AGRICULTURAL GROWTH AND DECLINE: THE COMPLEXITY OF RURAL

UNCLAS SECTION 01 OF 05 MUMBAI 000153

SENSITIVE
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E.O. 12958: N/A
TAGS: EAGR ECON PGOV IN
SUBJECT: AGRICULTURAL GROWTH AND DECLINE: THE COMPLEXITY OF RURAL
MAHARASHTRA

REF: A. A. 06 MUMBAI 1266

B. B. 06 MUMBAI 2054

C. C. 09 MUMBAI 0130

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1. (SBU) Summary: Although Maharashtra is the most
industrialized state in India, over half of its population lives
in rural areas, with many dependent on agriculture for their
livelihood. For decades, a succession of state and central
governments has selectively and incompletely promoted
agricultural growth. Factors as diverse as political patronage,
opportunities for migration, and soil conditions have created
wide and increasing disparities in income and productivity
between regions. With nearly 7,000 suicides in the region since
the beginning of the decade, the problems of the Vidharbha
farmer in eastern Maharashtra have become synonymous with the
agrarian crisis that affects parts of India. Despite a series
of measures in the last year, including a farm loan waiver and a
rise in the support price for cotton, agricultural researchers
and experts believe that these programs have yet to have a
significant impact on farmers' income in the state.


2. (SBU) However, rural Maharashtra's assessment of government
agricultural policies is complex and does not necessarily affect
voters' behavior. The problems of rural Maharashtra vary from
region to region, and agricultural experts advise that a
"bottom-up" approach be used to address its diverse agricultural
challenges. In this and two subsequent cables, we will try to
assess the efforts of the Congress Party-led coalitions in the
state and at the center in promoting rural growth in
Maharashtra, and its likely impact on voter attitudes. End
Summary.

The Agriculture Sector Remains Declining Portion of India's
Growth
--------------


3. (U) The Indian agricultural sector has exhibited four years
of relatively good growth on account of good rainfall, which led
to good crops and overall favorable commodity prices. However,
the share of the agricultural sector as part of the total GDP
has continued to decline. The agricultural sector accounted for
only 18 percent of Indian GDP in 2007-08 as compared to 55
percent in 1950-51. However, agriculture continues to be the
main occupation for much of rural India who comprise 70 percent
of India's one billion-plus population. Nanasaheb Patil, the
Principal Secretary for Agriculture for the Government of
Maharashtra (GOM),noted that the last fifty years of
development has not led to a shift of population from
agriculture to industry. He pointed out that 58 percent of the
population in Maharashtra -- a relatively more industrialized
state -- lives in rural areas, and 80 percent of the state's
rural population depends on agriculture (New Delhi will report
more on the rural economy septel).

Regional Disparities in Rural Maharashtra
--------------


4. (SBU) Within India, the state of Maharashtra is marked by
the co-existence of mixed rural pockets of affluence and
absolute desperation. Sugarcane barons in western Maharashtra,
grape growers in Nashik, and horticulturalists in Pune -- all in
the north-south belt known as Western Maharashtra -- earn huge
incomes. The Konkan region, south of Mumbai along the
Maharashtra coast, has some of the highest rainfall levels in
India, but much of it quickly washes into the sea, limiting
farmers to growing only one rice crop per year. Meanwhile, the
poor cotton farmers of eastern Maharashtra's arid Vidharbha
region face a lack of infrastructure, roads, and irrigation in
their struggle to survive.


5. (SBU) One of the main reasons for this disparity -- beyond
climatic conditions -- is politics. Three-time Chief Minister,
Nationalist Congress Party (NCP) head, and now Union Minister
for Agriculture, Civil Supplies, and Consumer Affairs, Sharad
Pawar is from Western Maharashtra, and politicians from that
region -- largely a dominant caste known as Marathas -- have

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formed the backbone of almost every state government. State
governments have ensured that irrigation projects brought water
to the sugar growing areas of Western Maharashtra instead of the
nearby Konkan region. On a recent trip to Konkan, farmers told
ConGenoff that despite having three Chief Ministers from the
region, none of them were able -- or willing -- to pry away
irrigation projects from Western Maharashtra to irrigate lands
on the coast. Agricultural researcher Ajay Dandekar blamed
"sugar politics" for much of Maharashtra's agrarian challenges.
He pointed out that sugarcane productivity in the state has been
falling over the last decade. However, three-fourths of the
water resources of the state are still diverted to irrigate the
water-guzzling crop which accounts for less than 10 percent of
the state's land under cultivation. The Maharashtra
government's active promotion of the sugar industry distorted
cropping decisions and led farmers to plant sugarcane in areas
unsuitable for cultivation, he added.


