As can be seen from the table, from 1972-73 onwards the share of workforce in agriculture started declining slowly and shares in manufacturing and services increased marginally. The workforce diversification process suffered a setback between 1987-88 and 1993-94. The share of manufacturing in the workforce contracted and the decline in the share of agriculture was halted. For rural female workforce, the share of agriculture registered an increase during this period. From 1993-94 to 1999-2000 the share of agriculture has declined by 4 percent. Mainly trade and transport have absorbed this displaced workforce. The increment in the share of manufacturing is marginal.

The structural shift of labour from agriculture to industry (and services) with the development of capitalism is not just a mechanical process. It has a political economic content to it. It relates to the changing production bases (technology, production structure and property relations) both in agriculture and industry. These changes engender release of labour at one end and its absorption at the other. The interaction between the two sectors is complex and obviously involves flows other than the one-way flow of labour.

Initially, the great bulk of working population is in agriculture and the great bulk of national product is generated there. When productivity in agriculture increases and surplus is accumulated, the countryside contributes to the development of manufacturing. The countryside provides labour, wage goods and raw materials and also creates home market for manufacturing. The industry in turn provides market and new inputs to agriculture, which further increase its productivity. The process is accompanied by critical changes in production relations at both ends leading to formation of dominant and subordinate classes. This transfer of surplus from agriculture to industry is described as the ‘primitive accumulation’ i.e. transfer of surplus from pre-capitalist mode of production to capitalist mode of production and ultimately the transition of peasant economy itself into capitalist agriculture.

Different paths of agrarian transition can be traced in history. T.J. Byres has presented a comprehensive historical account of these paths in his book and various articles. The paths essentially differ in terms of rise of class agents in the countryside who unleash the process of accumulation and consequent industrialisation. Lenin described the transition in Prussia as ‘capitalism from above’. The feudal landlords – Junkers became the class of capitalist farmers. In the north and west of United States it was ‘capitalism from below’. Capitalism emerged from the class of petty commodity producers – the peasants. In France, capitalist impulse was frustrated for a long time by a stubborn peasantry that refused to make an exit.

From which strata, the class of capitalist farmers emerges and whether it emerges at all, depends on the pre-capitalist structures and property relations, and the pivotal role that the state plays in mediating the agrarian transition.

The possibility of capitalist industrialisation arising out of increased productivity in the pre-capitalist agriculture was thwarted in India by the colonial rule. The rigid land revenue system and commercialisation of agriculture in imperialist interests destroyed the production base of the extant peasant economy. Vast sections of peasantry were pauperised and reduced to landless or near landless status. In the year 1931, 32 percent of rural workforce was classified as landless. At the other end, land and consequently surplus got concentrated in few hands. This surplus was neither used for increasing productivity of agriculture, nor did it induce growth of manufacturing. Both the processes were constrained by limited size of home-market. India as a colony not only provided raw material to British industry but also markets for British manufactures.

The limited development of manufacturing replaced the artisans but did not create sufficiently many jobs to absorb the pauperised peasantry. The uprooted peasantry was forced to find livelihood opportunities in agriculture itself. This created a land lease market with very high rents and a labour market with wage rate below subsistence level. The landless and poor farmers leased in land to attain a cultivator status and took consumption loans to supplement their income. Landowners could then get high returns by leasing out land and usury. They had little incentive to invest in productive enterprises. They did cultivate land employing farm labour. These farms were characterised by small outlays and low level of technology. Farm labour was tied to these farms through debt bondages, oppressive caste relations and lack of opportunities elsewhere. As Utsa Patnaik clearly states this was not capitalist farming (see Utsa Patnaik Agrarian Relations and Accumulation, Oxford University Press, 1990).

Capitalist farming with re-investment of surplus was confined to plantations. These were tiny enclaves – foreign owned and export oriented.

In short, the agrarian structure bequeathed to us by the colonial rulers was characterised by an extremely skewed distribution of land and other resources. Agriculture was stagnant with falling per capita production and availability of foodgrain. Further, possibility of accumulation through rent and usury prevented investment of surplus in productive enterprises.

