Theoretical Justification of Semi-feudalism

2) Export of capital replaced export of goods under imperialism. This was because, as Lenin said, the developed capitalism fails to find ‘profitable’ investing field for backward agriculture and people’s poverty in the countries of its origin. This capital is ‘surplus capital’. Lenin discarded the petty-bourgeois view of ‘realizing’ value imperialist capital is exported for the over production. Marx rejected this view in Capital (Vol. II) and in ‘Theory of Surplus Value’. He showed it that the market of produced goods can expand despite the slow growth of consumption capacity by way of expanding market of tools of production. Marx made it clear that as technology of the first departments is more developed than the second department, such investment invariably increases the macro level ‘organic composition’ of capital. And this continuous increases of organic composition at the macro level leads to the possibility of downward move of the rate of profit and it makes the investment unprofitable.
Secondly, capital is exported to the backward regions for the backwardness making the low organic composition of those regions. This makes the imperialist capital profitable to receive more profit through investment to those countries. This also helps that capital check the decreasing return in profit. In such backward countries capital is scarce and the rate of wages is less. And there the need of constant capital is also comparatively less and industries are basically labour intensive, not capital intensive. Besides that the circulating capital for raw materials is less costly.

Here it should be remembered that despite such increasing rate of profit the whole of capital investment does not shift to the backward countries. The main reason behind such impossibility is that the economic foundation of those backward countries is not conducive to materializing such a shift. Secondly, if such a situation arises then both the regions – backward and advanced – shall make a parity or equality, making the rate of profit theoretically same in both the regions, economically advanced and backward. Thus, for the very existence of the imperialist Europe the vast backward regions are inevitably needed for the export of surplus capital. This structural situation makes it imperative for the imperialist capital to retain the vast regions for the export of only surplus capital keeping those regions perpetually backward. It wants that much capitalist development of those countries as warrants the intake of surplus capital from the west. The imperialist capital does never want huge capitalist development to do away with the gap between the west and the Third World as that condition is detrimental to world capitalism. This task of capitalist development abolishing feudalism completely falls on the revolutionary proletariat.

However, this dependence on imperialism at least opens up the scope for a limited development of capitalism in the backward countries, and imperialism resorts to such a development as unconscious tool of history. Thus this process of dislocation to an extent of the feudal elements and the simultaneous strengthening of the feudal system in various ways go on in tandem. This partly creates market oriented industrial products as well as industrial raw material and food material for the cities. As profit too enters the agrarian process in a limited sense, reproduction and reinvestment take a part in the rural economy paving the way for a limited development in the productive forces. This tendency of reinvestment is under compulsive situation.
In the state of the imperialist control the productive forces find limited development in agriculture basically maintaining the monopoly of feudal landowners in land ownership. With the penetration of imperialist and comprador capital in industry the indirect influence on the development of productive force in agriculture must be limited as the monopoly imperialists and native compradors’ capital bring about very marginal development in the market of agricultural commodities leaving very little scope for the function of market profit reinvestment cycle. Simultaneously pre-capitalist wealth or new commodities are critically handicapped for the new investment in industry.
The atmosphere of capitalist development and modernization is taken by imperialism and neo-colonial regime to initiate the reformist path to avert revolution.

3) In semi-colonial and semi-feudal countries like India along with the proletariat the national bourgeoisie also want anti-feudal agricultural development and struggle. But such weak national bourgeoisie are linked up with the comprador and imperialist capital in many ways, reducing them to play a very limited role.

4) In the backward countries like India, imperialism shall never prefer complete abolition of the big landlords but does take a limited land reforms form above. This process in the semi-colonial countries carries on both the erosion and simultaneous sustenance of feudalism. Yet the long-drawn process of effecting partial penetration of capitalism in agriculture helps in the slow growth of a capitalist agriculture. It should be mentioned here that consequent upon continuous inflow of finance capital in the colony and semi-colony it tends to reduce the rate of super profit. And to check this trend imperialism takes recourse to a limited expansion of capitalism in those countries. Such problems were not faced by the western countries.

