In this article we will discuss about the mobilisation of agricultural and rural surplus:- 1. Real Mobilization 2. Two-Sector Agriculture and Resource Mobilisation 3. Mobilisation of Labour Surpluses. Learn about:- 1. Marketed Agricultural Surplus and Development 2. Resource Mobilization from Agriculture and Economic Development in India 3. Rural Industrialisation for Mobilising Agricultural Surpluses.
Mobilisation of Agricultural and Rural Surplus
Agricultural surpluses are to be mobilised both in the real and financial terms. The former is necessary from the real development and real welfare point of view while the latter is necessary for increasing the strength of the circular financial flow of the economy.
(i) Real Mobilization:
Unless the production increases real surpluses cannot be generated. More than production it is the productivity or the rate of production which should be important. Productivity per acre, per person, per unit of capital employed and per unit of time should increase.
The same real input package should yield more than proportionate real output. Or for the same real output, less than proportionate real inputs should be necessary. This alone can bring the cost of production down and yield higher financial profits. In the initial stages as the agricultural output goes up, the farming families will increase their consumption.
This will happen more with the families which were consuming inferior grains or which were consuming near subsistence level, or families which were consuming at near starvation level. The nutritional consumption will also increase. As such not the entire increase in output can become real marketable surpluses.
Then those marginal families which used to procure seeds for the next season would like to have stocks from their own production. This will also reduce the marketable surpluses in the sense that entire addition to production will not go to the market.
These two effects will apply only for a year or two. It is also possible that the families may start storing for one additional year in the form of foodgrains for consumption and seeds, to get fully insulated against one crop failure. However, not all agricultural families can afford this nor all are so pessimistic.
The government will have to play a crucial role in helping in the increase of agricultural production. It will have to provide (in real or financial terms) water, electricity, seeds, fertilizers, pesticides, extension services, machines, implements, etc., at reasonable and even subsidised prices. Then alone the agricultural output can go up. In less developed countries, agricultural development cannot be anything else than the sponsored development.
Real surpluses can be mobilised by the traders also. All surplus foodgrains are/can be purchased by them from the doorsteps of the agriculturists. These traders take these surpluses to the urban areas and sometimes sell them to the agriculturists themselves who must have over-sold and become short of seeds. Non-farming families of rural areas also purchase from them.
The state in this case bears no cost of foodgrains stock management. The traders have low administrative expenses. However, there is a real cost involved. These traders pay low prices to the growers. No doubt competition between the traders in foodgrains should ensure that competitive market prices are paid to the agriculturists, but the past history shows how these traders can connive and pay low prices.
In any case, these traders had proved themselves as ‘traders in hunger’ and the country cannot trust them. (In Bengal when 30 lakh persons died due to famine in the early forties of 20th century, Indian traders allowed the fellow Indians to die).
The real surpluses can be mobilised by any state trading agency (like Food Corporation of India). In times of partial crop failure the real stock (not necessarily surpluses in the accepted senses) can be procured at ‘levy’ prices. These levy prices will always be lower than the market prices. No doubt the agriculturists take advantage of the scarcity conditions but the interests of the consumers are to be protected.
The wage-price spiral is also to be checked. In such a situation many problems arise- inferior grains are taken in levy, less levy is collected for ‘considerations’ to the levy-collecting staff, ‘smuggling’ of the foodgrains takes place, black market emerges in the foodgrains and less resourceful agriculturists may suffer losses. However, the entire exercise becomes necessary, more particularly if the capacity to import foodgrains is low.
In times of good crops the government should procure the agricultural surpluses at support prices. The cash requirements of the agriculturists in the post-harvesting season are so high that they sell a large percentage of their stocks immediately. This is apt to bring the prices down.
The government purchasing agency has to announce a support price at which unlimited stocks can be purchased by it. This checks the prices from going down below that level. The agriculturists can be free to sell their foodgrains to the traders also who may offer higher prices for superior varieties. The interests of the consumers as well as of the agriculturists are protected.
It is alleged that such government agencies indulge in so many corrupt practices that not even the best writers on corruption cannot anticipate them. A substantial portion of the stock is shown as ‘having become soiled’. Storage losses due to seepage of water, rats and grain bugs are shown to be very high.
