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The growth and sustainability of rural development in India and China.

Introduction

Prior to showing the concern about the problem of agriculture and rural development, it is imperative to probe its importance in the context of economic development of developing countries. The first view in the this context argues that agriculture only plays a passive role as a major source of resources for the development of industry and non-agricultural sector; and the second view along with conforming the forward linkage effects of agriculture also emphasizes backward linkage effects to other sectors of economy. Rural sector not only provides material, capital and labour but also huge market for the non-agricultural sector.

Due to unrealistic ambition and poor insight, most governments of the developing countries have been trying to industrialize their economies at so high speed that the agricultural/rural growth is suffocated, resulting in low efficiency in industry and poor performance of entire economy. The growth of rural sector in developing countries like India and China is important also because majority of their population still living in rural areas. The development of rural sector is required to mitigate inequitable rural urban income, hunger and poverty.

In fact, overemphasis for industrialization has been common in both the countries immediately after independence. Mao's ambition was to quickly industrialize the economy based on resource transferred form agricultural production. Jawaharlal Nehru had emphasized on heavy industries right from First Five Year Plan in India when nation was suffering from the problem of food insecurity.

The sustainability of agricultural and rural development is important issue in India and China for their future prosperity. The problems of rural areas, agriculture and peasants are closely linked to sustainable economic growth. The present paper attempts to highlight the problems of sustainable rural development in India and China. Both the countries have been suffering in this respect but for different reasons. Still, reduction in share of agriculture in GDP and the majority of population living in rural areas are the two common challenges in both the countries. In the light of these challenges, most of the problems relating to agriculture and rural development in India and China are discussed in this paper.

Production Contribution of Agriculture

Production Contribution is measured by the size of agriculture in national economy. In early 1950s, agriculture accounted for 50 percent of GDP, but by 1978 it accounted for 28 percent in China. Agriculture share in GDP remained stable for over 12 years from 1978 to 1990 due to its rapid growth in the early years of economic reform. However, as Chinese state policies shifted away from rural to urban development, its share declined in the 1990s. By 2003, it was less than 15 percent.

In India, the share of agriculture in GDP has been declining as in China but at a slower pace which is evident in this Table.

There are two main reasons for a declining share of agriculture in national income. One is inevitable trend of economic development which requires a high growth rate of nonagricultural sectors than agricultural dictated by Engel's law. The Engel's law states that as personal disposable income grows as a result of economic development, consumer tends to spend a lower proportion of incremental income on agricultural products. The Engel's law is verified by the very low income elasticity of food demand in India as well as China.

Another reason for slow agricultural growth is government policy, which has been discriminating against agriculture and rural population in China. Before economic reform, farmers were forced to deliver grains and other agricultural products to the state at a very low price. Market liberalization, price reform and other policy measures more favorable to agriculture since 1978 have stimulated agricultural growth in China. As a result, the declining rate of agriculture's share in national income was reduced. This is a explanation of how government polices can effect agricultural growth.

Market Contribution of Agriculture

Market contribution refers to the demand by agriculture and rural sector for different inputs, such as fertilizers, insecticides, machinery, electricity, transportation and to the farmer's consumption effects on the rest of the economy. Agricultural demand for industrial inputs was accelerated by the increasing constraints of areable land and crop area in China. Per capita arable land and crop area declined respectively at 2.08 per cent and 1.69 per cent per year between the years 1953 and 1989. Despite actual shortage of land, China managed to achieve significant growth of per capita agricultural output, especially during the reform period largely due to its technological progress. Besides this, meat, vegetable, fish, cooking oil and other food products have grown enormously during the reform period.