5) It is not true that if the big landlords evict the peasants in large scale to supervise agricultural operations that does automatically and essentially brings about capitalist transformation. Simultaneously it is not the inevitable result of capitalism if landlords themselves supervise agricultural operations.

6) Marx spoke of capitalist agriculture in the following words “….Ground rent, therefore, is here that form in which property in land is realized economically, that is, produced value. Here, then, we have all three classes – wage labourers, industrial capitalists, and landowners constituting together, and in their mutual opposition, the frame work of modern society.” [Marx, Capital, Vol. III, Progressive Publishers, Moscow, 1986, p.618]. For Marx differential rent is a differential surplus arising from the unequal results of equal quantities of capital ‘applied to different plots of land of equal size’. Marx discovered it that “Private property in land does not create that portion of value which is transformed into surplus profit, but it merely enables the landowners to coax this surplus profit out of the pocket of the industrial capitalist into his own. It is not the cause of the creation of such surplus profit, but is the cause of its transformation into the form of ground rent”.

7) Capitalist economic system is a commodity based economy where labour becomes wage labour and commodity.Here as owner of the labour power the worker participates in the market of buying and selling labour power freely. Secondly, this capitalist system is based on the law of increasing reproduction and by this law the surplus value is further invested to the production as new capital. This reinvestment is not found in the feudal system where luxuries of the feudal lords, use of money as usurious capital etc., negate such a possibility.

8) The agrarian capitalist economy is obviously conditioned by the essential component of the existence of wage labourers, the evicted peasants from land. The peasant proletariat is free in the double sense: he is free to sell his labour power to any capitalist farmer and he is also free from the tools of cultivation. Marx writes on the emergence of capitalist and wage-labour in Europe (which is beyond imagination in the caste-based society existing in rural areas in India. He says :
“The handicraftsman or peasant who produces with own means of production will either gradually be transformed into a small capitalist who exploits the labour of others or he will suffer the loss of his means of production ……… and be transformed into a wage-labourer. This is the tendency in the form of society in which the capitalist mode of production predominated”. [Karl Marx, Theories of Surplus Value, Vol. 3, p.409] This is obviously the revolutionary path of capitalism from below. And we can now conceive the situation in India with its predominance of the caste system negating generally the same person to be having the potential of a capitalist as well as a wage-labourer.

9) In Germany after the failure of revolution of 1848 the reforms initiated by Bismarck was from above in a slow process and capitalism flourished adjusting itself with the pre-capitalist forces. It is the Prussian Path leading to the feudal landowning junkers to introduce capitalism. In such reforms ordinary peasants had no participation. However, Prussian Path was also resorted to in other countries as well. In Russia also this Prussian Path was followed for the development of capitalism. It goes without saying that in Russia despite the announcement of emancipation of serfs in 1861 capitalism assumed a reformist way keeping hundreds of types of ties with feudalism. During the Stolipin period between 1906 and 1914 the second stage of reforms with initiated by allowing peasants to sell and buy lands. This led to land transfers and rich landlords gained more lands than the poor peasants. Lenin called it the Prussian Path.

10) Its evident that the process of eviction of the agricultural-laborers from their lands can produce a per-capitalist nature of surplus extraction while this process of eviction and surplus extraction executed by the feudal lords creates have-nots rather than the formation of proletariat. This condition of pauperization makes it possible for the existence of attached labour. The least chance of getting absorbed in the alternative mode i.e. capitalist industries constrains the very process of proletarianisation. Pauperisation as we witness in India as a common feature is not necessarily the outcome of capitalism in agriculture. Such distressed peasants become attached agricultural majdoors, not free workers in land. The slow growth of industry perpetuates this general process while proletarianisation of agricultural workers remains an unimportant and disturbingly slow process in countries like India. Thus the landlord-based transformation in agriculture fails to fulfill the first principle of smoothing the capitalist process in agriculture.

11) The next very important question in such landlord-based capitalist agriculture is whether it follows the rule of extended reproduction. A part of this surplus value is further converted into capital and so over and over again. This transformation of surplus-value into capital for self-expansion is called accumulation of capital. It should be added here that in capitalist system of agriculture and industry are based on the expanded reproduction whereby the surplus capital is reinvested in production. Luxurious spending, hoarding of money, etc. are contrary to the basis of capitalist reproduction. In simple reproduction the main trend remains it that landowners spend the surplus in trade, usury, etc. not in agriculture.

