India is the largest democracy in the world and has the sixth largest economy- one that is growing, but in need of a major overhaul. The country struggles to maintain steady economic growth while trying to unleash a prosperous, capitalistic economy free from government controls.
Take a look at their agricultural sector…
A comprehensive attempt to deregulate agriculture in India took a major hit last week when Prime Minister Narendra Modi backed off from reforms intended to dismantle government control of wholesale markets and let farmers sell direct to consumers or to food processing companies. The laws, passed in September 2020, were intended to combine the more than 4,000 agricultural markets in India into a national whole. Cultivation output was estimated to rise by $175 billion dollars and farmer income was expected to double over eight years due to productivity gains.
Now for some context…
The Indian government is the buyer of choice for all agricultural products and provides price supports for farmers to sell goods. It also provides bailouts and farm-loan waivers to keep farmers afloat. The agricultural sector in India is vital, employing fully 50% of the working population, although it represents only 15% of GDP. As a point of comparison, less than 10% of U.S. workers are in agriculture. While the average American farm is 440 acres, 86% of farm plots in India are five acres or less and too marginal to achieve any economies of scale. The markup between what consumers pay and what farmers receive is 65% in India, compared to about 10% in developed nations. Forty percent of the fruit and vegetable output in India rots before reaching market because of anachronistic anti-hoarding laws that deter investment in refrigeration. There is an obvious need for substantial change!
Farmers across India were concerned that deregulation would make them vulnerable to big, corporate competitors and remove subsidies used to supplement their income. Many participated in huge protests where tens of thousands of farmers rode tractors to the capital of New Delhi after the reforms were implemented. While the government will probably try again, the reforms introduced proved to be too much, too soon. Farmer groups have asked to be more involved in the process, offering input on the rule changes and the timeframe of implementation.
So, now India goes back to government supported agriculture and the inefficiencies that come from such policies, while the growth of their economy takes a hit. It shows how hard it is to break the subsidies habit!
Kudos, go to the Indian leaders and Prime Minister Modi for the good try, and here’s hoping they get at it again!
Take a look at this story from the Wall Street Journal- I’m interested in what you think about it.
~ Brian Kasal- The Leadership Matrix
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