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Agriculture and Rural Development: Need for Reforms

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Agricultural Growth and Rural Employment−−Some Lessons from China?

C.S.C. Sekhar
China Report 2010 46: 29
DOI: 10.1177/000944551004600103

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Agricultural Growth and Rural
Employment—Some Lessons from China?∗

C.S.C. Sekhar

The present paper argues that there is an absence of a clear policy of rural industrialization in India to
absorb labour from agriculture that can help increase labour productivity and improve rural incomes.
Agricultural growth, combined with clear policy of rural industrialization, is important for an equitable
rural–urban growth. To this end, equitable land distribution, rural infrastructure and services, human
capital development (literacy and health) and governance are very crucial—in the attainment of all
of which China attained a fair degree of success. Therefore, these are some of the lessons that Indian
policymakers may take from the Chinese model of rural development.

India adopted centralized planning since independence in 1947. The macro economic
policy regime after independence can be broadly categorized into two phases. Phase
I is from 1951–1992 and the phase II is from 1993 onwards. During the phase I, an
import-substituting development strategy was implemented by means of tariff and
non-tariff protection to domestic industry and over-valued exchange rates. Incentives to
agriculture were much lower than for manufacturing during this phase. Autarkic trade
policy with respect to basic foods was followed due to food security concerns in case of
exports and foreign exchange constraint and livelihood security in case of imports. In
the post-1990s (1993 onwards), bias against agriculture has been reduced by correcting
the exchange rate regime. Import controls on industrial goods were withdrawn and
peak tariffs on industrial goods came down from 300 per cent in 1991–92 to 10 per
cent by 2007. Quantitative restrictions (QRs) on agricultural imports have been phased
out and agricultural import policy was gradually liberalised (Hoda and Sekhar 2008).
In this paper, we attempt to take a historical perspective of agricultural policy and
growth performance with a particular focus on the recent decade and a half. We also

∗Based on the presentation made in the panel discussion on agriculture, Russia-India-China Trilateral
Meeting, Xaimen, China, 26–28 November 2008.

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SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DC
DOI: 10.1177/000944551004600103

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30 C.S.C. Sekhar

attempt to juxtapose the recent rural employment scenario to understand the linkages
between agricultural growth and rural employment. Finally we conclude by listing
some policy lessons that India can draw from Chinese development experience. For
reasons of brevity, we focus on Indian policy and performance and do not undertake
a detailed analysis of the Chinese experience.

AGRICULTURAL POLICY AND GROWTH PERFORMANCE

As regards agriculture, India accorded primacy to agriculture right from the beginning
in view of the importance of the sector for meeting the ever-growing food needs and
the employment generation potential. The focus of planning, as regards agriculture,
can be broadly divided into five phases:
During the first phase (1950–1965) the thrust was on heavy industry (Temples of
Modern India) and relatively lesser importance to agriculture. The major source of agricul-
tural growth during this period was area increases without notable productivity gains.
During the second phase (1965–1980) major food shortages in the 1960s and the
consequent problems with PL-480 imports necessitated a shift in focus to self-sufficiency
in production. With the advent of new technology and HYV seeds (popularly called
‘Green Revolution’), the focus shifted to high potential regions with irrigation. Also, in
view of the importance of cheap food as wage good in keeping inflation under control,
a policy of input subsidisation (fertiliser subsidy, power, irrigation) for producers and
for consumers (food subsidy) has been adopted. The trade in agricultural commodities
was virtually prohibited except for a few commodities like tea, coffee and tobacco.
These policies resulted in stupendous growth in food production and India became
self-sufficient in food production by the late 1970s. The major source of growth during
this period was increase in productivity. But the focus on well-endowed regions has
resulted in inter-regional disparities in growth.
The third phase (1980–1992) saw the diffusion of green revolution technology to
pockets other than North West India, particularly to Eastern India. This period can be
called the best phase of Indian agriculture because the growth was achieved alongwith
equitable distribution of benefits. But the large subsidies flowing into agriculture have
resulted in mounting fiscal deficit.
In the fourth phase (1992–2002), with the launching of economic reforms in 1991,
the focus shifted to containing and curtailing the huge subsidies to agriculture. Also,
in view of the supposed comparative advantage of Indian agriculture, a more liberal
trade policy has been adopted. With the signing of Agreement on Agriculture (AoA)
of WTO in the Uruguay Round, the gradual dismantling of protection to agriculture
and outward-looking (export oriented) agriculture is being promoted. The domestic
restrictions on movement of agricultural products and other restrictive measures have
also been abolished.

