India’s economic rise is the story du jour. But forall its much-delayed embrace of globalization, 70 percent of India’s citizensremain condemned to rural isolation, unable to link to the global networks thatcould catapult them from poverty. A major part of the solution to this dilemmalies in leveraging India’s entrepreneurial classes and willing foreigninvestors to link urban markets with their rural farming hinterlands. Thisprivate-sector catalyst is different from that used in China in its state-led1980s agricultural reform.
Recently, I trudged through the slush of a government-run food auction yard, ormandi, in Bangalore, offshoring capital of the world: Piles of produce layeverywhere, rotting in the sun and competing with mangy dogs and scampering micefor my attention. Huddles of impecunious farmers, wearing the traditional dhoti,wore resigned looks. A government agent, pen tucked behind ear, offered apittance for the produce on display.
The farmers’ day began in the pre-dawn hours, with multi-mode transport to theauction yard — ramshackle buses, bullock carts, trucks, even tractors chuggingalong the narrow, so-called "highways." Produce unloaded, the farmersaccept whatever they get since every day away from the farm is lost income.After snatching a few hours’ sleep in a shady corner, they retrace their stepshome.
India’s awkwardly named Agricultural Produce Marketing Committees (APMC) Actmandates that agricultural products be purchased through such wholesale yards,making the mandi a monopoly controlled by local political interests, aperversion of the original purpose of freeing poor farmers from moneylenders’clutches. Farmers remain exploited, just by someone else now.
The hapless farmers’ urban sojourn is a continuation of the rural nightmare ofa daily hand-to-mouth struggle. Policymakers have neglected Indian villages inthe decades since the nation’s independence: 89 percent of rural households donot own telephones; 52 percent do not have any domestic power connection. Theaverage brownout in India is three hours per day during non-monsoon months, 17hours daily during the monsoon. The average village is 2 kilometers away from anall-weather road, and 20 percent of rural habitations have partial or no accessto a safe drinking-water supply.
The contrast with rural China is stark. Around the time Ivisited Bangalore, I crisscrossed parts of Henan province--the name means"south of the Yellow River," or Huanghe. The province, one ofChina’s most populous, is home to more than 100 million people. I started inZhengzhou, the capital, a major industrial center and railway junction, andtraveled to Chengguan, a county government seat, scrupulously clean, withmunicipal services apparent even in the pre-dawn hours. I then headed to thesmall Qiu village, population no more than a few thousand. Paved roads leadingto the cornfields at the village’s edge were in better condition than theMassachusetts Turnpike and other highways I know at home. The village itselfindicated if not prosperity, then at least the absence of the desperation ofmany Indian villages.
B.R. Ambedkar, framer of India’s Constitution and a critic of Gandhi’s modelof village-centered development, famously said in 1948, "What is thevillage but a sink of localism, a den of ignorance, narrow mindedness andcommunalism?" Indeed, for all the talk of India shining, there’s beenscant progress in the villages.
The development paths of other countries explain why this is serious. Usually,agricultural development in rural areas generates economic surpluses, whichcatalyze light manufacturing in rural and semi-urban areas, and ultimatelyindustrialization in the urban areas. The economic surplus allows reinvestmentin new technology and releases human capital for broader-based development.China followed this path post-1978, as did Indonesia as early as 1966 and, morerecently, Vietnam in 1989.
The Indian government, for all its official worship ofGandhi, failed to invest adequately in villages. With corporate India and civilsociety, the track record is brighter. For example, the Self-Employed Women’sAssociation (SEWA), centered in Gujarat, has empowered hundreds of thousands ofwomen through a myriad of small projects catering to health, elementaryeducation and economic self-sufficiency by providing them small loans to startproductive livelihoods. Companies like Hindustan Unilever and ITC (IndianTobacco Company), among others, have long had distribution networks into villageIndia, providing some investment, goods and services in areas beyond thegovernment’s reach. Particularly encouraging are joint ventures such as thosebetween SEWA and ITC. Corporate muscle multiplies the benefits that civilsociety can bring to rural India.
Alas, though, these efforts are too little, too late. The state government hasnot always supported SEWA, perhaps sometimes feeling threatened by the unifiedblock of votes its large membership base represents. Organized investment in theretail and wholesale sector has often met its match at the hands of theunorganized trade that it would likely supplant: Witness protests against bothindigenous retailers like Reliance Fresh and German wholesaling giant Metro Cashand Carry. Retail trade employs 8 percent of India’s population, the largestemployer after agriculture. There are more than 12 million small retailers inIndia, 96 percent of whom are small mom-and-pop stores, each occupying less than500 square feet, creating the highest retail-outlet density per capita in theworld. In India’s democracy, small retailers count for many votes, and solocal politicians support the inefficient distribution system against moreefficient modern retail and wholesale formats, even at the expense of societaladvance.
Mandis, in a sense, perpetuate system-wide inefficiency, and unorganized retaildoes not have the wherewithal to attack the system forthwith. The farmercontinues to be beholden to the local monopolist for distributing his produce.One study suggests that tomato farmers in Karnataka, for example, receivedrupees 2 per kilogram, compared to the end-user price of rupees 8.20. Thus, themisery of the villages continues apace.
Well-meaning pundits assert that the government should "do something."Indeed, the highest echelons of the government concur. India’s financeminister, P. Chidambaram, has spoken out against the APMC Act, recognizing it asan unfortunate anachronism. But even this august personage’s ability todictate to the local satraps is limited.
In these circumstances, the most expedient course of action is to search formultipliers of civic action and grassroots movements that empower villagers.After all, modern China’s economic revolution started in the reform of itsvillage enterprises, the result of an unwitting experiment in individualaccountability by farmers in Anhui province. The Croesus-like riches in the formof foreign direct investment followed China’s rural reform.
So India should take a page from China’s book and fixits villages, but not by trying to do it China’s way. China’s stronggovernment forced the rapid dissemination of the Anhui experiment. India’sweak state cannot accomplish anything remotely comparable. Rather, India shouldplay to its private-sector strengths. Corporations need a seat at the table ofvillage reform. India’s vibrant indigenous entrepreneurial class--unlikeChina’s counterpart, largely decimated by the socialist experiment and theCultural Revolution--must be courted. Reliance Fresh is an indigenous example inIndia. Even multinationals should be welcomed, the task is so enormous. MetroCash and Carry is an example, and joint ventures between indigenousentrepreneurs like Bharti Enterprises and multinationals like Wal-Mart cancomplete the private-investment picture. A modern agricultural supply chainlinking the village tomato farmer to his urban market could reduce waste by 25percent and end-user prices by 21 percent.
Only then will the 70 percent living in villages begin to share in India,allegedly "rising" today.
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Tarun Khanna is the Jorge Paulo Lemann Professor at Harvard Business Schooland author of Billionsof Entrepreneurs: How China and India are Reshaping their Futures and Yours.Rights: © 2008 Yale Center for the Study of Globalization. YaleGlobalOnline
