By refusing to move on from its outdated approach to agriculture, India is condemning farmers to misery and impoverishing its own citizensby Salil Tripathi / September 28, 2008 / Leave a comment
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When the Doha global trade negotiations collapsed in July, many countries shared the blame. But one of the more surprising culprits was India. Indian consumers have suffered during the recent food crisis, with inflation over 12 per cent for some commodities. Removing agricultural trade barriers would surely have helped get cheaper food to India’s many millions of poor citizens.
Yet Indian trade minister Kamal Nath declined to open India further to farm imports, claiming he had to protect the “livelihood of millions of farmers” in India. What was behind this decision? Double-digit inflation often sounds the death knell for Indian governments. Elections are due by next May, and the governing coalition barely survived a recent confidence vote.
Essentially, India’s politicians fear that liberalising agriculture will expose their farmers to catastrophe if food prices collapse in the future. India has some efficient farmers who would gain from a boost in trade. But vast areas of the agricultural sector are hugely inefficient. Land holdings are small, productivity is low, mechanisation is minimal and big business faces restrictions in consolidating farming. And there is also a humanitarian problem. Over 100,000 Indian farmers have committed suicide in the past decade. Many reasons are cited for this: crop failure, bad monsoons, mounting debts and alcoholism. The government’s response has been to award 100,000 rupees compensation to the families of farmers who have taken their own lives.
In an effort to strengthen the agricultural sector earlier this year, India announced a major bailout for farmers, amounting to £7.5bn so far. The money will go towards granting fresh credit to farmers and writing off their old debts. But the bailout is a bad idea for several reasons. While a decade and a half of economic growth has created the illusion that India is a rich country, it is not and it cannot afford this package. And, as economists have argued, financial relief without strings will destroy India’s emerging credit culture. It penalises those who repay loans on time and rewards those who do not.
It is already apparent that throwing money at the suicide problem has not solved the crisis. In fact, far from reducing suicides, the relatively high amount of compensation may have created a perverse incentive. Desperate farmers could calculate that their families would be financially better off if they commit suicide than…