Farm Needs a Factory

Context: Failure of manufacturing to absorb surplus agricultural labour has meant that farmers remain tied to land even when it doesn’t yield much.

Challenges associate with Farming sector of India

• Agriculture employs 45% of workers while only producing only 10% of its output: This is woefully unproductive and the fundamental reason behind the poverty of Indian farmer. 
• Maximum livelihood depends on agriculture: Many workers still trying to eke out a living from the farm. 
• Land doesn’t have enough in it to sustain the sheer number of people dependent on it.
• Marginal changes in prices of agricultural products unable to make any appreciable long-term difference to the life of the Indian farmer. 
• It will not materially change either the low productivity of Indian agriculture or the low returns to most of its practitioners.
• Low agricultural productivity is an endemic feature in developing countries: Large agricultutal productivity gap between the richest and developing countries is 80-fold, while, it is 5-fold in non-agricultural sectors. 
• Poorest economies continue to allocate a huge part of their labour force to agriculture.
• Labour Productivity Gap: It is massively greater in non-agricultural sectors than in agriculture in the poorest countries, due to factors like lower mechanisation, price differentials between rural and urban areas, worker quality and unmeasured agricultural output due to home production. 
• Puzzling over-allocation of labour to agriculture in poorer countries rather than moving towards non-agricultural occupations.
• Difference between labour productivities in non-agricultural and agricultural sectors was much smaller: partly due to relatively few policy controls on prices and quantities. Smaller Initial misallocation of labour. 
• Patchwork of policy measures lies like a smothering blanket over the entire economy: India approach mostly taken a peculiar form of welfarism with measures such as MSP, subsidies to cultivators and interest rate subventions on crop loans effectively acting like an ineffective balm for stressed farmers. 
• It traps farmers by giving them marginally stronger incentives to remain in agriculture.
• Large-scale, low-tech manufacturing sector has frustrated India’s development: It typically absorbs surplus agricultural labour in bulk while providing them with significant improvements in incomes.
• Most Indian manufacturing units failing to reap the productivity benefits of scale: At low productivity levels, these units neither provide a good wage nor do they employ many. 
• Larger firms prefer to operate with many small units, due to existing labour and land acquisition laws.

Way Forward: 

• Need to induced labour to shift out of agriculture: Expansion of large scale, low-tech industrial employment, which could absorb the surplus agricultural labour.
• Need of the hour is for the non-agricultural sectors to step up: Provide a viable alternative to low productivity agriculture. 
• In India, the majority of the non-agricultural employment growth has happened in the service sector.
• Need to focus on incentivising entrepreneurs to invest in large-scale manufacturing: This will probably require the government to expend significant political capital in legislating labour reforms above all. 
• It is time to sound the manufacturing employment bugle: Incrementalism and ad-hoc welfarism have run their course.

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