6. (SBU) According to Dandekar, each major politician in
Maharashtra or his family control at least one sugarcane factory
or one sugar co-operative. Sugar lobbyists became so powerful
that they prevented the growth of any other lobbyists, barring
the wine (grape) industry which is also in a sugar- dominant
area of the state. As a result, the Maharashtra government has
traditionally promoted policies favoring the sugar and wine
industry over the cotton sector. For example, local wines made
with Maharashtra-grown grapes are exempt from excise duty until
December 2011, while out-of-state and foreign wines made with
grapes grown outside Maharashtra pay duties ranging from 150 to
200 percent of the manufacturing cost. The government has also
mandated a compulsory blending of 5 percent of ethanol (made by
fermenting sugar) with petrol. (Comment: Both the sugar and
wine industries have the financial resources to support the
patronage and "pork barrel politics" of Maharashtra. Sharad
Pawar has a grape named after him called Sharad Seedless grape.
According to the media, Pawar's family owns vast lands in the
sugar and grape growing regions of the state. Pawar's vote base
does not extend to Vidharbha. See Ref C for more on Pawar. End
Comment).


7. (U) Nevertheless, according to GOM's Patil, the current
Congress Party led-United Progressive Alliance (UPA) government
has adopted a rural focus and emphasis on growth in rural India.
(Note: In India, the responsibility for agricultural
development lies with individual states. Frustrated with the
slow pace of agricultural growth, however, the UPA government
has initiated a number of agricultural programs, discussed in
New Delhi septel. End Note). The government has identified the
development of an agricultural "exit policy" -- to take farmers
out of farming and transfer them to other economic activities --
as one of its main priorities. Empowering farmers with
education, skills and training to enable them to get
non-agricultural jobs is the answer to uplifting farmers, Patil
argued. The central government is also trying to shift farmers
away from traditional agriculture like foodgrain cultivation to
"new" agriculture which has higher margins, including
horticulture, poultry, dairy, fisheries, and animal husbandry.
The government has also implemented the Bharat Nirman program to
improve rural infrastructure and enacted the National Rural
Employment Guarantee Act (NREGA) to provide livelihood security
to rural India. (The impact of these programs in Maharashtra
will be covered septel). Working together, these programs can
offer an alternative to agricultural employment and benefit the
farmers through the development of rural infrastructure, while
at the same time reduce rural India's dependency on agriculture.

Are Farmers Benefitting from Agricultural Development Programs?
-------------- --------------


8. (U) Mumbai agricultural specialists have mixed opinions
about the success of the UPA government's programs for the
agricultural sector. Despite four years of growth, the GOM's
Patil asserted that most farmers in India are not reaping its
benefits. The majority -- roughly 80 percent -- of Indian
farmers are small and marginal, owning less than 2 hectares of

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land (roughly 5 acres). According to the Indian Agricultural
Census, the number of landholdings increased from 71 million in
1970-71 to 120 million in 2000-01. The census data showed that
the number of landholdings in Maharashtra increased from 8
million in 1970-71 to 12 million in 2000-01, and that small and
marginal farmers comprised 73 percent of total land-owning
farmers in the state. Patil explained that increasing rural
population in Maharashtra puts pressure on the small and
shrinking landholdings, causing rural per capita income to fall
even if agricultural incomes rise. He cited the huge population
dependency on agriculture as the main reason for the continued
impoverishment of the average Indian farmer in the state.


9. (SBU) Srijit Mishra, an agricultural researcher at the
Indira Gandhi Institute for Development Research (IGIDR),
maintained that government development programs for the
agricultural sector are largely "piecemeal" and not on a scale
large enough to reach all farmers. According to him, the UPA
government did not invest "where people matter." For example,
he pointed to the government's freeze on recruiting teachers for
rural schools in Maharashtra, an area already hard-hit by the
lack of trained teachers and frequent absenteeism. He also
blamed poor overall productivity for many of the Indian farmer's
problem. In a study conducted by Mishra, he found that the
average return to farmers was around 16 cents per capita per day
in 2003. Mishra claims that even if this were doubled (which
according to him is not possible),the farmer would currently
receive an average return of around 32 cents each day which is
less than the cost of five kilograms of rice (Note: Data on
farm income is incomplete and varies greatly from state to
state. These numbers are clearly on the low end of estimates.
End note.)


