I was dead wrong in predicting a hung parliament with Mayawati having a kingmaking role. Yet, I cannot resist recalling the heading of my March 9 column, \’India slumps, Bharat rises, Congress smiles\’. Despite a global recession that has hammered industry, rural areas – called Bharat – have prospered, enabling Congress to win a smashing victory.
Indian voters throw out 80% of all incumbent governments, especially in bad economic times. The global recession has hit India hard – industrial production slumped into negative growth, and exports were down 33% last month. Rural consumer prices are up almost 10%.
For Congress to get re-elected in such circumstances is remarkable. The main reason is prosperity in rural areas, which have 70% of the population. The entire organized sector has barely 30 million workers out of India\’s total workforce of 500 million, which is overwhelmingly rural. Industrial captains, trade unions and information technology may hog newspaper headlines, but are barely visible to the rural millions.
Luck matters. The monsoons have been good for five years, helping agriculture average 4.5% growth, the fastest ever. This growth has been spread widely, and not limited to a few areas, as in the early Green Revolution. Government food stocks have risen to a mountainous 50 million tonnes. Cotton has become a major export, thanks to BT cotton.
Historically, bumper crops have been associated with falling prices for farmers, while high agricultural prices have been associated with drought and farm distress. But in the last two years, we have witnessed the extraordinary combination of bumper harvests and high prices.
The background to this is global. Record global growth, spearheaded by China, has hugely increased the demand for all commodities, and international food prices went through the roof after late 2007. India responded first by banning exports and then by raising domestic procurement prices substantially. This kept domestic supplies high while ensuring that farmers enjoyed the highest-ever prices. Yet, these high prices are in line with global prices, so no painful price contraction is required in coming years.
The last monsoon was excellent in the Gangetic plain, but poor in many parts of central India, including the cotton belt. However, the procurement price of cotton went up a whopping 40%, so even drought-affected farmers with low yields earned higher incomes. And millions of farmers benefited from farm loan waiver.
High food prices are good for farmers but terrible for landless labourers and urban workers, who normally oust governments that bring inflation. The price rise, as measured by the wholesale price index, is down to almost zero. But the consumer price index for rural labourers – in which food items have a high weightage – reveals almost 10% inflation.
Why was this not fatal for Congress in rural areas? Mainly because labour incomes rose even faster. A series of good harvests greatly boosted rural employment, in agriculture and in allied activities. And the National Rural Employment Guarantee Scheme (NREGS), despite several abuses, reduced rural underemployment and raised wages. Indeed, Punjab\’s agriculture is suffering from a severe shortage of Bihari migrant labour – Biharis are now finding enough work at home. Finally, several states have substantially raised minimum wages. In the past, such wage decrees were widely ignored. But the NREGS pays the minimum wage, and this in turn is forcing up the open market rate. What\’s more, the scheme pays the same rate to women and men, reducing the wage discrimination that women have historically suffered from.
With both farmers and rural labourers prospering, rural sales of fast moving consumer goods have been booming. New cellphone connections hit a record 15.6 million in March, mostly in rural areas. Hero Honda\’s motorcycle sales, targeted at rural areas, are up 24%.
Voters have hammered the Left Front. Its parliamentary tally fell from 60 to 25. It hoped to be kingmaker in New Delhi, but instead now faces defeat in the next state Assembly election in both Kerala and West Bengal. It needs to ask itself why it went ballistic over the nuclear deal with the US, for ideological reasons totally ignored by ordinary voters. It claimed that Muslim voters would be alienated if India backed the US and Security Council pressure on Iran\’s nuclear ambitions, but in fact, Congress gained massively from the Muslim vote in UP. The Left Front needs to finally stop fighting the Cold War and wake up to the realities of the 21st century.
Looking ahead, Congress must persist with its rural emphasis, and old-agenda items like liberalising pensions and foreign investment. But it needs a new agenda too. Education reform is a key – we must check absenteeism, issue school vouchers, and reduce hurdles to private sector entry in education. Administrative reform is equally vital, to improve the aam aadmi\’s access to public services.