Fake transportation is shown. Underweighment of the grains sold may be resorted to. Foodgrains may be mixed with foreign matter. Administrative expenses are very high. Super-scale officers abound. There are constant frictions between the staff and the officers over the sharing of the spoils. As the government agency enters the foodgrains market, it buys them with the newly printed money given to it by the government.
This creates conditions of inflation. The administrative costs of public distribution system are very high. The system of giving permits is totally defective. Ration cards can be cornered by self-employed persons who can suppress their incomes. Only ‘high’ salaried persons suffer as they are ineligible.
Ghost members may outnumber the real members. Agencies of traders emerge and they lift the stock from these fair price shops while in the registers of the ‘fair price shops’ the stocks may be shown as having been distributed to genuine ration card holders. All middle class persons prefer not to buy from the ration shops.
These shops are located at distances; time and transportation charges take away the advantage that might accrue to the ‘beneficiaries’. The entire sugar market is spoiled by the government in India by impounding a portion of the sugar output for public distribution system where as little as 400 grams sugar per person per month may be given. Though public operations in the foodgrains ensure a sort of insurance for the nation as a whole, the costs are very high.
In case of India the buffer stocks have given a confidence to the general public and widespread famines cannot take place and the entire system has certainly helped the poorest of the poor who take things from ration shops but the costs of these operations are borne by the middle and upper classes who do not get benefits from the system but have to bear the indirect costs of this system.
(ii) The second method of mobilisation of surpluses from the agricultural sector is to take the cash savings of the agriculturists in the organised monetary sector. When the government or the rural/urban trades purchase agricultural output from the agriculturists, the agriculturists meet their non-food requirements.
Balance is saved. It can be saved in the form of hoarding or jewellery. Cases abound when the currency notes of the saving hoards are eaten away by moths, termites or rats. Rural banks mobilise these savings. (In India there are branches of the commercial banks, co-operative societies, cooperative banks and regional rural banks which do this). If the institutionalisation of the savings is insufficient or absent, then the villagers are likely to squander away their savings in marriages, pilgrimage and social functions.
If they keep the money in the form of hoarding, the money supply will ‘retire’ and thus less inflationary pressure will be exerted on prices, but this will be at the cost of potential real development.
(iii) The government can float rural development bonds. The money so collected can be utilised in the projects which will go to benefit the economy of the particular sub-region. Development cess can be levied when there is quid pro quo for the same time.
(iv) Mobilisation of resources can be done with the help of progressive taxation. Input can be supplied at no-profit-no-loss basis and the output can be taxed. It is in rural areas that the vast population of less developed countries lives. If the aim of the country is to develop the basic industries and socio-economic infrastructure in the economy, large surpluses can be siphoned off from the agricultural sector.
Their real standard may not be allowed to rise and the resources so mopped up may be transferred for urban and secondary-tertiary sectors development. However, this can be done in those societies which are highly regimented. It was done in the early stages of economic development in the erstwhile USSR. In the early stages of economic development mobilisation of agricultural surpluses in the form of cash becomes difficult.
Achievement of an optimum allocation of the agricultural surpluses might be prevented by certain institutional factors. If land reforms are introduced, the farmers would like to invest in land improvement rather than save in banks. Non-agricultural sectors will not receive investment from them because the farmers lack perception about the opportunities elsewhere.
This is criticized by certain economists who point out that non-agricultural investments may yield higher returns. However, this criticism can be considered as being misplaced. Unless agriculture develops, non-agricultural sector in rural areas cannot develop. This non-agricultural sector of the rural areas will not get basic raw materials and even if the basic inputs are non-agricultural in character, there will be lack of demand for these products in rural areas.
In practice it can be seen that commercial industrial minorities have historically shown surprising success in winning sufficient political support from agriculture or at the cost of agriculture. Considerations such as national security are pointed out to be more important.
Thus, rural savings may be mobilised through institutions and diverted to the urban sector. Or, alternatively the level of subsidies to agriculture may be low and revenue may be raised from agricultural sector through taxation. This sort of resource mobilisation will delay development of agriculture. Sometimes this is done deliberately for a few decades so that basic industries may develop.
(v) An important method of mobilising the resources from agriculture is to allow the terms of trade to move against agriculture. As the prices of industrial goods rise, the prices of the agricultural goods may lag behind.
