The Ruling of India – How External Forces Have Shaped Indian Agriculture

Given the recent protests in India over farming reforms implemented by Prime Minister Narenda Modi, I have decided to publish an essay I penned two years ago. It discusses how from the time of the British East India Company, business has led India by the stick without a carrot, with the situation only looking to get worse with proposed trade agreements on the horizon such as RCEP. Banking and flight capital have always been prevalent and the recent introduction of laws making it easier for Big Business to monopolise and abuse trade will worsen this.

I send my best wishes to the Sikh farmers opposing the introduction of these laws.

Control over India and her resources, under Britain and before that the Moghuls, has been much discussed and relatively well documented. However, much of this history is the subject of a cultural negligence as discussed by Edward Said in his book Orientalism and further expanded upon by Arvind Sharma in The Ruler’s Gaze. This systematic deconstruction of non-western cultures has become more of a focal point for current research as Britain’s imperialism dwindles, to be replaced by other controlling influences. To many, control over India did not end in 1947 after the withdrawal of the colonialists. Historians Aditya and Mridula Mukherjee talk about how “imperialist exploitation, and the consequent underdevelopment did not cease”, even after British rule officially ended in India. In their paper Imperialism and Growth of Indian Capitalism in the 20th Century, they examine how control of the former colony was held through more indirect means than land colonisation and governmental rule.

Instead “a greater and more blatant direct appropriation of surplus through currency manipulations, forced loans, large military expenditures and numerous other unilateral transfers” allows non-domestic entities to influence and benefit from India’s own industry, ultimately undermining India’s own sovereignty. In more recent times the appearance of multinational corporations and trade agreements such as RCEP (Regional Comprehensive Economic Partnership – between South Asian and Pacific countries) are arguably just as damaging as the East India Company was before th British Rule. In this short essay I aim to present a historical timeline showing the progression from imperial rule to industrial exploitation, focussing mainly on India’s ever-important yet consistently neglected agricultural sector and how this has ultimately led to India’s situation today; one of social unrest and protest. 

The Beginnings of British Influence

To understand what has drawn settlers and colonists to India we must look back to the Indian Raj and Mughal empire. At the time of Mughal rule, India made up 25% of the world’s GDP. A large proportion of this was generated through textiles and agriculture, and colonists were keen to get a piece of this pie with French, Portuguese, Dutch and British settlers arriving on the India’s East coast in order to set up trading stations. The importance of trading routes through the Indies to China for spices and other valuable commodities for European powers also increased the need for settlement on India’s coasts throughout the sixteenth and seventeenth centuries. Through a series of deals with local landowners and the defeat of the French (the British main rival for control of trade in India) in the Seven Years War, the East India Company established themselves as a greater ruler over India than their counterparts, even the Mughals. By the mid nineteenth century the East India Company  (EIC) controlled the majority of India and its exports, using taxes collected from the Indian populace to buy Indian goods, essentially forcing Indians to work, create, farm and pay for goods they do not even use themselves. These goods were usually then exported to Britain to be sold at a higher price for the benefit of the British merchants and empire. 

This seemingly unscrupulous use of ruling power led to the 1857 rebellion in which the Indian people rose up and asked for independence from the suffocating trade deals of the East India Company. Instead of sovereign freedom however, the British Empire decided India was not ready to rule itself and the British Raj took over from the East India Company. Under the sovereign rule of Britain, Indian resources were abused in a similar fashion to the EIC, although it was better hidden . In the words of Angus Maddison, “British imperialism was more pragmatic than that of other colonial powers [such as France, Portugal and the Netherlands]. It’s motivation was economic not evangelical”, and this is seen in the way the British Raj ruled India. While religion and conversion to christianity was certainly an agenda to some within the prevailing establishment, the achievement of a “monopolistic trading position” and a “regime of free trade” were the main goals of British rule in India, a point raised by Angus Maddison in his 1971 book Class structure and Economic Growth: India & Pakistan Since the Moghuls.

