Wokay!

Does everybody here remember Ravikiran’s Dear Middle Class of India post? It abused the Middle Class of India for causing the agricultural crisis by not agitating against the law that prevents farmers from selling their land.

In the comments, it provoked howls of outrage from the Middle Class of India, who angrily said that they couldn’t be held responsible for sins of omission, or for not agitating against a law that they didn’t even know about in the first place.

I was reminded of that post when I saw this: AID India’s call for candlelight vigils across the world to ‘support Indian farmers’ tomorrow. Oh, and this associated page of voices of support, where not a single middle class Indian has proposed a solution that involves letting farmers sell their land (assuming that they have proposed solutions instead of mouthing platitudes about support).

I am tempted to act snarky and say ‘See! See! The middle class is every bit as idiotic as the cartel’s smartest member said it was.’. And some of the comments there are honestly idiotic. They want to improve the lot of the Indian farmer by consuming local food. In America. Someone has brightly proposed inflation linked subsidies. Others have called for abolition of zamindari (which happened fifty years ago), and abused taxes (agricultural income is not taxed).

However, I have been recently called upon to be less politically incorrect. While this will be a source of disappointment to my adoring public, especially Mohan, I am making the effort. And so, instead of being snarky, I will give well reasoned arguments of why allowing farmers to sell their land is a better solution than anything else proposed.

Let’s begin.

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All solutions other than freeing up the market for agricultural land have costs attached. Subsidies to farmers will be borne by taxpayers. Debt relief will screw up banks (and as a result, actually make banks less eager to advance agricultural credit). Allowing the price of produce to rise will infuriate consumers.

If you insist on preventing the sale of agricultural land, the two best solutions are:

1. Creating agricultural infrastructure which gives farmers information on what to plant, how to plant it, and how to sell it. This will work, but if it’s the government which takes up the job, it will work slowly, ineffectively, and be saddled with corruption.
2. Allowing modern retail to flourish, knock the middlemen and their associated costs out of the supply chain, and give farmers a better price. This will also speed up the processes of Solution #1. The only problem is that if the AID India page was any indication, the middle class will hate this solution because it involves big corporates telling farmers what to plant and encourages (gasp!) consumption of non-local food.

But allowing farmers to sell their land costs nothing. Nobody is adversely affected by it.

Let’s continue.

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But this will just lead to capitalists grabbing land at throwaway prices and making SEZs!

In case you haven’t noticed, capitalists are doing this right now. They are doing this with the support and love of the government. The government is abusing its position as the sole buyer of agricultural land to acquire it and sell it at a fifty percent premium (at least, the fifty percent premium held for the land my dad bought in Kanjeevaram this year). If farmers sold land directly, they could capture the premium instead.

But farmers are illiterate and unorganised and have no negotiating power.

This is a real problem. But there are solutions. An auction process is one. Landowner cooperatives for sales are another. It’s not an insurmountable problem.

Also, please note that the economic rationale of landgrabbing rests on the premise of insufficient land, and being able to charge huge prices for industrial or commercial or residential property. If land could be freely converted to nonagricultural use in the first place, the huge price differential would become a much smaller price differential.

Let’s continue.

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But if farmers sell their land, how will we grow food?!

I could reiterate Ravikiran/ Nitin’s argument that we could just import it from the Americans, but since people think that ‘self-sufficiency’ is the killer retort to this, I will respond to this objection at a more fundamental level.

The most important point of allowing the free sale of agricultural land is not that agricultural land will be sold. It’s that agricultural land can be used as collateral.

There was once a P Sainath column where Sainath was outraged that you could get a car loan for a Mercedes at zero percent interest, while farmers had to pay twenty four percent or suchlike to finance their crops. (Update: Ah, here it is.) I will now explain why this is so.

People who get low-interest car loans can do so because of two reasons:

1. They can provide documentary proof (income tax returns or bank statements or salary slips) which establish that they are capable of repaying the loan.
2. A car can be repossessed and resold.

These two factors reduce the risk on the loan to such an extent that the interest rate on it can be dropped.

But the farmer has no such comfort to offer lenders. His income sucks. And – this is the most important point – even if he did offer his land as collateral, it would be worthless to the lender. Because the lender can’t sell it, remember? Nobody’s allowed to buy it. So agricultural credit is priced like a personal loan, when it could so easily be priced like a mortgage.

And this is crucial. The only thing a farmer has is his land. And the law against transfer of agricultural property ensures that he can’t borrow against it. If he could borrow, it would allow him to experiment with high yielding seeds, or to educate his kids, or to ride out droughts.

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So if you do go to any of the vigils, please shout a few slogans about letting farmers sell their land. It will be more useful and productive than talking about local consumption and corporate interests.

This entry was posted on Monday, October 1st, 2007 at 11:51 pm and is filed under Blogs and Blogging, Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.