This historical overview helps in understanding the evolution of production conditions and production relations in the post independence period. It also points out the similarity between the neo liberal regime today and the colonial rule then.

‘Land reform’ was an important constituent of the economic programme of ‘national freedom movement’. Elaborate legislation was drafted after independence with a view to end the oppressive and exploitative feudal relations, provide land to the tiller and thus attain an equitable distribution of land and other resources in rural India. In general, there is a consensus that the land reform programme completely failed to attain its objectives. Notwithstanding abolition of absentee landlordship and intermediaries, the rich upper caste landlords retained feudal dominance through political, administrative and judicial machination. Wherever any progress was made towards reducing the domination of feudal interests, rich peasantry quickly appropriated the ensuing political and economic space. Tenancy legislations in the states only succeeded in driving tenancy underground. Concealed and informal tenancy exacerbated the misery of impoverished and marginalised tenant farmers. The record of imposing land ceilings and redistributing land has been dismal. Only a minuscule bit of land was redistributed and invariably it was barren and poor quality land.

Vast divergences exist with respect to formulation of legislation and its implementation at the state level. Thus, semi-feudalism remained intact in Bihar but the Marxist governments in West Bengal and Kerala did succeed in altering the rural production base. In Punjab consolidation of land was carried out efficiently, which was crucial for introduction of modern technology and mechanisation. It is, therefore, necessary to qualify any all-India level inference in this regard. In fact the divergence is so large that some scholars consider all-India generalisations to be futile.

A decade later ‘land reform’ agenda was pushed into background and ‘green revolution’ arrived on the forefront.

The new technology (High Yielding Variety seeds) was introduced when the agrarian structure was still characterised by feudal dominance. The existence of numerous small, marginal and landless units enabled the landowners to accumulate through leasing and usury. High ground rent and high interest rate constituted an insurmountable barrier to the development of capitalist agriculture. Only in the event of a technological breakthrough, which promised a quantum jump in expected profits, could the surplus be diverted into productive activities. HYV seeds along with the accompanying input package of irrigation, fertilizers and pesticides offered this breakthrough.

The official view was that the required growth in agriculture could be attained by relying on rich peasantry and landlords. Accordingly, physical and financial infrastructure was extended to them. HYV seeds, subsidised fertilizers and pesticides were made available through government network. At the same time favourable market conditions were created through minimum support price.

Initially the spread of new technology was confined to the irrigated wheat belt of Punjab, Haryana and Western Uttar Pradesh. By mid 70s a breakthrough was achieved in paddy cultivation and new technology reached Southern and Western states. During 80s, there was a further spread to the eastern states of West Bengal, Orissa and Bihar etc. 80s also witnessed introduction of hybrid seeds in cotton, oil seeds and coarse grains, which extended new technology to the central region.

Spread of new technology has been accompanied by spread of capitalist production. State-wise data on proportion of hired labour, market orientation and capital accumulation pattern indicate that by the beginning of 90s capitalist farming had penetrated almost all the states (see Sucha Singh Gill and Ranjit Singh Ghamon, Indian Journal of Labour Economics, Oct-Dec. 2001).

Three ramifications of rising capitalist tendency in Indian agriculture need to be noted.

The state opened up new vistas of profit making opportunities to big farmers. The big farmers and landowners withdrew their land from the lease market for self-cultivation. There was also an increased tendency towards reverse tenancy, especially in regions where capitalism did establish itself.

For small or semi medium farmers shifting to new technology was not possible because of resource constraints. A great deal of literature exists on how green revolution increased concentration of resources and adversely affected the small and marginal farmers.

Capitalist farming and investment for increasing productivity is accompanied by the mechanisation of farm operations. This drastically reduces the labour requirements. Further, labour intensity is greater in small and medium farms because using family labour enables them to reduce labour costs below subsistence level. Finally, structured employment on capitalist farms does not provide space to absorb surplus labour. The sponge capacity of agricultural sector to absorb labour indefinitely (albeit at low productivity and low income level) gets eroded with capitalist farming. In Punjab, Haryana and Western Uttar Pradesh wage rates have been higher than the rest of India, but the employment elasticities (increase in employment per unit increase in output) have been near zero or even negative.

