About Pramit Pal Chaudhuri

Pramit Pal Chaudhuri has resumed as foreign editor of Hindustan Times after a two year lapse. A member of a clutch of think tanks of which his favourite is an Italian one that takes him to Tuscany most summers, he genuinely likes to muck about the ponderous economic and political issues that make the world turn. On the bright side, he likes chocolate, football and Old Monk Rum.

Why is the Land Acquisition Bill so important? And why should its amendment be supported?

There are two tales regarding the poor Indian farmer and his land. One is cited by those who support the dilution of the original bill. The other is cited by opponents who claim small farmers need greater rights regarding their land.

The problem is that both these narratives are correct. One is a macro story and long-term. The other is a micro story and immediate.

The first story is that farm employment in India is in a crisis that it can never get out of. Never. Millions of agricultural workers must be moved off the land and into factories if they are to survive. But these factories – or cities and towns in general – will never come about if their builders are not provided land.

Consider the numbers.

Between 2000 and 2005, Indians farms hired or employed 21 million more people. Then the numbers began to drop. Between 2004/05 and 2009/10 the number of farm jobs fell 14 million and even in the short period of 2009/10 to 2011/12 an additional 13 million agricultural jobs were lost.

Why is this happening? Because India has simply run out of land.

The number of farms in India is now almost 140 million, a figure nearly double what it was a few decades ago. These land-ownings have shrunk to the point that the average farm-holding size in the country is only 1.6 hectares — barely enough for subsistence living for a family whose average size is five. In densely populated states like West Bengal and Bihar farm sizes are only marginally larger than those of big apartments. And being divided with each subsequent generation.

Polls show that 42 per cent of Indian farmers say they would like to quit their professions..

Various farm subsidies have kept the sector staggering along. And there are pockets of success but largely in large, cash crop farms whose size only aggravates the land problem.

Where, in effect, are these dispossessed farmers or farm labourers going to find jobs?

The answer seems to be a large boom in rural construction and, to a lesser extent, rural manufacturing.

A well-regarded study by Hans Binswanger-Mkhize in Economic and Political Weekly argued the rural non-farm sector was absorbing the workers being shed by the farms. “This has emerged as the largest source of jobs in the Indian economy,” argues Binswanger-Mkhize. Construction alone has seen its share of the total workforce double to 19 per cent since the 1980s and much of this is in rural India.

But construction is arguably the worst and lowest-paid variety of non-farming work and dependent on boom-and-bust cycles in the real estate business.

As had happened in other societies, these farmers should be moving to the cities, working in factories and earning the skills and money to push their families into the next income bracket. That is simply not happening in India because it has an abnormally small manufacturing sector and unusually slow urbanization rates. Among the BRICS countries, India has the smallest manufacturing sector by almost any index.

The second story is the one of Indian farmers being pushed off their land with minimal compensation.

This tale is as truthful as the earlier one. And it is more immediate.

In a practice that goes back to the British Raj and was continued by independent India, particularly virulently during the socialist years, Indian rural land-holders were regularly pushed off the land for infrastructure projects and industrial factories. They were given absurdly low amounts of compensation. Often they were offered alternative land – and were then cheated of this.

While much of the present focus is on the private real estate and highway builders of today, the statistics are pretty clear that the worst perpetrators of this sort of thing were the Indian public-sector firms and the Indian government. West Bengal under communist rule had a remarkably pathetic record in forcible land grabbing.

Unsurprisingly, all this triggered a backlash in a democratic polity like India. And it coincided, also not surprisingly, with the larger land crisis in Indian agriculture. A farmer with a one hectare farmer is already living on the edge. The land is his last asset and he is reluctant to give it up. But here’s the rub, if he sticks to his farm, he will go over the edge anyway as his farm is subdivided by his children or its soil is leached by fertilizers.

In other words, the small Indian farmer needs to be moved from his land into the cities in a manner that reassures him that the transition will actually take place in a manner that will benefit him. As noted, many farmers are ready to leave their fields – they can see there is no future in what they are doing – but they are rightly suspicious given the past 60 years of banditry that was carried out.

Forging this social contract is what the political class in India needs to be working on. If successful, India will make a necessary and inevitable social transformation but in a manner that will avoid enormous social unrest and trauma.

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Narendra Modi has been roaming the planet and has proven to have a real gift for international showmanship. But one part of the world that has, so far, been missing from his itinerary has been Europe.

Joao Cravinho, the European Union ambassador, held a press briefing this week and underlined the degree of neglect Brussels has experienced from the new Modi government.