This will happen because agriculturists operate in a competitive market and unload their supplies immediately in the post-harvesting season and the industrial goods are sold in oligopolistic or imperfect competition market. All this can happen with the tacit approval of the government. The resources are thus mobilised in favour of the secondary and tertiary sectors.
One thing, however, it to be kept in mind that if the rate of real growth (net of adverse terms of trade effect) is lower than that of population growth, agriculture will not have the capacity to transfer resources to any sector. It will start stagnating. It will be killing the goose that lays the golden egg. Nothing should be done which will make the rate of growth in population greater than the rate of real growth in agriculture.
In the past the landlord-tenant system was one method of mobilising the agricultural resources. The landlords used to mop up the surplus real and monetary resources from the rural areas. The circuit of capital was such that capital used to remain concentrated in the hands of landlords, traders and moneylenders.
Now such a system cannot be allowed simply because it is one method of mobilising rural savings/ resources and in which the government has very little to do. These landlords, traders and moneylenders never brought about industrial development. They were petty investors who thrived on usurious interest system. Nobody can now think in terms of mobilising resources from the agricultural sector through perpetuating system of slavery.
It many less developed countries, the number of landless agricultural workers is large. They usually live a life of journeymen also. They move out to cities in the off-season to seek all the sundry types of work. They may offer themselves as construction workers. During the busy season they fan out to those areas where labour shortages are felt (e.g., labour from the Chhattisgarh region of Madhya Pradesh, or eastern Uttar Pradesh or Bihar moves out to western Uttar Pradesh, Haryana or Punjab).
This is a very vast population but unfortunately lives hand to mouth. They have very little positive savings during the entire year. Earnings of busy months are used to sustain themselves in lean months. It will be unrealistic to expect savings from them. They can have some substantial savings if they get adequate wages, but as the things stand this will reduce the profitability of many farms. The remedies are that these workers should get small plots of land and should become small cultivates or they have to be given non-farm employment.
It should be clear that even in the landlord-trader-moneylender system there is substantial ‘resource mobilisation’. However a landed oligarchy will not be conducive to turning an initially large agricultural surplus into a primary generating force in getting a process of self-sustaining economic growth under way.
Two-Sector Agriculture and Resource Mobilisation:
When there is agriculture for food production and plantations we can regard this two-sector agriculture. The food production sector too may be partly ‘capitalistic’ and partly ‘subsistence’. There can be big, medium and small farmers. Productive plantations, on the other hand, will all be on large scale, highly capitalised and well managed.
In old days of imperialism, plantations used to be owned mostly by foreigners. They used to generate a lot of surpluses in real terms. These used to be converted into monetary surpluses. However, their ‘mobilisation’ used to be in the interest of the colonial country and its citizens, who used to own plantation. These resources also used to find their way into investment in mining and more plantations.
Now-a-days big plantations from tobacco to sugar, cotton, tea, fruit orchards or coffee are owned by natives also. Since these are organised on the capitalist principles, allocation of resources is done by the owning class for furthering their own interests. The governments also get money by way of taxes. Now-a-days in many a less developed countries income from agriculture and plantations may not be subjected to income tax.
In such cases, income accruing in the industrial and tertiary sector may be shown as accruing from the plantations and agriculture. Agricultural efficiency may be low in reality but may be shown to be high in the books. The income and resources will be diverted to the industrial and tertiary sector by the owners of such capitalist cultivation. In most, if not all, cases these plantation owners may be able to grow their own food-for themselves and for their labour.
If the particular industrial crop becomes less profitable—because of soil exhaustion, plant disease, falling export prices, or any other reason—indigenous capital and management in the large-scale sector will probably seek better alternative domestic investment opportunities elsewhere.
This will be more possible where a country produces so large a part of the world supply of the given crop that, by its own expansion, it causes the world price to fall. In such cases, the entrepreneurs will diversify to food crops and to non-agricultural investment. Here also the mobilisation and canalization of the resources will be done by the entrepreneurs themselves.
Foreign exchange earned by agricultural sector or the plantation sector will come automatically to the government, if the system of exchange control exists. It will be for the government to decide as how to utilise this reserve. In case, there is freedom to use foreign exchange by the exporters, then the government will have to think about the ways and means of mobilising these resources, e.g., through premiums on purchase price or incentives for deposits.
In any case the government will always have the right to appropriate to itself the foreign exchange. The exporters will be entitled to domestic currency equivalent to the foreign exchange earnings—unless the government is committed to certain other systems under the export promotion programme.
