Capitalism from its inception has survived on subsidies contrary to the much vaunted and popularised myth that it thrives on profits earned from competitive market economics. The biggest subsidy is of course the expenditure by the capitalist state in maintaining the army, police and prisons because it is inconceivable that the exploitation of the masses and the wealth accumulated from it can be safeguarded by the capitalists without the help of these three institutions. More generally the expenditures on the judiciary and bureaucracy also are subsidies that bolster capitalism. Overall these expenditures, along with those on physical and social infrastructure, by the state also serve to push up demand for goods and services and prevent the market from collapsing due to the rapacious and often unprincipled profit seeking by capitalists.
Since subsidies are so important for the profitability of economic activities there is always a fight going on between different sections of society for these subsidies as the resources of the government are limited at all times. Especially so in the case of the governments in the states in India which have limited fiduciary powers as compared to the Central Government. Generally it is the industrial class that garners most of the subsidies and the farmers the least. In fact farming in India, following the global trend has sought to be industrialised and subsidies have been given for this. Unfortunately, unlike in the industrialised countries, in India, a vast majority of the population still lives in rural areas and has farming as its mainstay. The subsidies for industrial farming with external inputs like chemical fertilisers, cheap or free electricity, cheap bank loans, hybrid seeds, pesticides, herbicides and free canal water are mostly hogged by industrial units producing these inputs and to a lesser extent by the bigger farmers with the small and marginal farmers getting very little.
Since the 1990s with neo-liberalism gaining in strength in this country, the subsidies and public investment in agriculture and the flow of cheap credit to it has gone down drastically and this has severely affected the profitability of the sector. Most farmers big and small have been hit by this. While the small and marginal farmers also double up as labourers in agriculture or in industry and construction to somehow make ends meet, the bigger farmers have found their incomes squeezed without many alternatives. Some have switched to high value vegetable cultivation, horticulture and floriculture but in the absence of adequate cold storages, post harvest processing and market linkages, most farmers are not earning as much as they want to and in many cases are making losses. A major problem is the decreasing availability of water both due to failed or inadequate monsoons and the rapidly diminishing ground water store.
This is the context of the farmer agitations that have swept across the country over the past few weeks and especially in Madhya Pradesh. Over the past decade or so, the Madhya Pradesh Government has provided cheap electricity to farmers by providing hefty subsidies and also ignoring the extensive power theft by the latter and this has led to a spurt in Rabi production. The higher production has led to lower prices for their produce in the absence of purchase by the government at remunerative prices. The big farmers have decided to hit back and launched agitations to demand that the government hike its subsidies to them further. Demands include, cheap credit, waiver of loans, procurement at remunerative prices and of course free electricity.
There are two main problems with this. The first, which is insoluble within the present paradigm of agriculture, is the unsustainability of water intensive agriculture which has sucked out most of the water in deep aquifers collected over thousands of years. The second is the precariousness of the Madhya Pradesh Government Finances. The public debt of the Government already stands at Rs 1.8 Lakh crores currently which is a very high 25 percent of GDP and requires around Rs 25,000 crores in debt servicing expenditure annually. Now it has agreed to shell out even more in the form of subsidies to pacify the farmers to the tune of Rs 30,000 crores for procurement at remunerative prices, cheap credit, compensation for crop loss and even cheaper power. It has also to foot another enhanced subsidy bill in the form of paying salaries to its staff in accordance with the 7th Pay Commission recommendations which will amount to Rs 20,000 crores. Thus, the government's budget estimates are going to go for a toss since provisions have not been made for these increased expenditures requiring it to borrow even more. This has led to concerns being voiced by industrialists in the state that they will lose out greatly on their share of subsidies!!!
Thus, modern industrial development, and especially agriculture, is facing a double whammy in the form of environmental and financial unsustainability and the ongoing fight for subsidies between various sections of society is queering the pitch for capitalism in India considerably.
Since subsidies are so important for the profitability of economic activities there is always a fight going on between different sections of society for these subsidies as the resources of the government are limited at all times. Especially so in the case of the governments in the states in India which have limited fiduciary powers as compared to the Central Government. Generally it is the industrial class that garners most of the subsidies and the farmers the least. In fact farming in India, following the global trend has sought to be industrialised and subsidies have been given for this. Unfortunately, unlike in the industrialised countries, in India, a vast majority of the population still lives in rural areas and has farming as its mainstay. The subsidies for industrial farming with external inputs like chemical fertilisers, cheap or free electricity, cheap bank loans, hybrid seeds, pesticides, herbicides and free canal water are mostly hogged by industrial units producing these inputs and to a lesser extent by the bigger farmers with the small and marginal farmers getting very little.
Since the 1990s with neo-liberalism gaining in strength in this country, the subsidies and public investment in agriculture and the flow of cheap credit to it has gone down drastically and this has severely affected the profitability of the sector. Most farmers big and small have been hit by this. While the small and marginal farmers also double up as labourers in agriculture or in industry and construction to somehow make ends meet, the bigger farmers have found their incomes squeezed without many alternatives. Some have switched to high value vegetable cultivation, horticulture and floriculture but in the absence of adequate cold storages, post harvest processing and market linkages, most farmers are not earning as much as they want to and in many cases are making losses. A major problem is the decreasing availability of water both due to failed or inadequate monsoons and the rapidly diminishing ground water store.
This is the context of the farmer agitations that have swept across the country over the past few weeks and especially in Madhya Pradesh. Over the past decade or so, the Madhya Pradesh Government has provided cheap electricity to farmers by providing hefty subsidies and also ignoring the extensive power theft by the latter and this has led to a spurt in Rabi production. The higher production has led to lower prices for their produce in the absence of purchase by the government at remunerative prices. The big farmers have decided to hit back and launched agitations to demand that the government hike its subsidies to them further. Demands include, cheap credit, waiver of loans, procurement at remunerative prices and of course free electricity.
There are two main problems with this. The first, which is insoluble within the present paradigm of agriculture, is the unsustainability of water intensive agriculture which has sucked out most of the water in deep aquifers collected over thousands of years. The second is the precariousness of the Madhya Pradesh Government Finances. The public debt of the Government already stands at Rs 1.8 Lakh crores currently which is a very high 25 percent of GDP and requires around Rs 25,000 crores in debt servicing expenditure annually. Now it has agreed to shell out even more in the form of subsidies to pacify the farmers to the tune of Rs 30,000 crores for procurement at remunerative prices, cheap credit, compensation for crop loss and even cheaper power. It has also to foot another enhanced subsidy bill in the form of paying salaries to its staff in accordance with the 7th Pay Commission recommendations which will amount to Rs 20,000 crores. Thus, the government's budget estimates are going to go for a toss since provisions have not been made for these increased expenditures requiring it to borrow even more. This has led to concerns being voiced by industrialists in the state that they will lose out greatly on their share of subsidies!!!
Thus, modern industrial development, and especially agriculture, is facing a double whammy in the form of environmental and financial unsustainability and the ongoing fight for subsidies between various sections of society is queering the pitch for capitalism in India considerably.
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