In negotiating with the IMF a respite from the immediate balance of payments pressures, the government has done well to hang on to its medium term agenda of accelerating GDP growth. I have in my academic papers indicated the elements of a strategy that could achieve rapid GDP growth on a sustained basis by opening up the institutional structure of the economy such that the middle classes and the poor can invest, innovate and get high wage skilled employment to drive a new growth process through equity. An important feature of such an inclusive growth strategy is an agrarian reform program. After all the majority of the population still live in the rural sector and also directly or indirectly generate most of the foreign exchange earnings for the country.
Since the late 1960s successive governments have followed an elite farmer strategy. Now a shift is required to a small farmer strategy in agriculture. The small and medium farm sector, whose yield potential remains to be fully utilized, constitutes a substantial part of the agrarian economy. Farms below 25 acres account for about 94 percent of the total number of farms and contain about 60 percent of the total farm area. From the viewpoint of raising yields per acre the key consideration is that as much as 30 percent of the total farm area in the less than 25 acre category is operated by landless tenants and owner cum tenant farmers. Tenants lose between 25 to 50 percent of any increase in output to the landlord as rental cost, depending on whether they are pure tenants or owner cum tenant farmers. Therefore they lack both the incentive and financial ability to invest in yield increasing inputs and technology. My earlier research for the UNDP showed that the ability of tenants to invest is further eroded by a nexus of social and economic dependence on the landlord which deprives the tenants of much of their investible surplus. Thus the objective of raising yields in the small farm sector is inseparable from removing the constraints to growth arising out of the institutional structure of tenancy.
A policy initiative that enables the tenant to acquire land is therefore the first step to accelerating agriculture growth through the small farm sector. Such a policy could have three elements:
(1) Transferring the existing 2.6 million acres of state owned cultivable land to landless peasants in an average of five acre packages. This means that out of the total number of tenant farmers (about 897,000) in the less than 25 acre category, as many as 58 percent would become owner operators.
(2) The remaining 42 percent of the tenants could be provided with the option of purchasing land through credit on the basis of creating a small farmer loan fund of about Rs.320 billion.
(3) Enabling the small farmers to develop the transferred land for achieving a sustainable increase in their income and productivity. I have argued in a forthcoming book that this could be achieved by setting up a Small Farmer Development Corporation (SFDC) in which less than 25 acre farmers could be provided with loans to acquire equity and the loans paid back from the dividends of this Corporation. While the SFDC would be owned by the small farmers, it would be managed by professionals.
The SFDC would provide services for a price to the small farmers, such as the provision of high quality seeds, composite fertilizers, pesticides; access over markets for outputs; new technology for producing high value off season vegetables through tunnel farming; laser leveling for improved on farm water management; and drip irrigation to improve the water use efficiency. These measures could make the small farm sector the leading edge of a more rapid and equitable agriculture growth.
The imperative of agrarian reforms today arises not only from the need to accelerate agriculture growth and alleviate rural poverty but also from the need to build a sustainable democracy. A society based on tolerance, merit and the supremacy of law would require overcoming feudal forms in the conditions of production, in social interaction, in political culture and in the very functioning of the state.