Sustainable growth has been achieved through steady improvements in land productivity. Increased land productivity, however, has relied on increased use of industrial products, such as fertilizer, insecticides, farm machinery, equipment and electricity. This suggests that an increased share of agricultural output is accounted for by the non-farm sector. For example food grain yield increased by almost three times from 1155 kg/ hectare in 1950 to 4342 kg/hectare in 1992 to 4885 kg/hectare in 2002. But the use of fertilizers increased more than 260 times from 0.75 kg/hectare to 281 kg/hectare over the same period. Irrigation and mechanization involved large amount of industrial input into agriculture, creating a strong backward linkage effect driving the rapid development of agro industries. Economic reforms have brought about sustainable and significant increase in farmers income. As rural income grows, farmers are sharing higher proportion of incremental expenditure on manufacturing products. Had Chinese national policy not been biased against rural sector, this process has been faster without suffocating agricultural growth and low efficiency in industrial sector during pre reform period .National priority for agriculture sector again has been slowed down in China to promote exclusively industrial sector.

As against China, in India, high productivity of agriculture could not be maintained. Hence, Indian agricultural sector could not generate enough market contribution through backward linkage effects. Creating a more productive internationally competitive and diversified agriculture sector would require, first a shift in public expenditure away from subsidies towards productivity enhancing investments. Second, it will require removal of restriction on domestic private trade to improve the investment eliminate and meet expanding market opportunities. Third, the agricultural research and extension system need to be strengthened to improve access to productivity enhancing technologies.

Factor Contribution of Agriculture

There are two basic factors, capital and labour, which can be provided by the rural sector to the national economy. In China, capital transfers from agriculture took place mainly in the form of indirect agricultural taxes through forced procurement of agriculture products at below market prices. The Chinese Ministry of Agriculture estimated that about 70 to 80 percent of total state revenue was from taxing agricultural in 1950s. Although the share of state revenue from agriculture decline over time, by the mid-1980s, it was about half of state revenue from agriculture. Tax revenue from agriculture doesn't include taxes collected from the rural township and village enterprises (TVES). In other word, the total rural to urban capital transfers were much greater than the agricultural to non agricultural sectors.

In China, industrial development in the pre reform period did not use much labour from agriculture, although, rural to urban migration since 1979 has been substantial. Farmers were largely excluded from the industrialization process despite their contribution in almost all the accumulated capital assets of the state industries. This was an inevitable out come of capital intensive and urban bias state industrial policy. Apart from this, peasant workers in China are discriminated in the cities in various ways. They are paid a fraction of what a normal urban worker would be paid for exactly the same kind of work. Moreover, rural worker are subject to all kind of abuses. They have to do the most arduous, dirtiest and dangerous jobs in urban areas.

While comparing Indian case with Chinese, here also the government has undue interventions in labour, land and credit markets. More rapid growth of the rural non-farm sector is constrained by government interventions in factor markets-labour, land and credit- and in output markets, such as the small scale reservation of enterprises. While India has a wide network of rural financial institutions, many of the rural poor remain excluded, due to inefficiencies in the formal financial institutions, the weak regulatory framework, high transaction costs, and risk associated with lending to agriculture.

Foreign Exchange Contribution of Agriculture

Agricultural exports have been dominant source of foreign exchange earning in China_up to the year 1990s, when they contributed about 40 to 45 percent of total national exports. This has been declining sharply in China to around 6 percent due to extra ordinary growth in international trade particularly after China joined WTO in December 2001. Despite advancement in industrial exports in China, reducing share of agriculture is seen as an out come of neglect of rural and agriculture sector. Apart from the early years of reform from the year 1978 to 1984, agriculture and rural population has been disadvantaged by state development policy through out the modern Chinese history. This has been released in first CCPCC, document of 2004, which has emphasized to tackle the problems of peasant, agriculture and rural areas.

In case of India also agriculture export account for 31.7 percent of total export in 1977. This share has decline to 10.3 percent in 2006-07. The reducing share of agricultural exports is matter of concern in India also. This is being taken up through second-generation economic reforms in India. With the announcement of new agricultural policy emphasis has been given to boosting the export of agricultural produce. Rice export is gaining importance. Besides this, fruit, vegetable and processed food item are also becoming significant in India is exports.