Surplus that accumulated with the rich farmers did not get transferred to manufacturing. Rich farmers’ movements emerged in Maharashtra, Uttar Pradesh, Karnataka and of course in Punjab and Haryana. They blocked agricultural taxation and demanded favourable terms of trade for agriculture. Further, the surplus accumulated in agriculture was concentrated in few hands. This limited the size of market and thus constrained expansion of labour intensive manufacturing.

The state led industrialisation was geared to the requirements of big bourgeoisie in industry. The state invested in heavy industry, which was capital intensive and generated limited employment opportunities. The marginalised and landless households, therefore, remained trapped in agriculture.

Two questions distinct from the existence or spread of capitalist development refer to the extent to which capitalist relations have taken roots in the agrarian structure. Whether capitalist production relations have entrenched themselves deep enough to qualify as the dominant mode of production? Alternatively, have they entrenched themselves deep enough so as not to allow any obstruction to capitalist transition process? Will capitalism become the dominant mode of production in foreseeable future? Most scholars in the 80s and till the beginning of 90s gave an unequivocal ‘no’ as answer to these questions.

Source: Agricultural Statistics at a glance, Government of India 1993.

Source: NSS survey on land and live stock holdings 17th, 26th 37th and 48th round.
Note: Figures in bracket give the percentage of holding below 0.4 hectares.

Source: NSS survey on land and livestock holdings.

Table 3, 4 and 5 give distribution of ownership holdings and operational holding and Gini coefficient or concentration ratio for the two distributions. A tendency towards differentiation of peasantry and increasing concentration can be discerned from these tables. At the same time, it is clear that notwithstanding penetration of capitalist farming, the agrarian structure in the year 91-92 was dominated by small and marginal landholdings. Not only did they constitute 80.6 percent of total operational holdings, they also accounted for 34.3 percent of the total area cultivated.

These numerous small and marginal holdings have contributed to keeping the land lease and the informal money lending markets vibrant. As can be seen from table 5 the concentration ratio for operational holdings is significantly less than that for ownership holdings. In fact, as land leasing became difficult for the marginal farmers and the landless, they responded by offering higher rents. The higher rent need not always be in money terms or in terms of larger share of the produce. It could be in terms of offering free labour to the landowner or payment in some other form. Rising rent in the land lease market can reassert the barrier to capitalist accumulation process. This tendency has been witnessed in some states.

On the other hard, the existence of these numerous small and marginal units also contributed towards retaining the sponge capacity of agriculture to hold much more than the required workforce. State policies in the 70s and 80s also helped in containing the workforce in this sector. Various poverty alleviation programmes and small farmer-marginal farmer schemes enabled the landless and marginalised to get supplementary earning opportunities.

Thus, the process of agrarian transition reached an impasse in the absence of employment opportunities outside of agriculture. As can be seen from table 2, the decline in the share of agricultural workforce was halted between 1987-88 and 1993-94.

The structural adjustment programme and WTO trade regime in the decade of the 90s, have brought about a new crisis of rural livelihoods. The new economic regime, in a way, has taken us back to the colonial era, where the process of surplus accumulation and utilisation is once again to be mediated by metropolitan capital.

The state withdrew from its earlier declared role of intervening in the market processes to protect economic space of domestic producers and among them that of small producers and weaker sections. The elaborate structure of controls on domestic and international trade and on investment has been dismantled rapidly. The Essential Commodity Act, Agricultural Produce Marketing Act and Small Scale Industry Reservation Act, restricting movement, storage, marketing and processing of agricultural produce have been modified. The multinationals and big domestic units are now allowed to enter into these activities.

Exim policy in the post-liberalisation period has removed import controls on agricultural commodities rapidly — sometimes much ahead of WTO stipulated phase out period. Trade liberalisation has taken place in the background of extremely unfavourable global market conditions for primary commodities. The prices of all primary commodities (including wheat and rice) have fallen dramatically since mid 90s.