While other European nations were concentrating on trying to convert the indigenous peoples of their colonies to the teachings of God, Britain concentrated on locking down India’s resource value to The City of London, all while appearing to give India greater trading freedoms than under the EIC.

Rigging The Game

After the revolt of 1857, Indians were allowed to sell to other countries themselves, something unheard of under the EIC who took control over the sales of all exportable goods. Under the British Raj producers were allowed to export their own goods directly albeit for special Council Bills not rupees. These special Council Bills were needed by countries or merchants wanting to buy and import Indian goods and could only be obtained from The City of London for silver or gold. Once these bills were exchanged for goods, Indian merchants then cashed them in for rupees, collected during the taxing of the Indian populace. So the method of paying for Indian goods by the country’s own money was still in place, as it was during the time of the EIC, it had just been made more complex to hide its existence. A common occurrence in the practices of the City of London. This method of economic dominance allowed India to appear as a seemingly wealthy exporter of goods, even though almost all of the monetary value of these goods ended up in the hands of the British Government as flight capital, a sum recently calculated by renowned economist Utsa Patnaik as nearly $45 trillion; 17 times the annual GDP of Britain today [*At time of writing in 2018]. 

After 1947 and the withdrawal of Britain from Indian governance, private banks became increasingly prominent. As did their failures, with 361 banks failing between 1947 and 1955; a rate of 45 a year, leaving their then-uninsured investors out of pocket. The agricultural sector, despite being the lifeblood of India, was largely ignored in this post-independence period by investors. As a way to help revitalise the farming industry, the country’s first prime minister Jawaharlal Nehru started the first  of India’s 5 year plans in 1951. Modelled closely on Stalin’s plans of 1928, these reforms aimed to increase growth and to make more efficient use of the large amount of land available to India. With a new plan introduced every 5 years, the first mostly dealt with problems associated with tenancy and cultivation, as large areas of fallow land were stuck under large holdings and not being cultivated. By the time his daughter, Indira Gandhi, was in power in the early 80’s, the focus was on maintaining food security. Despite the various land reforms a healthy agrarian sector was still far from realised, partly due to what Patnaik calls the “robber baron capitalism” that was “rampant” in India. Loans were directed away from agriculture, toward industry and business; the owners of which also held large stakes in the country’s banks.

The Road To Reform

This was recognised by Indira Gandhi when she took power and in her second term, she promised to nationalise the banks, giving a greater percentage of loans to India’s struggling agriculture sector. In 1969 Gandhi achieved this, nationalising the top 14 banks and handing control of 70% of the nation’s bank deposits to the Indian government as well as any operations available with that capital. Using this new power Gandhi increased the accessibility of the banks in rural areas, covering a huge proportion of the Indian population. Pre-nationalisation only 17.6% of bank branches were in rural areas, post-nationalisation this rose to 58%. This was a massive step toward aiding the struggling agriculture sector as access to advice and the capital for loans was more readily available, and this was reflected in the increased amount of loans (9.1%) given out to farmers in 1976-77. This did result in a bump in agriculture production, as this increase in loans allowed the Green Revolution to take place, with India becoming practically self-sufficient in the mid 70’s before drought unfortunately hit the country.  However “big industry and business continued to dominate the credit profiles of nationalised banks” leading some critics of Indira Gandhi’s policies to claim that the newly nationalised banks “failed to energise the ‘priority sectors’” like agriculture to the extent she had promised. Other critics decry her moves as beneficial at all to the poor whom she hoped to help, instead placing money and control into “the hands of rich peasants who produced mainly for the export market” and aided in the stockpiling of commodities such as food grain. While I think Indira Gandhi’s motives and actions were successful in handing some control back to the large rural population it cannot be ignored that agriculture, while improved, did not become healed in the time before Gandhi’s assassination. 