12) One thing is to be added here is that the intensity of eviction from land makes the peasants landless and paupers but this evection does not generally lead to proletarianisation of the evicted poor and landless peasants who generally expect to get back their lands. This is the feature of the landlord-based agricultural operation. Pauperisation of this type is not the sign of capitalism.

13) Lenin said that paucity of land and the burden of tax had caused the increase in attached labour in vast areas of individual ownership of land, but this did not develop capitalism. Attached labour increases as the scope of absorption of evicted peasants from land does remain a very inconsequential process in countries like India. Extra-economic exploitation is the basis of such a situation.

14) As commercial or usurious capital wants to maintain small producers, the latter generally do not try to increase greater production or greater productive activities. The small producers are so much exploited in extra-economic way that this does not lead to productive development. For this reason commercial and usurious capital does not lead to expanded reproduction. However, a small amount of such landlord-based agriculture with agricultural implements, etc. leads to a portion of surplus capital as fixed as well as variable capital towards fulfilling the conditions of reproduction.

15) Landlord-based agricultural operation can go on without free labour and without following the rules of capitalism. Such cultivation with the practice of usury and commerce can also hinder the productive development. However, with the other conditions being fulfilled such agriculture can also open up the path of capitalism. As commerce and usury are more profitable and can be easily carried on such landlords in the backward countries get involved in such practice without going in for capital investment in agriculture.

16) In addition to point 10 it can be said that the rent given for the monopoly of landownership to the landowners is the continuation of feudal rent. Such rent is different from absolute and differential rents based on the capitalized value of ground rent taken in case of capitalism. This obstructs impersonalized market operations. Here the basis of exploitation is not capital but land ownership. Without following the market rules, this type of exploitation by landlord-based agrarian operation as expressed in attached labour, caste-based exploitation, etc. stand out as the developed form of feudal rent system as the control over land being the source of exploitation

18)  Features of capitalism: 
 

21) Indian Scenario 

Agricultural labour
The orthodox petty bourgeois parties swearing by Marx’s and Lenin’s name point to the increase of agricultural labourers as a clear sign of rising capitalism. We have to make a clear differentiation between pauperization of peasants in search of jobs in acute crisis and stringent conditions and the wage labour free in the Leninist sense, free to earn his bread for subsistence above value.

22) On Userer’s capital

Marx wrote “…Userer’s capital in the form whereby it indeed appropriates all the surplus-labour of the direct producers, without altering the mode of production; where by the ownership or possession by the producers of the condition corresponding to this – is its essential prerequisite; where by, in other words, capital does not directly subordinate labour to itself, and does not therefore, confront it as industrial capital – this userer’s capital improvises the mode of production, paralyses the productive forces instead of developing them, and at the same time perpetuates the miserable conditions in which the social productivity of labour is not developed at the expense of labour itself, as in the capitalist mode of production.” [Karl Marx, Capital, Vol. III, Progress Publishers, Moscow, Chapter XXXVI, pp. 595-96]

The NSSO’s report (2005) clearly states that in the rural India every household carries an average loan of Rs. 442. The NSS report categorically states that the tendency to incur debt is not so much from the banks but from usurers. The banks have already considerably wound up their credit facilities from the rural India allowing the usurers to play a major player to bind the Indian peasants to various conditions of loan payments. To follow Marx, such usurious capital is not capitalism but a form of capital characteristic of pre-capitalist formations. The massive hold of usury capital in rural India only points the semi-feudal character of village economy.