10. (SBU) However, Veena Mishra, the Chief Economist of
India's largest tractor manufacturing company, Mahindra &
Mahindra, applauded the intentions behind the government
programs, but expressed concerns about their administration and
implementation (septel). Nevertheless, she admitted that the
current UPA government focused on rural growth and invested more
heavily in agricultural programs -- including infrastructure
like roads, electricity, and markets -- as compared to the
previous National Democratic Alliance (NDA) government. There
has been a substantial upward revision of the Minimum Support
Price (MSP) for many crops, including cotton, under the UPA
government which has raised agricultural incomes, she added.
Another IGIDR professor noted that the vast heterogeneity of
states -- in terms of climate, people, governance, and
infrastructure -- makes "one-solution fits all" policies
impossible in India. In 2006-07, the Planning Commission has
mandated that each district adopt a "bottom-up" approach for its
development plans. The professor hoped this will kick-start
"needs-based" development planning for each district in the
country.

Farmer Suicides in Maharashtra Continue Despite Loan Waiver
Package
--------------


11. (U) The desperate condition of many farmers is starkly
visible in the Vidharbha region in eastern Maharashtra where
nearly 7,000 farmers committed suicide during 2001-06. (Note:
A study by the Madras Institute of Development Studies showed
that the rate of farmer suicides per 100,000 population was 29.9
in Maharashtra and 19.2 in Andhra Pradesh in 2001. The
comparative figures for the southern states of Pondicherry and
Kerala were much higher at 834.9 and 142.9, respectively. The
general suicide rates in these states were also significantly
higher than that observed in Maharashtra and Andhra Pradesh.
The suicides in this region have attained national attention due
to the concentration of suicides among farmers in this region,
as well as the sheer numbers of suicides. Statistically,
farmers across the world are more prone to suicide than other
occupations. End Note). Traditionally, cotton has been the
main crop in Vidharbha, although farmers have recently also
diversified into growing soyabean. IGIDR's Mishra explained

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that the geologic characteristics of Vidharbha are not conducive
to water harvesting. So, the drought-prone region is under dry
land farming and largely dependent on rainfall. Historically
low cotton prices, coupled with the high cost and risk of
growing cotton in a drought-prone, non-irrigated area, has, over
time, depressed the returns to the Vidharbha farmers. In
meetings with Vidharbha-based interlocutors, ConGenoff learnt
that even with irrigation, only 40 percent of the region's
farmland could be irrigated because of the region's geography
and topology.


12. (U) The GOM's Patil said that cotton cultivation requires a
minimum investment of USD 360-500 per hectare. Therefore,
"shocks" like crop failure due to low rainfall or spurious
inputs (usually fake seeds),unexpected medical expenses, or
social obligations like weddings, can cause the farmer to fall
into a self-perpetuating and never-ending debt trap, he
explained. Mishra observed that the average outstanding debt of
the Vidharbha farmer is USD 500-800 from multiple sources
including banks and moneylenders. Nevertheless, GOM's Patil
opined that the social stigma attached to non-payment of debts
and the sensitive nature of farmers may cause him to end his
life. (Note: See ref A and B for more details about farmer
suicides in Vidharbha. End Note).


13. (U) In 2005 and 2006, the central government implemented
two relief and rehabilitation packages amounting to USD 965
million for Vidharbha farmers that included debt rescheduling,
interest payment waivers, cash disbursements, and funds for
improved irrigation and water harvesting. However, a recent
report on farmer suicides and debt waivers by Narendra Jhadav,
the former Chief Economic Advisor to the Reserve Bank of India,
found that "there was no significant decline in the absolute
number of farmer suicides in Vidharbha even after two years of
implementation of these packages." According to Maharashtra
state government data, 1,241 farmers in Vidharbha committed
suicide in 2007, as compared to 1,448 farmers in 2006.