The India-European Union free trade agreement, almost 95 per cent done, is awaiting the last mile of negotiations. Three quarters of a year in office, however, the new Indian government has not held a single meeting with the EU about whether they want to animate or bury the talks. Cravinho said he hoped that the EU would get word sometime in the next few weeks about what New Delhi wanted to do.

Somewhat strange given that, as he noted, the EU remains India’s single largest source of foreign investment, single largest trade partner and probably largest recipient of outward Indian foreign investment. Mind you, New Delhi had some reason to delay as the entire Brussels leadership was recently changed. Modi did meet the outgoing President of the European Council, Herman von Rompuy, at the G-20 summit long enough to master the pronunciation of each other’s names.

Of course, if you subtract the United Kingdom from this equation, the number for the rest of Europe plummets. Take out Germany as well and it is just a few billions here and there.

The lack of Indian engagement on climate change, the Holy Grail of European diplomacy, with Brussels is telling as well. Japan and the United States figure more in India’s climate change policy than Europe does. On Ukraine the two sides don’t even waste time talking to each other. Cravinho did say India could tell Russia that it was doing bad things in Ukraine, but it was for form’s sake.

One measure of the importance that Europe in the Modi worldview is the Indian foreign ministry’s recent 116-page e-book on the new government’s foreign policy, “Breakthrough Diplomacy

which gives all of two pages to Europe as a whole (with Minister of State V.K. Singh’s visit to Slovenia as one of the high points), plus two pages each to the UK and Germany. The Indian diaspora gets 12 pages and Africa, which Modi has also yet to visit, 14 pages in comparison.

Of course this will change to some extent. Modi will go to Germany and probably France in April. The UK will get a place on the itinerary in the later half of this year.

Cravinho was also certain that the Indo-EU summit would also be held sometime this year. Hopefully.

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The new US ambassador to India, Rich Verma, speaking at the Vivekananda Foundation, noted how India and the US now even have a joint working group on carrier technology. [Read more]

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Prime Minister Narendra Modi’s first budget was a disappointment, his first winter session of Parliament was an embarrassment, his passage of a slew of ordinances was touched by a hint of panic, and it’s still unclear if key economic legislation like insurance FDI and the general services tax will even get past his second budget.

Yet, foreign capital continues to flow. Greenfield foreign investment remains low, though it has at least rebounded from the bottom-scraping levels it reached last fiscal. Once you took out the usual end-of-the-year profit taking, the FII flow into India has been remarkable. And it continues to come in.

The Indian investor remains cautious about the stockmarket. The Indian corporate investor is even more wary. Having been burnt by the previous six or seven years by the last government, they are all waiting for concrete evidence of policy change before they put more money into expanding factories and plants.

Yet the foreigners keep coming.

One reason for this is that there aren’t too many places a foreign emerging market fund manager can put his money. As one equity player in London once told me,” There are a billion pounds in floating emerging market funds that have almost only India to go to these days now that Turkey, Brazil, Russia and a few others are belly-up. The FIIs, he told me, were buying and selling to each other so the Indian investor didn’t really matter.

Two, many overseas investors understand the damage done to the Indian economy by the United Progressive Alliance regime, especially the last five years of the Manmohan singh government. The fiscal deficit remains out of control. Bad loans are clogging up the banking system. The energy sector remains paralysed.

If anything, many of the institutional investors see how this would take a long time to unwind.

What worries them more is the tomtomming of calls for interest rate cuts by various senior government officials. This unnerves long-term financial investors, like pension funds, who focus on the broad parameters of the economy and policy and not short-term measures to get a quick burst of growth. For them, cutting interest rates prematurely is a sign of bad policy, that Modi wants to suborn an independent central bank, and means inflation would come back sooner than later.

They thus applaud Raghuram Rajan’s stance. As a Citibank study noted, India was a good place to be because of three things 1) Rajan, 2) the fall in global commodity prices and 3) Modi’s absolute majority in the lower house. No mention of Arun Jaitley or the key personnel in government.

In other words, Modi’s seeming “haste makes waste” method of governance gets him applaud with foreign investors who seen in this exactly the sort of long-term, stable policy mindset that they want.

Even on foreign policy, New Delhi is working on an ad hoc, ultra-pragmatic approach to diplomacy – and this is earning him points. This lack of geopolitical vision is actually acceptable now because there are no major government to government threats in the region. Sparring on the borders yes, but the chance of even a Kargil type situation is minimal. Modi is doing exactly what a Wall Street investor would want him to do in foreign policy.

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It has not escaped notice that Prime Minister Narendra Modi’s many perambulations around the world have, so far, ignored Europe – if refueling stops for his aircraft are ignored. [Read more]

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