Source: Utna Patnaik Agrarian Crisis and Global Deflationism
Social Scientist Jan.-Feb. 2002

The infrastructure facilities provided by the government are on the decline. A number of minor and medium size irrigation network projects are left incomplete, not because they are controversial but because of paucity of funds. The last decade saw the privatisation of power sector and the agenda for the coming decade is to privatise water. The ramifications for Indian agriculture will be wide spread. It may shatter the viability of even medium level farmers.

The changed priority of the banking sector has slashed down the direct advances to agriculture made by commercial as well as cooperative banks. Schemes to facilitate the credit needs of small and marginal farmers are completely eroded. This has led to an aggressive growth of informal credit markets. Apart from traditional moneylenders, traders of new technology, inputs and equipments have entered these markets.

Fertilizer subsidies have been cut down in annual budget exercises and the government has handed over the task of providing seeds to the multinationals and private companies.

Finally, in the current parlance the term ‘land reform’ is being used for advocating removal of land ceiling and tenancy regulations. This would allow the corporate sector to enter into direct farm operations. The big farmers would be able to negotiate profitable deals with the corporate sector and MNCs. Some states like Maharashtra and Karnataka have made significant moves in this direction.

The most fundamental shift in the structure of international political economy of food has been the emergence of transnational agro-food corporations, attempting to organise the production and consumption in national economics geared to their investment and marketing goals.

In India, the corporate sector has been prevented from entering direct farm production because of the land ceiling laws. The low ceiling limits do not allow scale intensive farming in which companies are interested. Only the plantation sector has been exempted from the land ceiling regulations. Capitalist farms controlled by foreign companies have existed in this sector since before independence. The average size of large farms in Assam is 88.80 hectares and in Kerala 59.33 hectares. Under the new definition of ‘land reform’ there is an increasing pressure to allow companies to undertake direct farm production especially in the areas of horticulture, floriculture and agro-forestry. The demand is to substantially extend the land ceiling limit or to remove it altogether. As already mentioned many state governments are prepared to concede this demand. Maharashtra government has already taken the initiative to grant exemption in landholding act to trusts, companies and cooperatives for horticulture purposes, Fallow, waste or khar lands can be purchased by such entities and land under cultivation can be taken on lease. The farm size can be large as 1000 acres.

In the meanwhile companies have been acquiring vast tracts of land in Orissa and Southern states for aquaculture. A large number of small and marginal farmers have been uprooted in this process. Several companies are entering agro forestry (teak-planting) circumventing the land ceiling regulations. They buy the land and allot it to individuals on payment of substantial sums and in turn promise them attractive returns.

However, the design of agribusiness to control the surplus of the farm sector is far more ambitious than what can be achieved through direct farm cultivation. Agribusiness is fast acquiring control on the input and output flows of the farm sector with the acquiescence of Indian state. The design is to alter the land use pattern geared to their profit interests.

Under contract farming, farmers are commissioned to produce and supply a specific product, in specific quantities and of specific quality at a specified time and at a specified price. The company provides seeds, fertilisers, technology, credit and also farm equipments to the farmers. Tomato crop in Punjab (HLL, Pepsi and Nijjar), mustard crop in Punjab (Markfed, a para-statal cooperative body), potatoes (McDonalds), wheat crop in Madhya Pradesh (Rallis and HLL), horticulture and floriculture (Ace) are examples known to everyone. Contract farming is, however, confined to a few areas and a few products.

The control of MNCs over seed industry is far more pervasive. For HYV wheat, the National Seed Corporation was set up in 1963. Subsequently state seed corporations were setup to meet the requirement of quality seeds. Under the World Bank supported seed projects, the private sector entered the seed industry during the period 1973 to 85. In 1987, MRTP and FERA companies were invited to manufacture seeds. In the same year import of seeds was put in Open General Licence category. Under the TRIPs regulations of WTO, the multinational seed companies have emerged as very powerful agents proceeding to take complete control over seed industry and thus control the land use pattern in Indian agriculture. Hybrid seeds with seed specific nutrients and pest management and tissue culture based plant varieties are being supplied by MNCs at prices beyond the reach of poor farmers.