In the light of issues and problems related to forward and backward linkages in rural sector of China, the following are the most important problems.

Low Income Growth in Rural Sector

China started its economic reform from the country side in 1978. The first phase of economic reforms achieved remarkable results. Agricultural output increased dramatically and real per capita income rose by almost 15 per cent per annum from 1978 to 1984 (YAO, 2000). Over this period, the per capita urban-rural gap was also reduced significantly. However, the relatively high growth of rural income was short lived and state biased policy against the rural population regained its momentum from the year 1985 when large scale industrial reforms began. In 2003, per capita urban income was Rs 8500 Yuan, rising by 9.3 per cent. Rural per capita income was 2622 Yuan during the same year rising only by 4.3 per cent, which too could be achieved only because central government had tried for so many years to raise rural income (Peoples Daily 2004: 21 January). It seems impossible to reverse this inequality trend based on present institutional setting, despite the awareness of the new generation of government led by party secretary and head of the state, Hu Jintao.

Rising Inequality and the Difficulty in Reducing Rural Poverty

Due to rising income inequality between regions and rising inequality within each region, it has become difficult to fight against poverty in rural China. Yao (2000) estimates that the majority of poverty reduction in rural China took place in the period 1978-84, when the poverty head count was reduced by over two-thirds. After 1985, however, the number of rural poor increased and it was not until the early 1990s that it started to decline again.

Although there is no doubt that rural poverty has been reduced significantly since economic reforms started in 1978, the incidence of poverty in rural China still remains high and the task of reducing poverty further has been greatly constrained by rising inequality. It is worth nothing that China's rural poverty prevails not only in a few regions of natural adversity, but also in the most prosperous provinces, such as Guangdong, shanghai and Jinagsu.

In terms of poverty alleviation, it is easy to target the poor if they are confined to a particular area of natural adversity. However, it is far more difficult and costly to target the poor if they are scattered far apart in prosperous areas.

Rural Surplus Labour and Constraints on the Development of TVEs

The most effective way to reduce poverty is through income growth, which in turn, depends on how agricultural surplus labour can be transferred out of agriculture. The increase in rural to urban migration has been possible because the government has relaxed its control policy and because the urban economy has been able to absorb non urban residents. However, the majority of rural migrants working in the cities are temporary workers who do not have a permanent residency right.

There are a number of concerns over the future development of TVEs: the upgrading of technology, the challenge in domestic and international competition, the capacity to absorb more and more labour released from the agricultural sector, the ability to generate more incomes for the rural population, and the development in the disadvantaged inland provinces. In all respects, the development of TVEs needs assistance from both the central and regional governments. However, due to the legacy of state discrimination against agriculture and the rural sector and the difficulty in reforming the urban economy, there is serious doubt that the government will be able to deliver the required support to all these needs.

Conclusion

Although agriculture contributes only 21 percent of India's GDP, its importance in the country's economic, social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72 percent of the India's 1.1 billion people, a large number of whom are poor. Most of the rural poor depend on rain-fed agriculture and fragile forests for their livelihoods.

Agriculture's role in the Chinese national economy has decline sharply due to its low share in GDP. However, the large majority of population is still living in the countryside and about half of the labour force is still engaged in agriculture. The paradox between a profound change in economic structure and a predominant agricultural labour force in China is the consequence of state urban biased policy, which was practiced by Mao but carried forward into the reform period.

In the pre-reform period, farm income hardly grew due to excessive resource transfer from the rural to the urban economy and irrational policies under the commune system. Economic reforms brought about six years (1978-84) of dramatic agricultural productivity and rural income growth, but such prosperity was short-lived. Later economic reform was again focused on the urban and industrial sector. The continuation of urban biased policy, corruption and the legacy of rural-urban separation are the main reason for the ever rising urban-rural divide, making poverty reduction increasingly more difficult. China has changed from a very egalitarian society to one of the world's most unequal nations as a result of economic reforms.