14. (SBU) In 2008, the government announced a USD 12 billion
debt waiver and debt relief program for marginal and small
farmers across India. Of this, USD 2 billion has been allocated
for farmers in Maharashtra. Both Patil and Mishra of IGIDR
noted that the farm loan waiver program had limited
applicability and impact as it only applied to loans taken from
public sector banks and excluded debt owed to moneylenders, a
large component of the overall lending, especially in Vidharbha.
At a recent conference, S. L. Shetty, the Director of an
economic research institute, criticized the government's farm
loan waiver program as being "too selective" and rewarding
willful defaulters. He doubted whether the loan waiver truly
solved the farmer indebtedness problem, and pointed out that
suicides continued even after the program was announced. He
argued that the government funds allocated for paying off farm
loans would have been better spent on upgrading irrigation
facilities and educating the farmer's families. Mishra of
Mahindra believes that the farm loan waiver program created a
"moral hazard" and destroyed the growth of rural credit culture.
She accused many farmers, who had the ability to pay, of using
the waiver to excuse themselves from repayment of all dues and
obligations.

Non-Farm Incomes Rising and Rural Sector Seen as a Huge Growth
Opportunity
-------------- --------------


15. (U) However, some agricultural experts noted that while the
agricultural sector is beset by challenges, non-farm rural
income is growing (more on this septel from New Delhi).
According to the latest Central Statistical Organization (CSO)
data, the non-farm sector accounted for 48 percent of rural GDP
in 1999-2000, as compared to a 28 percent share in 1970-71.
Most of the growth in non-farm activity came from the
manufacturing, hotels and restaurants, and construction sectors.
In a research report, Roopa Purushothaman of Future Capital
Holdings, argued that the rural-urban disparities are slowly

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disappearing in India due to the rise of the non-farm sector
which has become a key driver of rural growth. Another
professor at IGIDR pointed out that agricultural income can only
rise if productivity increases, since the government raises
agricultural prices only occasionally. As farm income continues
to stagnate, the share of non-farm income in rural GDP naturally
rises, he argued.


16. (U) However, S. Chandrashekhar, an IGIDR researcher on
urban-rural disparities, suggested that remittances from urban
to rural India form a significant portion of non-farm rural
income, particularly in Maharashtra. On ConGenoff's recent trip
to the Konkan region, political leaders and journalists
described the region's economy as a "money order economy." For
over a century, children in farm families have been migrating to
Mumbai for work and sending back money to their families.
According to observers there, this consistent additional income
enables farm families to survive on one rice crop a year, and
compensates somewhat for the lack of irrigation and other
agricultural development programs.


17. (U) Mahindra's Mishra has seen a gradual shift towards
non-farm activities in rural India over the last five years.
She was uncertain whether the shift was the result of government
programs which employ rural household members to develop rural
infrastructure projects or whether it was driven by rising
economic growth. She noted that the non-farm sector which is
driven by domestic savings and, therefore, unaffected by the
global financial crisis, can feed off rising agricultural
incomes even if urban consumption shrinks. Rahul Sharma, Head
of Rural Information for Mahindra & Mahindra, emphasized that
small and marginal increases in rural demand translate to huge
payoffs to the corporate sector. India's total tractor
manufacturing capacity is 850,000 tractors each year. Assuming
there are 85 million rural households (there are much more),
then a one percent increase in rural demand for tractors would
equal the entire tractor manufacturing capacity of India, he
explained.


18. Comment: (SBU) As a large, complex, mostly rural state
with climatic variations, there is no "one size fits all
approach" to improving agricultural growth in Maharashtra.
While the country's media focuses on the tragic condition of
farmers in the Vidharbha region, farmers in other parts of the
state have used government programs and policies to improve
their living standards. This is a testament to the fact that
some regions have been neglected while others have been richly
rewarded due to political patrons, such as Sharad Pawar in
Western Maharashtra. Going forward, centralized policymaking
may not be the best recipe for addressing localized rural
problems, but state bureaucracies -- including agricultural
extension networks -- are usually not prepared to meet these
challenges. Indeed, agriculture is the Constitutional
responsibility of Indian states, and it was only after five
decades of neglect that the central government started
developing programs and committing resources towards the
agricultural sector. As a result, it is possible that
district-level policymaking and resource allocation, coupled
with improving non-farm incomes for the region, may provide a
better future for farmers in Vidharbha and elsewhere. However,
even "bottom-up" plans for agricultural development require
centrally planned infrastructure development -- such as roads,
power, and irrigation -- to be successful. In the next cables
in this series, we will look at how these programs shape voter
attitudes and behaviors. End Comment.
FOLMSBEE