23) Capital Formation

1990-91      43.95      104.41              29.60     70.4                1.92

24 ) Land reforms:
 
In the first decades of planning (1951-61) intermediaries at the top layer were mostly abolished and about 40% of tillers of the cultivated area became owners. According to G. Parthaswrathy, Indian land reform, conceived as a programme of conferment of rights of ownership on tenants and public distribution of the land of the big owner in favour of the small farmer and landless land of the big large, been a failure. The only exception to this sad record is the abolition of top level mostly upper caste-class intermediaries.
The direct effect of the public distribution programme to alter the structure of ownership holdings and of cultivation holdings were only marginal except in select pockets. However, the absentee landlord was of less importance in the early 70s than in the early 50s. His importance waned much more in the day areas than in the irrigated areas in which land is much more valuable. Transfers of land, under the fore-warning impact of tenancy and ceiling legislation, to the resident landowners was on a much larger scale in the dry than in the irrigated areas. The result of shifts in land from the absentee to resident landowner was a decline in tenancy.
The forewarning effects of tenancy and ceiling legislation had also some effects on the structure of ownership holdings among the residents. Decline in tenancy, resulting in transfers of tenanted land at least in a very small part to the owner cultivator groups, resulting in the drift of tenants into landless, combined with demographic pressures and poor absorption of the growing number in non-agriculture had led to a rise in the class of rural proletariat even in the absence of expansion of the large farm. Where tenants had not been evicted, tenancy was pushed underground with informal arrangement and security of tenure.

The emerging agrarian structure revealed that less than one-fourth of the rural households controlled more than 70 percent of the land, another one third less than 30% and the rest two-fifths, among whom the majority are the landless agricultural labourers. This trend is likely to increase.
According to the noted economist S.K.Roy, “On balance, there seems to be some reasons to conclude that agrarian reorganization in India has failed to make any considerable impact on the socio-economic conditions of the working cultivators. Appu, who championed and spent a considerable part of his career in administering land reform programmes noted
“Thus the programmes of land reform implemented since the transfer of power did not lead to any significant re-distribution of land, or, the removal of all the obstacles to increasing agricultural production…….in the case of tenancy reform and ceilings on holdings, the policies adopted were ambivalent and there gaps between policy and legislation and between legislation and implementation. We have seen that as a result of the implemtation of the tenancy laws, tenants became owners of or acquired rights in only about 4 percent of the operated area. The enforcement of celling led to the redistribution of less than 2 percent of the operated area. Thus these two measures taken together led to the redistribution of only about 6 percent of the operated area.” Appu wrote it in 1995 [Quoted in Kapila p.205]

He further said “If the political will in favour of meaningful land reform was weak at independence and weaker still later on, it is non-existent today. Land reform has practically disappeared from the agenda of most political parties. …….With the abolition of top layer of intermediary interests of the erastwhile superior tenants belonging mostly to upper and middle castes acquired a higher social status. Rise in agricultural productivity, rising land values and higher incomes from cultivation have added to their economic strength. Substantial landowners who wield great authority in rural India are bitterly opposed to ceilings on agricultural holdings……As for tenancy reform is concerned, there is a certain commonality of interest between all landowners – large, medium, small and all of them are opposed to conferring benefits on insecure tenants. In the first round of land reform only the intermediaries were adversely affected. They were few in number and were weak politically. They had also made them obnoxious by aligning themselves the colonial power. So it was easy enough to abolish intermediary interests. And it was done without hurting them too much. But injuring the interests of the present class of landowners is and entirely different proposition. No political party that wishes to win elections and come to power can afford to do that……” (Appu 1995, pp. 232-233 in Kapila p.205)

25) Failure of all methods to develop capitalism:

Economists generally provide 3 options for agricultural one extensive farming, intensive agriculture and three, scientific knowledge-based technical change. According to Bhupat M. Desai extensive farming increased production by bringing hitherto uncultivated land under plough. Intensive agriculture does so by increasing the use of same inputs such as land, labour, irrigation-water, fertilizer etc. Desai writes that scientific knowledge-based technical change increase production (including product innovations) at the same level of all inputs or same level of output at lower level of all inputs. “But the scope for extensive farming is more or less exhausted” writes Desai about India. And about scientific knowledge-based technical change with the use of HYV seeds, dry farming technologies though contributed accounted for the increase in crop productions since 1966-67 the present picture is gloomy.
Both Rosegrant and Evenson in their study in 1994 based on data from 271 districts covering 13 states (Rosegrand, Mark W and Robert E Evenson 1994) “Total Factor Productivity and sources of Long-term Growth in Indian Agriculture,” Paper submitted to IFPRI/IARI workshop on Agricultural Growth in India, May 1-6, New Delhi] and in the study of Desai [Desai, Bhupat M, [1994] “Contribution of institutional Credit, Self-Finance and Technological Change to Agricultural Growth in India,” Indian Journal of Agricultural Economies, Vol. 49, No. 3, July September] Concluded that deceleration in total factor productivity in the second half of 1980s. Desai made in clear that the relative contribution declined to 30 percent while the increase in absolute contribution declined to 2.3 times. “This is despite, Desai observed, the increase in per hectare use of most market purchased inputs in which now technology in embodled. And hence it suggested that the distinction between intensive agriculture and technical change …… has become blurred.”
So one thing is clear that even the technologic inputs particularly in Green Revolution areas had already taken the back gear and in the present context the scope and viability of technological inputs have reached a dead end. And for this reasons economists are groping for alternatives.


26) Institutional and technological approach: 

The talk about and some announcements on land reforms were made in the late 50s for institutional change to remove agricultural handicaps. The technological approach to agricultural development came in the mid 1960s. With the latter, the new production technology in combination with a variety of institutional support such as extension, credit, subsidized input supply, product price and marketing assistance, spread over various regions.
In recent years, the technological approach has reached a dead end. “The technology weariness reflects itself, interalia, in stagnating and falling yield rates for a number of crops, in a number of regions…..(The green revolution technology) if not (by) unwise use, (was) guided by short-term gains at the cost of long-term losses. It is awesome to count the rate of resource depletion, most markedly for land and water that has been occurring in different parts of Indian agriculture, in the name of agriculture technology…..” [G.K.Chada, Indian Agriculture in the New Millennium, In…….Vol. I p.296]

Chada emphasizes  “The accelerated pace at which the groundwater resources have been exhausted, without replenishment, has thrown the most valuable ingredient of modern agricultural system out of gear, tubewell irrigation that acted as the most decisive harbinger of the green revolution technology, was largely responsible for introducing new crops and re-shaping existing crop combinations, and was the most domineering instrument in pushing up cropping intensity, is now inflicting technological and commercial infirmities, not only on the small and marginal farms but on the medium and big farms as well. The depletion of ground water resources now stands among the most serious concerns of Indian agriculture in as much as irrigation availability, agricultural productivity, cost of production and efficiency, income distribution in fact for the total edifice of agriculture, in many parts of Indian economy.
In many parts, the ground water table has gone many times lower so that the centrifugal tubewell irrigation technology which was once well within the means of the small farmers is now beyond the investment capability of even the medium and large farmers. Many parts of Punjab and Hariyana is now in the midst of crisis. As many as 12 of the 15 tubewell dominated districts in Punjab, as many as 13 of their 17 counter parts in Haryana witnessed a fall in the water table exceeding 20 cms/year
Similarly excessive use of surface irrigation water in combination with poor sub-surface drainage,
a typical characteristic of most of the canal irrigated areas, has created water logging and salinity in certain canal commands.
G.K Chadha then refers to depletion of land resources. First there has been steady, perhaps surreptitious, trend of ‘taking away’ agricultural land for non-agriculture uses. Land under non-agricultural has witnessed a continuous increase over time, at category. The interesting side is that with the reduction in land areas the net sown area has remained nearly completely Thus the land base of Indian agriculture under a serious threat.
The third aspect that Chada refers to is that the investment in the Indian in general, and for agriculture and rural development in particular has ceased to expand in the current years which, in turn, has made serious inroads into agricultural growth and its associated variables such as agricultural productivity, rural employment and poverty on the one hand, and a general, economy-wide slow other. The slow down in the rate of investment is largely attributed to a slow down in the rate of domestic savings which, in turn, is attributed to slow down in the rate and the changing compositions household savings, this time around in favour of physical assets rather than financial holdings. [Tusher K. Mohanty, “Rising share of Physical Assets in Domestic Savings Choking up Investment”, The Economic Times, New Delhi, December 17, 2001]

This clearly shows that instead of capitalist development investment capabilities now turn towards physical assets. G.K.Chadha concludes that “In the ultimate analysis, it is the dwindling pace of investment in general, and of public investment villain of the piece.” [p.310]
From Chadha’s writing again. Against a negligible growth rate of investment of 0.42 percent during the 1980s it was 2.14 percent during early 1990s. It was marginal increase and then the real slackness ensued after 1995-96. The rate of growth of investment in agriculture and its allied sub-sector fell steeply from 3.19 percent per annum during 1991-92/1995-96 to a low of 1.13 percent per annum during the post-1995 years. The decline in the primary sector as a whole was for more serious, from 7.67 percent to – 1.39 percent. The rate of growth of principal crops also simultaneous tell along with employment in agriculture. [p.310]
If the period of intense globalization in the 1990s made possible to the MNCs to make inroads in certain spheres through contract farming, etc. what is noticeable is that Indian agriculture showed clear signs of decline not robust capitalist development. The NSS data do clearly confirm this. The rate of growth of employment for rural workers engaged rate of growth of employment for rural workers engaged in agriculture and allied activities fell from 1.38 percent during 1983 and 1993-94 to 0.18 percent during 1993-94 and 1999-2000. And the industries in the cities had already been weakened and crisis-stricken to absorb rural work force. This scenario hardly matches with the European capitalist development. G.K.Chadha wirites “Agricultural technologies of the late sixties and seventies have run out of their life cycles, and the new technologies are not evolving at the rate that they should.” [p.317]

G.K.Chadha then refers to the third important aspect to assess the growth possibility for introducing aspect to assess the growth possibility for introducing new technology by way of the compatible improvement new technology by way of the compatible improvement of educational standards. For capitalist development through the operation of market, accounting, etc. introduction new technology etc. the educational uplift is a great indicator. The emerging technology-institutional – human interfaces are likely to defy the frontiers of ordinary human capabilities, especially those revealed by the glaring educational deficiencies of the present generation of the farming community. For the new technology in agriculture one has to face the web of bio-tech and genetic complexities.
In 1987-88, nearly tow thirds of rural persons employed in agriculture were illiterate; in 1993-94,their proportion declined to 60.7 percent, and in 1999-2000, it declined further to 56.7 percent. But the decline is only sluggish and marginal. Following the common practice, we take secondary or higher level of schooling as the dividing line between educated and uneducated workforce. As late as 1999-2000, just about one fourth of rural males, only about one-of rural persons engaged in the non-farm sector constituted the ‘educated workforce’; the proportion of educated workers in agriculture was pathetically low: 12.2 percent among males, 2.2 percent among females, and less than one-tenth among rural persons.
Even in 1999-2000, nearly 32.8 percent of rural children (age group 5.9 years) did not go to schools, that percentage for urban absenteeism of children was 17.5 percent. The 28 percent of the rural children (age group 10-14 yrs) did not go to schools. [Ibid326-33].
If the massive loss and scarcity of ground water resources is attributable to technological inputs from above without institutional i.e. structural change of the land relations. This scarcity in the West.With 65% people still engaged in agriculture this vast agricultural land did not move towards genuine capitalist development, rather the enclaves like in Punjab, Haryana, etc. bodes ill for the Indian agriculture as such. This is not development in the long run but short term gains with the destruction of agricultural land.
Secondly the growing feature of depletion of land directs only urbanization and very sluggish or only marginal industrialization. The pressure on land with 65% population engaged in it is not capitalist development but unplanned process from the top leading to agricultural crisis.
The third feature of lack of or steady decline in the investment scenario both in agriculture as well as industry can not lead to capitalist development absorption of work force in industry and do not enhance the purchasing power of peasants.
The fourth feature of so far marginal development of human resources in the form of educated workforce in the rural areas do not enhance the speed of capitalist development but only a stagnant state.