One way of estimating the surpluses or the savings is to find out the total of change in the physical assets and financial assets and then to deduct from this the total of change in liabilities, net inflow of capital transfers and capital gains. However, if the surpluses are not used for building up the assets—physical or financial—then this definition will not give the correct result.
In the above sense, savings can be defined as the difference in an accounting period between changes in assets and changes in liabilities adjusted for capital transfers and capital gains and losses.
The savings of a farm family can be calculated thus:
It can be found that the traditional and small farms will either have low savings/surpluses or even negative. The modern and bigger farms will naturally have high rates of savings; progressive agriculture increases the marketable surpluses of all types of farms, depending upon the development strategy. If the small and marginal farms receive more financial, real and ‘extension services’ support, the difference between the rates of savings on the traditional and modern farms will go down.
Agricultural surpluses increase when the real output increases and/ or prices increase. It can increase even when the consumption and expenditure are increasing, provided increase in the income is greater than increase in the absorption.
Other Issues and Methods:
1. The formal institutional financial set-up should introduce various schemes that should attract the rural savers. If highly profitable projects can be planned in rural areas and the rural population is made to subscribe to the share capital and debentures of the rural projects, the returns can be such that the capital investment can double between 5 or 6 years.
2. A time would come when the inputs to agriculturists would not be supplied at subsidised rates. It can be followed by a system in which these supplies are given on no-profit-no-loss basis. Charging prices that would yield high profits or continuing to supply them at losses will not be good for the efficiency of agricultural output in the long run. Besides, subsidies breed corruption and favouritism. The administrative set-up eats away a large part of it and the production surpluses go down.
If agriculturists have large real surpluses and can sell them at remunerative prices while the state helps in keeping the cost of production down, the rural people will themselves be keen to save. To a certain extent savings can become a function of income here also.
The surpluses will definitely be utilised for consumer durables but a competitive package of savings which will enable the agriculturists to have higher living standard in future can attract these savings. The opposition political parties should not grind their axes if the long-term interests of agricultural development require withdrawals or reduction of the input-subsidies.
Giving lower procurement prices, withdrawing subsidies in the use of inputs, charging high prices for the inputs supplied, mobilising real surpluses through levy system at lower prices, will be go to cripple the agriculture and lower real surpluses will be generated.
3. Farm families which have some goals that cannot be realised in rural economies, e.g., marrying off daughters to urban boys, building up property in urban areas, getting educational and medical facilities in urban areas, etc. will reduce hoardings. Farm families will try to generate more agricultural surpluses through better cropping pattern and shall institutionalise high savings. Nuclear family is more prone to savings than a joint family.
4. Banking facilities, insurance coverage, improved storage facilities, improved transportation and marketing facilities, improved trade systems all go to help in generating high production surpluses. Moderate taxes, development cess and better tax compliance of a low rate can help much more.
5. Utilisation of the financial surpluses for the development of rural and urban areas will have healthy demonstration effect. Total production efficiency and total market efficiency can ensure larger real surpluses. Their institutionalisation will depend upon financial agencies and tax policies.
Mobilisation of Labour Surpluses:
This is not agricultural surplus but rural surplus. It is a factor surplus available for agriculture. The labour surplus is the actual supply minus the minimum necessary.
It can be presented as follows:
It can be studied under ‘mobilisation of agricultural’ surpluses because optimum utilisation of labour can increase the agricultural output at the same time reducing the costs.
The concept of labour surplus is based upon the assumption of ‘zero or even negative’ marginal productivity of labour. It is based upon a simple bunch: there are more workers on land than are necessary on farms. Even if some workers are taken away, the production will not fall. If the production goes up with the withdrawal of some labour units, it means that their productivity was negative. Whether or not these hypotheses can be proved, the fact remains that there is widespread unemployment and under-employment in agriculture.
Many economists have taken different definitions of ‘labour supply’. It can be taken to be the supply of adult males, or adult males plus some percentage of females, and even children. However, in all forma) studies the ‘supply’ of child-labour can be excluded. The adults can be persons between the ages 15-60 or 18-58, whatever the norm.
Labour supply can be equal to the number of workers multiplied by 300 working days of certain number of hours.