After Indira Gandhi’s assassination in 1984 India began to descend into economic recession as imports swelled and trade deficits grew on borrowed money. This borrowing  snowballed, eventually culminating in the economic crisis of 1991. This, in turn, led to India’s acceptance of a $500 million bailout from the IMF and WTO, on the condition that some laws were passed and policies put in place that pushed for “economic liberalisation”. These laws allowed deregulation of the markets, lower duties and taxes on Indian goods and a massive increase in foreign direct investment (FDI), allowing for more of a market economy. This very quickly increased the proportion of private companies with an influence over domestic services and business, including agriculture. By increasing the amount of FDI in the country in this way, it effectively undercut the reforms made by Indira Gandhi when she nationalised the country’s banks. While the banks and their deposits remained virtually state controlled and regulated, foreign influence was now and still is allowed to be directly injected into the Indian economy by the businesses themselves rather than through private banks, as was the case pre-nationalisation.

Another of Indira Gandhi’s reforms to fall from policy was the increased agricultural subsidies, which had been decreasing steadily since her assassination and dwindled further since the reforms of 1991. This has directly led to the situation seen in India today, where farmers are marching from across the country to New Delhi in order to protest increasing volatility in the country’s agricultural sector. One of the only agriculture-related statistics to see an increase in the past two decades is the rate of suicide among farmers. Caused by a mix of bad growing seasons, low or negligible subsidies and borrowing from unscrupulous lenders charging exorbitant amounts on loans. The latter being a situation caused by institutional credit agencies “not responding adequately to demand” as well as poor access.   

The Modern Raj

The emergence of the Regional Comprehensive Economic Partnership (RCEP) is casting a dark shadow on the future of Indian agriculture. First proposed at the turn of the millenium, member nations began negotiations in November 2012 in response to the United States  attempting to put together the Trans-Pacific Partnership (TPP) two years before. While the TPP was ultimately dropped by the US in 2016, RCEP has undergone 24 rounds of negotiations, led by China and the US’s backing, with aims to increase trade links between many of the countries around the Pacific and Indo-Pacific. 

However a closer look at how it operates and its aims show a very different picture. Far from seeking to aid the growth of sovereign nations involved with RCEP, big business seems to be at the fore. Many of the clauses being discussed aid the privatisation of services as well as blocking any action by governments that protect domestic services or products. Almost all of the discussions take place without any input from the governments that will be affected and the actual content of the talks is a closely guarded secret. The only public knowledge of what goes on in these talks comes from regular online leaks. Some of these leaked documents contain draft clauses that are likely to be implemented, one of which is the “services chapter draft”. This clause proposes that foreign service supplies are given the same degree of access to land ownership as domestic suppliers, including the ability to own farmland, an already thinly spread commodity among indians. Such clauses could be modified with an exception for (eg.) farmland but this would be subject to negotiation and would have to be agreed to by all parties, something that is highly unlikely to happen; a view held by the many RCEP critics. Policies like those being put forward by RCEP in the words of economist Surupta Gupta “could seriously aggravate land grabbing” by big business, displacing domestic business and “sabotaging [the] agrarian reform processes [countries like India] have spent so long cultivating”. 

The view that India has nothing to gain from “opening itself up” is one shared by many prominent critics such as Biswajit Dhar, professor of economics and Jawaharlal Nehru University. The measures proposed by RCEP are “contradictory” to India’s “largely defensive posture” in regards to agriculture and manufacturing. Allowing more market access to countries such as China leaves many of India’s most vital sectors open to exploitation and export, giving the impression of a healthy market while actually seeing minimal returns in the form of GDP. As an example of the premiums RCEP is asking of its members, India Foreign Direct Investment Watch reports that RCEP mandates import duties for its members between 0 and 3%. India’s current duty on industrial goods is 10% on average and 32.5% on agricultural products. Couple a loss of income due to this decreased duty on exports with a foreign service sector within India that can outsource their suppliers and you will undoubtedly see a large loss in national GDP and economic stability, all while India appears to be a huge exporter of goods. Decreased economic stability could lead to further loans being needed from institutions such as the IMF or WTO just for purchase of basic imports as well as in order for services to run as India has in the past, and if any of the loans handed to countries such as Argentina, Ireland or Greece is anything to go by this will lead to a snowballing national debt that looks increasingly impossible to pay off. The Indian government already has to pay back debts to the WTO accrued by farmers, who are too poor to buy new seeds or farming equipment without loans, so an extra burden of debt on top of the current, already rising level, may cripple the country beyond repair, possibly leading to the “crisis of society” or “even a civilisational crisis” that prominent journalist Palagummi Sainath predicts.