The sharp rise in food grain production during India's Green Revolution of the 1970s enabled the country to achieve self-sufficiency in food grains and prevented the threat of famine. Agricultural intensification in the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with declining food prices, reduced rural poverty. Sustained, although much slower, agricultural growth in the 1990s reduced rural poverty to 26.3 percent by 1999-2000. Since then, however, the slowdown in agricultural growth has become a major cause for concern. India's rice yields are one-third of China's and about half of those in Vietnam and Indonesia. With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities.

Resource transfer from rural to urban sectors in China took the form of direct and indirect agricultural taxes in the pre reform period and lasted to the late 1980s. From the 1990s resource transfer has taken a different form, that is, the sheer exploitation of peasant workers working in the cities. Agriculture has been neglected in many ways: low investment unfair terms of trade, and deprivation of able labour which has been sucked into cities because of the enormous urban-rural wage gap. China's problem of unfair income distribution and poverty lie in the problems of agriculture, peasants and rural areas. This problem is so serious that the CCPCC has now issued its first document of 2004 attempting to make some radical changes. Particular measures will include the following:

* More financial support from the central budget to agricultural and rural development;

* Gradual reduction of agricultural tax from 8.4 per cent to 2.4 per cent from 2004 to 2009;

* Special support will be given to grain growing farmers to stop the decline of grain production

However, nothing has been mentioned on Chinese institutional reforms. At present, villages own agricultural land and village cadres can sell land to support their salary and administrative cost. Empirical observations show that local government officials are highly corrupt in a number of aspects, including selling collective land for their own benefits and charging illegal fees on farmers. If institutions are not reformed, farmers will continue to suffer and the fundamental problems cannot be resolved.

In case of India, the Government of India places high priority on reducing poverty by raising agricultural productivity. However, bold action from policymakers will be required to shift away from the existing subsidy-based regime that is no longer sustainable, to build a solid foundation for a highly productive, internationally competitive, and diversified agricultural sector. Public spending on agricultural subsidies is crowding out productivity-enhancing investments such as agricultural research and extension, as well as investments in rural infrastructure, and the health and education of the rural people. In 1999--2000, agricultural subsidies amounted to 3 percent of GDP and were over 7 times the public investments in the sector.

References

Bhalla, G.S (2004): "Agricultural Development in India and China-Comparative Experience and Future Collaboration" Published in Panchsheel and Beyond Cooperation in Development, Centre for Developing Societies, New Delhi, 2004.

Jan-Erik Gustafson, (1986): "Resources Management in India and China-an Overview", Journal of Rural Studies, Vol. 2, Issue 2.

Engardio, Pete, Ed. (2007): Chindia: How China and India are Revolutionizing Global Business, New York, McGraw-Hill.

Ahmad, Aqueil (1991): "China's Quest for Advanced Technologies: Nagging Questions," in Bajpai and R. Natarajan, (Eds.), Technology and Development: Public Policy and Managerial Issues, Jaipur, Rawat Publications.

Bajpai, B.K. (2009): "Challenges and Issues of Sustainable Rural Development In India and China", Paper Presented in Seminar on 'Problems of Sustainable Development in Asian Countries' in Invertis University, Bareilly.
Table--GDP and Sectoral Structure in Selected Years

 Agriculture Industry Services

Year India China India China India China

1952 59.0 50.0 13.0 20.6 28.0 29.4
1978 42.0 28.2 22.0 48.3 36.0 23.5
1990 32.0 27.1 27.0 41.6 41.0 31.3
2003 24.0 14.8 24.0 52.9 52.0 32.3

Source: NBS (CSYB Chinese Editions)

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Author:Bajpai, Brijesh Kumar
Publication:Political Economy Journal of India
Geographic Code:9INDI
Date:Jan 1, 2013
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