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 Agricultural Growth and Rural Employment 31

In Phase V (2002–2007), quantitative restrictions on imports (QRs) were phased

out on 31 March 2002, drought and food for work (FFW) programmes were started,
futures trading in agi commodities was allowed from 2003 and private sector par-
ticipation in procurement was also allowed. However, major stagnation in agricultural
growth, mainly in basic foods continued upto 2004–05.
During the first three five year plan periods, a multi-pronged strategy was adopted
to address the twin issues of long-term growth of agriculture and food security. On the
supply side, price and non-price policies were adopted to promote rapid agricultural
growth. A buffer stock system was evolved to even out fluctuations in food prices
arising out of production shortfalls. Buffer stocks are built through operation of grain
procurement carried out by the state at minimum support/procurement prices. In
addition, the grain procured is used for public distribution by the state through a
network of fair price shops (FPS). This is to ensure adequate availability of food at afford-
able prices to poorer sections of the society.
The supply side policies adopted in the mid 60s have given a major boost to food
production in the country and the country became self-sufficient in food by the mid-
1970s. This phase in Indian agriculture is popularly called the green revolution. The pace
of green revolution can be discerned from the fact that the combined area of rice and
wheat under HYV, which was a mere 1.45 million hectares in 1966–1967 had risen by 9
times to reach 12.5 million hectares by 1970–1971 and food production from 63 million
tons in 1966 to 106 million tons by 1976. The country had become nearly self-
sufficient in food production by this time and the proportion of imports in the net
availability had fallen to less than 1 per cent. The per capita net availability of food had
also risen from 408 grams per day in 1966 to 469 grams per day by 1971. During the
period 1951–1999, the annual compound growth rate of population and availability
of foodgrains were 2.08 and 2.72 per cent, respectively, increasing the per capita net
availability per day from 395 grams in 1951 to 467 grams in 1999.
A major role in directing and regulating the agricultural growth process during the
green revolution period was played by state intervention. It was characterised by a mix
of price and non-price policies. On the consumption side, a system of buffer stocks
and public distribution was evolved to ensure availability of food at affordable prices
to all. Several institutions were also created for the administration of these policies.
Agricultural Prices Commission (APC), which was later renamed as Commission for
Agricultural Costs and Prices (CACP), came into existence in 1965 for recommending
support prices. Food Corporation of India (FCI) was established in the same year to
undertake the operations of procurement and public distribution.
This supply-demand-institutional framework, built during mid-1960s, continued
till the early 1990s with minor changes. Results of this policy regime are mixed. These
policies have resulted in stupendous agricultural growth and helped India achieve food
self-sufficiency. However, these policies could not achieve rural employment and food
security, in terms of economic access to food, for all. This was further compounded by
the severe stagnation that set in Indian agriculture since 1997 (Tables 1 and 2).

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32 C.S.C. Sekhar

Table 1
Growth Rate in GDP Agriculture and Non-Agriculture Before and After Reforms

GDP Agriculture GDO GDP

Priod GDP Total and Allied Agriculture Non- Agriculture
1980–1981 to 1989–1990∗ 5.52 3.12 3.29 6.88
1990–1991 to 1996–1997∗ 6.01 3.64 3.69 7.04
1996–1997 to 2004–2005∗ 5.72 1.66 1.65 7.06
Source: National Accounts Statistics, various issues, Central Statistical Organisation, Government of India,
New Delhi.

Table 2
Growth Rate in Output of Various Sub-sectors of Agriculture at 1993–94 Prices

Livestock Fruits and Non-Horticulture

Period Crop Sector Vegetables Crops Cereals
1980–1981 to 1989–1990 2.71 4.84 2.42 2.77 3.15
1990–1991 to 1996–1997 3.22 4.12 5.92 2.59 2.23
1996–1997 to 2004–2005 0.79 3.67 3.28 0.05 0.02

RURAL EMPLOYMENT IN THE 1990S

The following broad trends were distinctly visible in the rural sector in India since
the 1990s (Chadha and Sahu 2002; Deaton and Dreze 2002; Gupta 1999; Hashim
et al. 2000; Radhakrishna 2002).

i) Decline in the growth rates of total rural employment and rural non-agricultural
employment as compared to the previous decade. Agricultural employment
has remained stable.
ii) Rise in real wages but slowdown in the growth of real wages.
iii) Increase in relative cereal prices amidst increasing buffer stocks.
iv) Increasing casualisation of rural labour.
v) Increase in child labour.
vi) Slowdown in the decline in rural poverty.
vii) Widening of income disparity in rural areas.

The pace of employment generation slackened in rural India in the post-reform

years. The growth rate of rural employment declined from 1.57 per cent per annum
in 1977–1987 to 1.15 per cent during 1987–1999; the growth rate of rural non-
agricultural employment declined from 4.32 per cent to 2.06 per cent between the same
periods (Radhakrishna 2002). Agricultural employment growth rate remained around
1 per cent during the two periods. The proportion of regular employment declined
marginally from 7.8 per cent to 6.7 per cent during 1977–1978 to 1999–2000 while

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 Agricultural Growth and Rural Employment 33

the proportion of casual labour increased from 30 per cent to 37 per cent over the same
period. There was an increase in the real wages in 1980s and 1990s basically because of
rural non-farm sector and services (Rao 1994). The rising real wages resulted in labour
substitution in irrigated agriculture and rendered rain-fed agriculture unremunerative.
There is evidence of rising incidence of child labour in India. It is estimated that India
alone accounts for one-third of the total child labour in Asia. The largest number of
child workers is engaged in agriculture. This rising trend of child labour and falling
rate of adult employment in agriculture suggests that child labour is probably sub-
stituting adult labour in agriculture. The deceleration in agricultural growth and rural
employment combined with growing casualisation of labour and increasing relative
cereal prices have perhaps led to a slowdown in decline of rural poverty in the 1990s
(Deaton and Dreze 2002).
This severe crisis in agriculture and rural livelihoods was mainly because agriculture
has not been the central plank of rural development policy in India and the linkage
between agricultural growth and rural development (see Figure 1) has not been factored
into the planning process. The linkages between agriculture and rural development
may be seen in Figure 1. Equitable access to land, clear policy direction from the state,
combined with infrastructure provision and promotion of private entrepreneurship, will
spur agricultural growth. Agricultural growth with its forward and backward linkages
can lead to rural industrial growth, provided it is backed by clear policy guidance from
the state and required availability of skilled manpower. Together, growth in agriculture
and non-agriculture sectors will result in the overall growth of the rural economy.

Figure 1
Agriculture-Rural Development Growth Linkage

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34 C.S.C. Sekhar

Interdependency in food and labour markets is important for the development

process. The extent of interdependency between forces of labour supply and food
demand depends on the employment-output elasticity and the income elasticity
of demand for food (Radhakrishna 2002) However, in this context, it is important
to realize that the countries which created off-farm opportunities have managed to
make substantial progress in poverty reduction (Stern 2001). The potential for labour
absorption is high in agro-industries and rural services sector. Most of these activities
are labour intensive and provide employment opportunities for unskilled and semi-
skilled rural labour force. Non-farm activities act also as effective insurance against
risk in farm sector, thereby strengthening the viability of small and marginal farms.
But, growth in farm sector is crucial for growth in the non-farm and non-agricultural
sectors of the economy (Hazell and Haggblade 1991).
The missing components in Indian policy are the following:

1. Equitable land distribution

2. Security of tenure
3. Rural Infrastructure & services
4. Human capital development
5. Policy focus on rural industrialization

Countries with a skewed distribution of assets, like India, are likely to experience
aggravation of inequality as a result of liberalisation of agricultural markets. Therefore,
the emphasis on liberalisation should be matched and even preceded by a policy of
improved access by the poor to productive resources and employment. The Asian
experience shows that the impact of post-liberalisation-growth on poverty reduction
is greatest in situations where land reforms have been implemented and a high priority
has been accorded to physical infrastructure and human resource development
(Rao 1994).
In India, large-scale reforms in the agrarian structure are urgently called for
(Sekhar 2002). India adopted a three pronged strategy of land reforms immediately
after independence. Intermediate landlordism (Zamindari system) was abolished giving
occupancy rights to 20 million statutory tenants. Tenancy laws were enacted in almost
all the states for security of tenure, regulation of rent and conferment of ownership
rights on cultivating tenants. Ceilings in landholdings were imposed in the early
1950s. Surplus land was taken over and distributed among the landless. The 1950s
ceiling legislation was further amended in early 1970’s making it more progressive.
A review of the implementation of land reforms programmes in India shows that the
laws for abolition of intermediary interests were implemented fairly well. In the case
of tenancy reforms and ceilings on holdings, large gaps remained between policy and
legislation and between legislation and implementation. Since there is no evidence of
increasing returns to scale in Indian agriculture, there is no case on efficiency grounds
for doing away with the existing ceilings (Rao 1994). Given the poverty of small and

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 Agricultural Growth and Rural Employment 35

marginal farmers, they can be easily displaced from land with the market price offered
(Radhakrishna 2002). However, it is necessary to do away with legal restrictions on
lease market for agricultural land as well as to facilitate the augmentation of operational
holdings of small and marginal farmers. This would also encourage many small and
marginal farmers to lease out their uneconomic holdings and move out of agriculture
into other sectors without the fear of losing their land.
Some of the positive features of Chinese agricultural policy that India may draw
upon are the following:
For Agricultural Growth:

i) Equitable land distribution

ii) Security of tenure and ownership
iii) Rural infrastructure and service delivery

For Rural Industrial Growth:

i) Clear policy on rural agro-based industrialization

ii) Requisite human capital development (literacy and health)

Governance

i) Policy implementation through ‘trial and error’

ii) Solving collective action problem of small and marginal farmers through
collectives, without stifling private initiative

REFERENCES

Chadha, G.K. and P.P. Sahu, ‘Post-Reform Setbacks in Rural Employment—Issues That Need Further
Scrutiny’, Economic and Political Weekly, Vol. 35. No. 41, 25 May 2002.
Deaton, Angus and Jean Dreze, ‘Poverty and Inequality in India—A Re-Examination’, Economic and Political
Weekly, Vol. 37, No. 36, 7 September 2002, pp. 3729–48.
Gupta, S.P., ‘Trickle Down Theory Revisited: The Role of Employment and Poverty’, V.B. Singh Memorial
Lecture, 41st Labour Economic Conference, IGIDR, Mumbai, 1999.
Hashim, S.R., S.P. Kashyap and S.N. Joshi, ‘Agriculture and Rural Development’, Paper presented for
UNU/IAS second project Review Meeting on India’s Sustainable Development Framework, Tokyo,
26 and 27 May 2000.
Hazell, Peter B.R. and Steven Haggblade, ‘Rural-Urban Growth Linkages in India’, Indian Journal of
Agricultural Economics, Vol. 46, No. 4, October–December 1991, pp. 516–29.
Hoda, Anwarul and C.S.C. Sekhar, ‘Agricultural Trade Liberalisation, Poverty and Food Security—The
Indian Experience’, in Ashok Gulati, Sheneggen Fan and Peter Hazell (Eds),The Dragon and The
Elephant—Agricultural and Rural Reforms (New Delhi: Oxford University Press, 2008).
Radhakrishna, R., ‘Agricultural Growth, Employment and Poverty—A Policy Perspective’, Economic and
Political Weekly, Vol. 37, No. 3, 19–25 January 2002, pp. 243–49.

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 36 C.S.C. Sekhar

Rao, C.H.H., ‘Agricultural Growth, Rural Poverty and Environmental Degradation in India (Delhi: Oxford
University Press, 1994).
Sekhar, C.S.C., ‘Agriculture and Rural Development—Need for Reforms’, Artha Vijnana, Vol. XLIV,
No. 1, 2002, pp. 47–61.
Stern, Nicholas H. ‘Building A climate for Investment, Growth and Poverty Reduction in India’,
16th EXIM Bank Commencement Day Annual Lecture, The Export Import Bank of India (Mumbai,
22 March 2001).

Author’s address: Institute of Economic Growth, University of Delhi Enclave, Delhi 110007.
E-mail: csekhar@iegindia.org, sekharcsc@yahoo.com

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