These policies suggested by RCEP are already being slipped into Indian law as Narendra Modis ruling BJP government look to introduce more liberal agricultural trade policies. Supposedly to “bring about predictability and enable exports to more markets” with the aim of “doubling farmers income”, the proposed laws are very dangerous given some of the clauses given by RCEP such as the “Ratchet Clause”. The Ratchet Clause means that every time a government make a policy decision or passes a law that aids privatisation or liberalisation, no retroactive action can be taken by said government to undo this. It is now locked in and cannot be reset even to the levels originally agreed upon by RCEP. Any action taken by a government to rectify this could and will most likely end up in an investor-state dispute settlement. Even in cases where sovereign states win these settlements, the money at the disposal of big business means that the legal costs alone could cripple a developing nations economy. RCEP also states that any future concession to a trading partner under a bilateral treaty will also get extended to all RCEP members, known as Most Favoured Nation Forward.

Together these two clauses could cause many countries, not just India, to have to open up their domestic markets and privileges to foreign business, stifling domestic growth as the state puts money in to support these businesses, while seeing none of the profit for fear of being sued. One of the more recent policies Modi intends to move on will require India to keep up a certain level of agricultural exports to outside parties, even when domestic need is high. This policy is not just unsound and unfair to the populace that produce the grains being exported, it is also moving away from India’s historically preserving stance of curbing exports in order to keep domestic prices in check. While not yet in place, if actioned and passed, this is a law that liberalises the market and therefore could potentially not be undone under RCEP, even in cases of severe domestic need such as drought. If there were to be a drought, domestic food prices would soar as available grains were earmarked for export instead of domestic sales to the starving population, leading to famine in a country of over 1 billion people. 

Old Empire, New Clothes

In 2018 Modi’s Bharatiya Janata Party proclaimed that India is now “self-sufficient”, as food-grain production had reached 270.11 million tonnes between 2016-2017, up from 217 million tonnes a decade before. At current estimate, there are 270 million starving people within India’s borders. Poor infrastructure and storage difficulties mean that a vast amount of produce doesn’t get to where it needs to be, instead rotting in huge piles on farmland. The Union Ministry of Agriculture predicted that India’s demand for food grains in 2017 would be 257.7 million tonnes, so if the BJP are correct with their estimates, India’s total production is at 106.8% of demand. Using the Food and Agriculture Organisation of the United Nations (FAO) own leveling system, 80% to 120% production means a country is indeed “self-sufficient”. However with the estimate of production not taking into account the huge amount of wastage, the true percentage of available food grains could well fall nearer or  the 80% mark, below which lies “food deficit”. If India is nearing a shortage of food for its own people, are the passing of laws that allow for increased and prioritised export really helping the country? 

The “appropriation of surplus” in India by the British Raj is well documented, however it is not over. Economic measures taken in India have helped consolidate what used to be the Brits main source of income into that of the global corporations. The direction of loans post-independence has been toward industries that provide large profit margins and the opportunity for flight capital; something that the agricultural sector doesn’t provide in large quantities. Therefore it has been historically starved of investment, whilst still being expected to provide on a global scale. This has led to a large backlash by domestic industries, especially the agricultural sector. More recently the development of RCEP has shown that, with business interests coming before the well-being of sovereign nations, leading to the same undermining of domestic industry that was seen 150 years ago.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: