What price Alagh Economics

Sharad Joshi
Business Line, Dec 20, 2000

DR YOGENDRA ALAGH is an economist of considerable repute. As a former member of the Planning Commission and former Minister of State off Planning and Programme Implementation, he wields considerable clout in influential circles. A self-confessed leftist, he made an impression during the days of the Dunkel debate by claiming that Indian farmers enjoy a 14 per cent positive subsidy. Later developments proved him wrong and established that Indian Agriculture suffers from a negative subsidy.

Dr Alagh has raised the controversy once again (`A road map to green farms', The Indian Express, December 5) by claiming that Mr Jagdish Bhagwati and Dr Pursell of the World Bank also find that the AMS (aggregate measure of support) for Indian agriculture is positive, about 29 per cent.

On the threshold of the next round of the WTO negotiations, the issue of the measurement of support becomes very topical. What does AMS mean? What is the level of AMS, in particular, in India? The AMS is a measure evolved in the Agreement on Agriculture (AoA) under the WTO. It measures the extent of subsidy given by a government to its agriculture. One category of AMS is directly related to products and markets, called products-specific AMS. This is computed by comparing the income of farmers at domestic prices with that at notional international referral prices. The referral price is close to the hypothetical price that might have prevailed in the absence of governmental intervention in the commodity markets.

The non-products-specific AMS measures subsidies given to agriculture as a whole, and not for any specific commodity production. Subsidy on inputs such as fertilisers, water, electricity, and credit form the bulk of non-products-specific AMS. The WTO pooled together information of the levels of subsidies in all the member-countries in the period 1986 to 1989. The AoA lays down that AMS should not exceed 5 per cent of the aggregate agricultural production in a developed country and 10 per cent in the case of a developing country.

The protocols filed by the member-countries showed wide variations in the levels of AMS. Japan came out as the most benevolent nation to the farmers -- its AMS was as high as 90 per cent. The European Union stood next at 60-65 per cent while the US was third at 30-35 per cent. Australia and New Zealand had lower AMS and had the capacity to participate in a major way in the international commodity market. This group of countries, called the Cairns group, that has been actively agitating to have the governmental subsidies scaled down.

According to the papers filed by New Delhi, the Indian farmer had no subsidy and, in fact, suffered under a massive negative subsidy tantamount to net taxation. The farmer lost heavily because of governmental policies.

The WTO treaties laid down a time schedule for scaling down the AMS above permissible limits. They do not stipulate any action in cases where the AMS is negative. What happens if non-product-specific AMS is negative and product-specific AMS positive? Nobody knows for sure. Some member-countries hold that negative subsidies should be ignored and treated as zero

subsidies. India stipulated that its AMS being negative -- lower than 10 per cent plus -- no commitment is imposed on it. India could use the fact of its negative AMS to justify substantial programmes for supporting agriculture. It did nothing of the kind. It has neither financial ability nor the political will to do so. But it would certainly prefer to have an enabling provision in the AoA so that the WTO appears more benign.

The problem is fairly technical and complex. It has been rendered even more difficult by some recent developments such as increase in productivity in developed countries and the appreciation of the dollar. It is at this crucial juncture that Dr Alagh has resurrected his claim that the AMS in India is positive. His argument, briefly, is as follows.

The WTO is a small organisation and has no database of its own. It will not go by the estimates of AMS prepared by the national governments. It will necessarily go by the estimates given by the Bretton Woods institutions. The World Bank studies conclude that the AMS for Indian agriculture is higher than the permissible limit of 10 per cent. So, let the negotiators better beware of the trap involved; they may fall flat on their faces if they argue on the presumptions that the AMS in India is negative. So far so good. But is there anything of substance in this Alagh economics? I have repeatedly requested Dr Alagh to let me see World Bank documents he is relying on. But for over a year, he has been evading the request. Dr Ashok Gulati and Dr Arun Goel assure me that there is no such study by Dr Pursell. In fact, Dr Goel went further and assured me that, Dr Pursell categorically maintains that the AMS for agriculture in India is very much negative and will continue to be negative for, at least, a decade to come. Is Dr Alagh deliberately attempting obfuscation?

AMS is not a matter of manipulating figures to support pre-determined positions. Indian agriculture has been a losing proposition. This is evident without any statistical exercise. Farmers are sinking deeper and deeper into debt; sons of farmers who go to agricultural universities do not return to the occupation after obtaining their degrees; non-agriculturists do not give their daughters in marriage to the sons of farmers. These are true-life proofs.

Negative AMS is a horrendous situation that is experienced by all those who try to earn a living by agriculture. Professors earning salaries, no matter how often they are caught on the wrong foot, will understandably have difficulty appreciating the gravity of the phenomenon.

The farmers movement in India was the first to raise this controversy in the late 1970s. Dr Mrs Thamarajakshi had demonstrated to her entire satisfaction that the terms of trade were moving in favour of the farm sector and that the big farmers were having cushy times. Her conclusions gladdened the hearts of all anti-farmer economists. Dr Ashok Mitra (Terms of Trade and Class Relations) went to the extent of maintaining that the farmers were doing so well that they were seizing the political power in the States and at the Centre. I had myself estimated the negative subsidy to the Indian farmer in 1980 at Rs 12,000 crore.

Dr Ashok Gulati and Dr Dalip Swamy carried out a similar exercise but arrived at a more modest estimate of negative AMS at Rs 5,000 crore. That was because they preferred to use the notoriously inadequate cost estimates of the then Agricultural Prices Commission (now CACP). It took the meticulous work of Dr D. S. Tyagi Chairman of the Commission on Agricultural Costs and Prices, who fell a victim to the bullets of Punjab extremists, to debunk the entire methodology deployed by Mrs Thamarajakshi.

That agriculture in India is net-taxed is a matter of experience and not a matter of statisticians, amateur or professionals, and self-styled economists to manipulate at their sweet will. The farmers' movement has often cited the figures of the AMS prepared by the Commerce Ministry for the simple reason that it had the advantage of citing it as the government's Mea culpa.

If somebody somewhere has now started saying that Indian farmers have a positive subsidy, the latter are not going to accept such ridiculous and absurd conclusions. They would like to examine the entire exercise with the meticulousness of a D. S. Tyagi. If the statistics are sound, the farmers will demand a new measure of subsidy that will reflect more faithfully the situation on the ground. Till then, all jugglery of figures regarding the subsidies the good and the bad ones will be treated with the contempt it deserves, as long as hordes of farmers find themselves driven to suicide, out of sheer frustration.