At the other end, agro-processing industries, which were earlier reserved for the small-scale industry sector, have been opened up for big corporations and MNCs.

The land use and land ownership pattern in Indian agriculture can be expected to change very rapidly in the coming years.

The changeover from a state controlled regime to a market regime dominated by mega-size international players has affected different sections of the farming community differently.

As already mentioned, along with the spread of the green revolution and increased productivity of agriculture, rich farmers’ lobby emerged as a powerful political movement in the 70s. Sharad Joshi in Maharashtra, M. S. Tikait in Uttar Pradesh and Ajmer Singh Lakhowal, Balbir Singh Rajwal and Bhupinder Singh Man in Punjab led it. These movements have demanded remunerative prices for their produce and increased subsidies on farm inputs.

The reaction of the rich farmers’ lobby to globalisation process has been ambiguous. On one hand, they perceived trade liberalisation, diversification of farm produce and entry of agri-business as advantageous to them. On the other hand, they were apprehensive that they would not be able to compete with the imports dumped by heavily subsidised farm sector of the developed countries. Thus, while Sharad Joshi welcomed the proposals of Dunkel draft of Uruguay round, the farmers’ movements in Uttar Pradesh and Karnataka opposed it.

In 1988, a para-statal in Punjab (Punjab Agro Industries Corporation), Bhartiya Kisan Union and the farmer based political party Akali Dal invited Pepsi as a joint venture partner with Voltas to procure and process fruits and vegetables. The MNCs contract farming arrangements are essentially with medium and big farmers.

Engaged in tie-ups with companies, the big farmers identify their interests with the corporate sector. Along with the corporate sector the farmers’ lobby is also pressurising the state governments to modify land ceiling legislations and carry out consolidation of land holdings. Micro-level studies indicate that the reverse tenancy phenomenon, which showed a marked presence in Punjab and Haryana during the 70s and 80s, has rapidly spread to other states in the 90s.

It must, however, be noted that in view of the deflationary trend in world market prices of primary commodities and unequal bargaining power vis-à-vis the corporate lobby, the big farmers’ lobby is at the moment uncomfortable in the new milieu. It wants the government to protect its economic space in WTO negotiations. Tomorrow, if the big farmers perceive greener pastures in international markets and expect attractive deals from corporate partners, they may switch over to the other side. Whether the big farmers can become an integral constituent of an anti-imperialist struggle is a moot question.

Small and medium farmers usually follow the lead taken by big farmers in switching over to new technology, new cropping patterns and new production arrangements. Sometimes they do it willingly in the hope that the returns will be high. However, more often it is done under compulsion because the earlier infrastructure has been dismantled. Many of the small and medium farmers have shifted away from coarse grains to soya bean, new variety of cotton, and oil seeds production. This shift requires substantially increased expenditure.

In the wake of a squeeze on the availability of organised credit in rural areas, farmers are forced to take credit in informal credit market either from traditional moneylenders or from new input traders. If the crop fails or the price of the produce collapses because of international market, the small or medium farmer is completely ruined.

Indebtedness and consequent farmers’ suicides in Andhra Pradesh and Karnataka have attracted a lot of media attention. Whether or not they committed suicide, the small and marginal farmers are increasingly getting dispossessed of their land resource base. Detailed NSS survey data on land holding is not available beyond 1991-92. However, the above inference can be substantiated by the information on landholding given in the Employment and Unemployment surveys for the year 1993-94 and 1999-2000.

As can be seen from table 7, in a very short span of time the share of households possessing .01 to .4 hectares of land has swollen by 10.6 percent. Up to .4 hectare the holding is sub-marginal and does not ensure subsistence livelihood. As can be seen in table 8, the majority of households possessing this small piece of land do not cultivate it. They either lease in more land and increase their holding size or lease out their plot and look for some other occupation. It is apparent that the first option has not been chosen. Either it is not available or if available it is not viable. Tables 7 and 8 indicate that these sub-marginal households have given up their land and migrated out to the landless labour category. The households, who cultivate up to .4 hectares of land, often leave it for women. The male members move out in search of better income earning opportunities. Feminisation of agriculture emerges from proliferation of these sub-marginal farms.

