Animal spirits

Outraged readers called Alan Beattie a "genocidal dictator" for his sensational view about giant pandas, the cuddly endangered species, in the book 'False Economy'. But Beattie is not aiming to be taken seriously on wildlife. By writing shocking stuff about pandas, he seeks to illustrate how economies get stuck when old habits are not changed, even after they stop serving us.

Beattie rejects the exposition that pandas are in danger of extinction because their habitat was encroached by humans. He believes that these fuzzy giants became vulnerable as their food habits and anatomy did not evolve. Pandas' diet, almost exclusively bamboo, is low on nutrients and limits habitat options. Further, pandas spend up to 16 hours a day chomping bamboo because their digestive tracts are short. This sort of incompetence and inefficiency ought to be disqualifications for public subsidies, Beattie writes, "Public subsidies to protect pandas should be ended even if it means that they will die out".

He is impressed with the domestic cat. It is entrepreneurial; has demonstrated a "clearly defined yet flexible business plan". Descended from wildcats, this savvy creature is solitary but adapts to living alongside humans. Cats spotted and filled a gap in the "market for rodent control services", recognising humans can be "lucrative customers". In urban settings, they captured a dominant market share in the high-growth domestic pet sector. Unsurprisingly, "unlike pandas, cats do not require any state subsidy to thrive". To my mind, 10 Downing Street's Chief Mouser (https://bbc.in/3ytEWHV) personifies perfectly the feline evolution Beattie writes so entertainingly about.

The point, though, is that people and economies can get stuck in inertia and old habits and habitats. Beattie illustrates this pandas-type behaviour with real-world examples. The 'QWERTY' keyboard layout has survived long after outliving its original purpose. It was designed not to speed up but to slow down typing. Typewriters required the keys for frequently used alphabet letter pairs placed in such a way that it would be hard to type them rapidly. Otherwise, the keys would jam. Modern devices are meant for faster typing but use the QWERTY layout still.

India often behaves like pandas. Fear of change and refuge in old habits block change, even when the status quo is dissatisfying. This can be seen in the repealing of the three farm laws. Dr Ramesh Chand, agriculture economist and member of NITI Aayog, explained some of the nuances of the farm economy to me recently.

India became food-secure a while ago, food inflation was brought under control, but farmers remain poor. The major policy reforms of 1991 did not cover agriculture. As a result, the gap in the agri income of a farmer and that of a non-agriculture worker increased from Rs 25,398 in 1993-94 to Rs 54,377 by 1999-2000. In the next 10 years, the gap increased to Rs 1.42 lakh. The economic disparities between the farming and non-farming population are deepening.

The markets for farm produce suffer from peculiar problems, requiring government interventions, such as minimum support prices (MSPs) and subsidies. The trouble is these policy tools are not used with 'cat-like' precision. They are vulnerable to vote-bank politics calculations and bureaucratic incompetence. And so, farmers remain poor even after the government spends roughly 1 per cent of GDP every year on a variety of subsidies in agriculture. Dr Chand calculates that in 2015-16, the total input subsidy, such as for power, fertilisers and subvention of credit, paid to agriculture added up to Rs 2.05 trillion, not a small sum. The problem is that the benefit of subsidies is highly skewed. Farmers in rainfed and dry areas are economically weaker than those in irrigated areas. Still, no benefit of free or subsidised power supply for irrigation, which is huge, accrues to them, although they are in majority. Similarly, the benefit of fertiliser subsidy varies across districts of the country from less than Rs 200 to more than Rs 20,000 per hectare. While there is a case for selective subsidies, the ongoing trend of satisfying farmers with subsidies for various ills of agriculture is detrimental to fiscal health as well as sustainability. A serious consequence of growing subsidies is the trade-off with public investment in agriculture. The advantage of subsidy is annual. The same rupee put in public investment in agriculture continues to give benefits for as long as 25 years on an average.

Everyone agrees that the status quo needs to change. The disagreement is over how it ought to be changed. Suspicion of new policies and the hold of old habits has led to outright rejection of the farm laws. These laws were enacted to put in place an ecosystem where market prices for farmers can be more remunerative. Farmers fear that the real intention was to start pulling out the State irreversibly from agriculture, give private corporations control over the pricing of crops and put their livelihoods at risk. The evidence from the ground appears to be very different from the farmers' apprehensions. Even now, more than 85 per cent of the trade in crops is handled by the private sector. Fruits, vegetables, milk, egg and fish are showing much higher growth rate than those crops for which the government announces MSPs and carries out procurement. Demand-driven production can prove much more remunerative for farmers than production fixated to MSP. There are success stories of corporate-sector entry resulting in better pricing for farmers and incomes, such as in the state of Punjab by the global giant Nestle.

This is not to say that farmers' fears and frustrations don't deserve redressal. Yes, the State should not withdraw fully from the farm economy. Even advanced economies pay huge subsidies to farmers. But subsidies and MSPs and other government interventions can never substitute for remunerative market prices. Government investment cannot step in for the private sector in a production sector, be it industry or agriculture.

India became food-secure because farmers - like cats - discarded traditional agriculture and embraced change. Farmers will not escape poverty by resisting change like pandas.

Puja Mehra is a Delhi-based journalist and author of 'The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without A Story'