Are we experiencing an ecological undertow?

At a panel discussion hosted recently by the students of one of Delhi’s universities the topic was ‘Are we heading for an economic crisis?’ Presumably they had been prompted by the all-pervading news of a slowing Indian economy. It is indeed correct that such a slowing is taking place. Growth has slowed for the past few quarters, and for the past two and a half years if we go by annual growth rates. That this has not been comforting to the government is evident from the scurrying from pillar to post of its ministers in an effort to goose the economy. But should we be worried? Anyone who heard the address to the United Nations Climate Summit by the teenager Greta Thunberg may not be as worried as the government is. Globally, industrial growth driven by mindless consumption is the cause of the climate change that is creeping upon us. But India is not Denmark yet and we do need some growth as income levels here are very low. The problem of low incomes can however be tackled even with less growth so long as it is of the appropriate type. So the slowing of growth in India cannot reasonably be termed a crisis.

          There is, however, a feature of the economy that does answer positively to the query whether it is in crisis today. That is unemployment. Figures reported in the report of the last Periodic Labour Force Survey point to a dramatic rise in the unemployment rate since 2011-12 when the previous survey on unemployment had been undertaken. Apart from the case of Urban Females, the most recent estimate of unemployment shows that it is the highest in the 45 years since 1972-73. But even for Urban Females it was yet double what it was in 2011-12. For the largest cohort, namely Rural Males, in 2017-18 it was four times the average for the forty years upto 2011-12. These figures should convince us of the existence of a grave situation if not crisis with respect to employment in the country. In the average OECD economy an increase of unemployment of such magnitude would have triggered a nationwide debate not to mention agitation.

           The government has responded to the slowing of growth by announcing a range of measures, the most prominent of which is the reduction in the corporate tax rate. While this could have a positive effect, the move may be based on a slight misreading of the situation. The tax cut is meant to be a remedy for stagnant corporate investment. But if the level of corporate investment itself reflects the slowing of agricultural growth then it is only by tackling the later that we can get to the root of the problem. A large part of corporate sales is driven by rural demand, reflected in the layoffs reported by biscuit manufacturers. We do not hear their voices, or more importantly the government does not, as they are less organised than some other sections of the corporate world, the automobile industry being one such.  

          The agricultural sector matters not only because the largest numbers are located there but because of their low incomes. This means the future growth of demand for much of industrial production is likely to come from there. After all how many more flat screen televisions can the urban middle-class buy once it already possess one? The high unemployment rate for rural males does suggest that we have zoomed in upto a reasonable degree on the site of low demand. Evidence reported of the steady sale of Lamborghinis, valued at Rs.3 crores each, combined with that of diminished sale of biscuits point towards a demand contraction due to low incomes at the lower income groups, heavily represented in the rural economy.

          We must now answer the question of why rural income is growing so slowly. The answer lies in the fact that in the recent history of crop agriculture. In the nine years since 2008-09 it has recorded zero or negative growth in five. Put differently, in the majority of years it has shown no growth. The economy has very likely not seen anything like this since 1947. With growth fluctuations involving production decline a particular feature emerges. When households incur consumption debt in bad crop years they are repaying it in the good ones. It implies that consumption does not grow appreciably. The record of agricultural production outlined here is sufficient to grasp what we are seeing in India today. It does not imply that other factors do no matter, and we could imagine several, ranging from low export growth to the state of the banking sector, but it does suggest that poor agriculture performance is a significant explanation of slack domestic demand.

           It has been pointed out that the investment rate, being the ratio of investment to aggregate output, has declined. This is indeed correct but it may well be reflecting the poor agricultural performance. Private investment both follows output growth and leads it. When non-agricultural firms observe slow agricultural growth they are likely to shrink their investment plans and may not revise their decision till this growth improves significantly. Thus attempting to influence the private investment rate is to only deal with a symptom. It is rural income generation that is the problem today.

          Any long term solution to the problem of unemployment to which the slowing growth of the economy is related must start with agricultural production. Observing the performance of crop agriculture for close to a decade since 2008-09 we might say that we witnessing something wholly new in India. It has long been recognised that there is a crop yield cycle related to annual variations in rainfall but we are now witnessing a form of stagnation. Thus unlike in the case of a cycle, recovery cannot simply be assumed. We would need the expertise of agricultural scientists to confirm what exactly is responsible for this state but it would not be out to place to ask if there is a role for ecological factors in causing agricultural stagnation. These factors encompass land degradation involving loss of soil moisture and nutrients and the drop in the water table leading to scarcity which raises the cost of cultivation. Almost all of this is directly man made, related as it is to over exploitation or abuse, in the case of excessive fertilizer use, of the earth’s resources. Then there the increasingly erratic rainfall, seemingly god-given but actually due to climate change induced by human action. A deep adaptation is required to deal with these factors. The guiding hand of government and a high dose of resource deployment would be part of such an adaptation.

        It is significant that despite a path-breaking development in agriculture whereby growth appears to have turned unstable economic policy has shown little awareness of the problem and the government taken no steps to address it. Policy focus is disproportionately on the tax rate, the ease of doing business in the non-agricultural sector and adherence to some dubious fiscal-balance target. It is now time to draw in the public agricultural institutes and farmer bodies for their views on how to resuscitate the agricultural sector. There may be an ecological undertow in effect and it has the potential to defeat our best-laid plans for progress.