Landlessness has increased rapidly at the all-India level and in every state (see C.P. Chandrasekhar and Jayati Ghosh, Macroscan, Business Line, 22nd April 2003).

Source: Employment and Unemployment situation in India, NSSO, GOI.

Source: Employment and Unemployment situation in India, NSSO, GOI.

The non viability of small, semi-medium and medium farm households can be expected to gather momentum as electricity charges increase and user charges are levied on water.

Along with increasing landlessness, the NSS Employment and Unemployment survey for year 1999-2000, shows a startling decline in the employment growth in agriculture.

Source: Employment and Unemployment situation in India NSSO reports.

The fall is steeper in the case of weekly and daily status indicating that the usually employed now get work for less number of days. The employment elasticity in agriculture has declined from .7 (during 1987-88 to 1993-94) to .1 in the period 1993-94 to 1999-2000. In as many as 11 states the employment elasticity is negative or near zero (see Macroscan, Business Line 22nd April 2003).

Whereas increased mechanisation (especially increasing use of harvesters in the 90s) and changes in cropping pattern explain part of this decline in employment growth, a major contribution is that of changing land holding pattern and the changing land-lease market.

As already mentioned, the small and semi medium farm operations are much more labour-intensive than the big farms. Further, work can divided and sub-divided in these farms to accommodate many more people than is actually required. As small and semi-medium farmers get dispossessed and as it becomes difficult for the landless to lease in land and acquire cultivator status, the capacity of agriculture to accommodate labour gets compromised.

As can be seen from table 10, the share of self-employed in agriculture remained unchanged at 37.7 per cent during 1987-88 to 1993-94. It declined to 32.7 percent in the year 1999-2000. There is a decline in absolute number of self-employed in agriculture. The share of agricultural labour households has increased during this time.

Source: NSS Employment and Unemployment survey 1999-2000.

In the 70s and 80s, the state came forward to partially support the subsistence livelihood of the marginalised peasantry. In the 21^st century the state has absolved itself of all responsibilities. This time the poor and marginalised in agriculture are being forced to migrate out. Migration from one region to another, from rural to urban and from farm sector to non-farm sector is on the increase.

Unfortunately there is no space available outside. The already limited employment possibilities in the industrial sector have been further reduced by the neo-liberal regime. The small and labour intensive manufacturing units have rapidly closed down and the traditional big industrial units have resorted to retrenchment and out-sourcing. The modern units are capital and import intensive with space only for the highly skilled. This leaves the service sector, which, like agriculture, has the sponge capacity to absorb excess labour at low-productivity low-income level. Between 93-94 and 99-2000, labour thrown out of agriculture went into the service sector. However the service sector can accommodate labour only up to a limit.

Finally, those who remain in agriculture and dare to stake a claim on their minuscule share in the resource base, face the violence of big peasantry and state administration – sometimes to the extent of getting physically eliminated. It must be noted that penetration of capitalism in agriculture has throughout accommodated and utilised feudal super-structure. Modern capitalist exploitation of labour has not just left space for caste hierarchy and oppression; it has made use of it to serve its own interests.

The agrarian transition under the state led industrialisation of Indian economy reached an impasse. Concentration of resources both in agriculture and industry led to an industrial growth where space for labour was scarce. Agriculture obliged by containing the unskilled and marginalised mass of workforce within itself.

In the 21st century the neo-liberal global regime has brought about inexorable changes world over. The global circuits of production, exchange and finance have qualitatively changed the functioning of national economies. The agrarian question in India is now being resolved in its own ruthless manner by the globalisation process.

The increasing control of agribusiness over input and output flows of agriculture will necessarily result in a massive debouching workforce from this sector. Such a trend is already discernable. The workforce, debouched from agriculture, just does not have space outside. Manufacturing and service sector together are quite incapable of accommodating it. The situation admits no other solution but a radical restructuring of the entire production base.

For those of us, who owe allegiance to an equitable society ensuring dignified human existence, the ‘agrarian question’ can then be looked at only in its first layer of meaning – namely to seek the support of uprooted peasantry for overthrowing the existing regime.

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