Actual number of hours worked can be found by finding out the actual labour hours-expended (this can be done through surveys). If meaningful surveys are conducted then peak load employment, offseason employment, slack-season employment and non-farm employment should also be considered to find out the average employment and thus unemployment and under-employment.
The survey can find out the following:
(i) Number of workers in families according to age and sex;
(ii) Their utilisation by hours in different works on different days;
(iii) Peak time utilisation versus minimum utilisation on different days- average number of the hours worked;
(iv) Utilisation on man-hours in different size class of land and for different crops.
Such surveys can be conducted for different villages either on the census basis or on the sample basis. The sample should better be purposive and stratified.
Certain generalisation can be made. The concept of surplus labour cannot be denied. As the cropping intensity increases, i.e., the gross area sown increases, utilisation of labour goes up, redundancy is reduced. However, in the meanwhile population also increases. If the rate of absorption in agriculture is lower than the net demographic increase, this surplus population remains.
Lack of rural industrialisation, lack of jobs in the urban sector, and structural immobilities are responsible for increasing labour surplus in agriculture.
An effective or real labour surplus can emerge only after the emergence of the product surplus. Labour surplus is the consequence of the product surplus rather than the cause of it. Without adequate agricultural surplus, the mobilisation of surplus farm family labour for industrial sector is not a possible proposition for the state.
The adequacy of agricultural surplus is a major macro level constraint as without such a surplus the labours transfer from the farm to the non- farm sector would adversely affect the wages and prices in both the sectors.
The Nurkse-Lewis model had suggested a few measures for the mobilisation of agricultural labour:
1. The government should create jobs in the urban and capitalist sector through deficit financing. Jobs can be taken to the rural areas also.
2. The real wages of the workers can be kept at a minimum acceptable subsistence level and may not be allowed to rise till all the surplus labour is utilised.
3. The surplus rural population can be made to do ‘shramdan’ (donation of voluntary labour) type of work. Nurkse had suggested a tax equivalent to the savings in consumption that would result from the movement of surplus agricultural population.
Mobilisation of labour surpluses in the rural areas is a part of the mobilisation of rural resources and not merely agricultural resources. Labour surplus is the actual supply minus the necessary supply. Demographic changes bring changes in the actual supply while technology decides the necessary supply.
The necessary supply differs from season to season and in the peak load demand season, the underemployment goes down while in slack season it goes up.
To find out the actual number of workers necessary:
(i) Norm for a working day will have to be fixed,
(ii) Total number of working hours on which a person should work in a year should be decided, and
(iii) Utilisation of labour force on various farms of different sizes, for different crops, at different times will have to be worked out so as to find the labour surpluses.
Economic theory is replete with empirical evidence and thesis that labour redundancy exists in agriculture. The amount of potential unemployment is still greater. New technology is kept in abeyance so that the problem of redundancy is not aggravated.
This redundant population will have to be utilised first by increasing the cropping intensity, and complementarities and supplementaries in agriculture. Rural areas have to be developed with non-farm activities. In fact a new sector—the urban sector—should come up which will facilitate taking ‘job to men’, rather than ‘men going to the jobs’. Only when the product surplus emerges, can the labour surplus emerge.
Labour surplus is the consequences of the product surplus rather than the cause of it. Without agricultural surplus, the mobilisation of surplus farm family labour towards industrial sector is not a possible proposition. The adequacy of agricultural surplus is major macro level constraint as without such a surplus the labour transfer from the farm to the non-farm sector would adversely affect the wages and prices in both the sectors.
Product-wise estimates of the potential marketable surplus are to be simulated. They can be done on the basis of the maximum possible yields under different methods of cultivation.
Estimates should also be made about the real inputs that will be necessary for different methods of cultivation. As the cultivation methods will progressively improve, the real inputs necessary will also have to be increased. Simulation will be necessary about these.
It will also be necessary to identify how much surpluses can be obtained under different varieties of the cropping pattern. Optimum cropping patterns are to be evolved.
Similarly, the optimum size of the holdings for different crops is to be identified so that maximum surpluses are obtained. If possible, their association with various classes of persons (castes, or educated versus less educated) and income groups will also be necessary.
The financial requirements for various real input packages are also to be worked out. It is also to be worked out as to how much of this can be provided by the cultivators themselves and how much should come from the banking system.
On the basis of the experience in an area over a period of time, it can be found out as to which methods are most effective for mobilisation of surpluses in the real and financial terms.