28) Marginal Farms and Holding: 

“One of the major problems facing the agricultural economy of this country is the dominance of the marginal and small farmers. Not only interms of numbers but also interms of the area. Cultivated, they constitute a significant entity. Approximately three-fourths of the operational holdings (78.0 percent to be precise) are below 2 hectares; they cultivated in 1990-91, nearly one-third (32.2 percent) of land. These households also constitute the bulk of the rural poor in our country.” [V.S.Vyas, Ibid, p.248]
On the other hand 71.3% of the operational holdings owned by 15.1% holding owners. “….A number of studies have shown that there is a severe problem of seasonal employment and under-employment in large parts of our agriculture. The intensive cultivation by itself is not likely to make a dent on the employment situation. The labour intensity in an agriculture dominated by the field crops is low, increase in employment ranges between 0.4 and 0.5 with one percent increase in the output.” [V.Ratan Reddy, “Some Estimates of Labour Demand in Rice Cultivation”, Indian Journal of Economics, Vol. 71, Part IV, No. 283, April 1991.) This is not obviously a feature of steadily flourishing capitalism.

29) Small-Scale Agro-Industry & low productivity : 
Agro-based industry refrers to the subset of manufacturing that process raw materials obtained from agriculture and its associated sectors such as animal husbandry, forestry and logging and intermediate products derived from other industries such as semi-processed hides and skins for manufacturing leather and leather products, and edible oils for manufacturing hydrogenated oil. For a typical economy, some part of agricultural production does no go directly to final consumption, it undergoes the ‘value-adding’ process ranging from simple preservation such as drying, grading and storage to production paper, rubber, etc. through modern capital-intensive methods. This value added processing of primary products is a path to industrialization.

However, in 1994-95, productivity among the total of agro-based enterprise was only 36.0 percent of that among their non-agro based counter parts; in 2000-01, now in post-reform period are the rural unorganized agro-based manufacturing enterprises, and amongst them, the group of tiny own account enterprises, which constitute a very big proportion of the agro-based enterprises. The abysmally low levels of productivity in these segments is the real Achilles’ heel lies among the lowest rung of the unorganized agro-based units (OAMEs). For example, the ratio of productivity between the directory manufacturing units and the own-account enterprises increased from 2.2:1.0 in 1994-95 to 3.5:1.0 in 2000-01, for the food processing units; came down from 4.4:1.0 to 3.6:1.0 for the other agro-based industrial units, and nearly unchanged (3.5:1.0 against 3.2:1.0) for the total of agro-based enterprises. As a whole agro-based industry in India continues to suffer substantial productivity losses in comparison to non-agro bases industry. [From G.K.Chandha and P.P.Sahu, Small Scale Agro-Industry in India, In Indian Agriculture…..Vol.1, pp.257 to 292]

Using the implicit retail prices derived from the consumer expenditure surveys of National Sample Survey Organization (NSSO), it is observed that the average per capita income required to buy a quintal of wheat in the urban areas which declined from 16.2 percent in 1973-74 to 10.1 percent in 1983-84 came down further to 71. percent to 1990-91. For the rural areas, the percentage of per capita income required to buy a quintel of wheat declined from 15.4 percent in 1973-74 to 8.7 percent in 1983-84 and further to 5.9 percent in 1990-91. This happened in the case of rice also. In 1993-94, the per capita income required to buy a quintal of wheat and rice was nearly the same as that in 1990-91. But in 1994-95, based on the retail prices for rural areas compiled by the Labour Bureau, it is observed that the percentage of average percapita income required to buy a quintal of wheat and rice came down further to 5.0 and 7.8 percent, respectively.

31) Market failure : 

“….when the farmers start getting right price signals, they look for adopt the modern inputs and new technology for increasing the production. If production responds to expansion in marketing infrastructure, it essentially means, the price response is positive and strong. A recent World Bank study “The Economics of Agricultural Price Intervention in Developing Countries”, volume 4 of the Political Economy of Agricultural Pricing Policy, A World Bank Comparative Study, The Johns Hopkins University Press, Baltimore, 1993] provides evidence that a failure to get prices right can have enormous adverse effects on the growth of agricultural output. If prices received by the farmars are not at appropriate levels, they can dominate everything else – education, research, adequate input supplies – by destroying incentives. [In Acharya, p.129]