Production Conditions in Indian Agriculture: A Study Based on Farm Management Surveys (University of Cambridge Department of Applied Economics Occasional Paper 33, An Old and Rare Book)

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This research work was conceived and a major part of it completed during 1969 when I took it up as a one-year project at the Department of Applied Economics, Cambridge. The period, the short duration of the project and the location explain, partly, the reliance on the published reports of the Studies in the Economics of Farm Management, referring to the years between 1954 and 1957, as also the rather limited perspective of this study. Much work has since been published employing the more detailed holdings-wise data and covering subsequent years. Consequently there are many overlaps. I have not discussed these later works either with a view to critically amessing them or in order to relate them to the present study as that would have meant recasting the original plan of this paper. I have, however, included references to them at the relevant places.

In planning this Occasional Paper, I was choosing between two alternatives: either, to suggest a set of mutually consistent, workable hypotheses on a number of inter-related aspects of agricultural production thereby presenting a rough but overall view based on published reports; or, to carry out a detailed investigation into some selected hypothesis using the more detailed unpublished information from primary schedules. I decided upon the first as possibly providing a helpful, preliminary perspective from which to branch off into more intensive studies. Although this implies that the Investigation offers a necessarily tentative analysis, it appears to be a reasonable alm for an Occasional Paper. The publication of the paper, despite the time-lag and with all its limitations, rests on the hope that the effort made here to obtain an overall view of production relations in agriculture may prove a useful line of enquiry.

In the course of this work, I have benefited greatly from discussions with Ashok Rudra. I am aware that errors still remain, but without his help there would have been many more. Nirmal Chandra displayed much patience in going through the successive versions of the manuscript and offering detailed comments. I am grateful to Amiya Bagchi, Amit Bhaduri, Nikhilesh Bhattacharya, K.N. Raj, S.K. Rao, Utsa and Prabhat Patnaik and Sunanda Sen for useful suggestions. Joan Robinson, John Eatwell and Geoffrey Harcourt read through the draft and provided helpful comments. Jo Bradley patiently edited the manuscript and suggested many stylistic improvements.

For computational assistance at Cambridge, I am much obliged to the computer section of the Department of Applied Economics. I remain especially indebted to Dr. Lucy Slater for devoting a great deal of her time to the tedious work of devising a suitable program for fitting the technical frontier (used in Appendix H).

1.1 It is not surprising that problems relating to agriculture have occupied a prominent place in discussion of the Indian economy. The dimensions of the sector-engaging more than three fourths of the population and contributing a Little less than half of national income compel inescapable emphasis in any analysis of the country's economic situation or programme of economic action. Issues such as the role of agriculture in economic development, the priority the sector should receive under planning, the policy instruments to be adopted to stimulate agricultural growth, etc., have remained at the centre of vigorous debates. However, most analytical discusions in the area of 'agricultural economics have been set out, explicitly or implicitly, as extensions of the conventional economic theory in terms of competitive markets. The researcher has yielded much too easily to the temptation of treating the cultivator and his problems of resource acquisition and utilisation on the analogy of the producer of a competitive firm. Such analogies give rise to some awkward problems, for example, in handling owned inputs like family labour or owned land. Attempts to impute market prices to such inputs have resulted in the majority of cultivators showing up net losses. This has baffled the theorists and has led to such controversies as whether it is the imputation of wages to family labour or of rent to owned land that is responsible for such a result! Even when the researcher recognizes the inadequacy or irrelevance of such specific assumptions like profit-maximization or mobility of resources guided by freely fluctuating market prices, he is prone to tinkering with only those specific parts of the competitive model, keeping undisturbed the rest of the framework, rather than face the challenge at a more fundamental level of concepts, categories and the nature of economic relationships. Thus what emerges is a product of manipulating, relaxing or restricting one or more assumptions. For example, the complex nexus of socio-economic con-ditions that underlies the phenomenon of underutilisation of agricultural labour force (the so-called 'disguised unemployment") gets neatly and elegantly summarised into a single consequence for the theory the perfectly elastic horizontal supply curve of labour. Another attempt to likewise partially reformulate the model of the agrarian economy treating it as a departure from the competitive framework is made by introducing imperfections (in the form of monopoly or monopsony elements) in specific markets while the other markets continue to enjoy their well-behaved competitive status.

1.2. The analytical challenge, however, emanates importantly from the rich variety and complexity of institutional forms manifested in the conditions of production in agriculture. The agrarian economy which is in the process of a gradual transformation is characterised by the co-existence and interaction of multiple modes of production. The analytical complexities which arise cannot be handled as deviations from or imperfections of a competitive economy. Even the treatment of production conditions as mere production 'activities" - each producing unit characterised as a sort of a black box turning inputs into outputs is not merely restrictive but it positively hinders a meaningful understanding of a concrete situation. Property relations between individuals involved in production activity are an integral part of production relations as are the technical characteristics of production. These property relations are particularly complicated in semi-feudal agriculture where power is exercised through privilege as much as through markets.

1.3. The complexity of the network of market relations that characterises such an economy becomes evident when we note some of the peculiar features of agrarian markets which violate the competitive premises. Under the competitive framework while markets are interlinked, this is so only through prices. Each producer decides on the use of a resource owned or purchased by treating its market price as an opportunity cost. In the long run, each producer has open to him the possibility of buying or selling any particular resource in indefinite amounts at the prevailing price. Under a regime of complete mobility of resources and profit maximization, with a well-behaved technology, every resource will have, in equilibrium, the same marginal value productivity in all uses, which will equal the market price of the resource. The market does not discriminate between producers, and decisions of the participants in the market are thus linked by the purely impersonal forces of pricing. Each producer decides on the basis of relative prices and his own budgetary constraint what best to produce and how. The point to note however is that any choice made by him in one market (factor or product) does not directly influence the field of feasible choices open to him in any other market. (See 1.8 below for further elucidation.)

14. Discussions pertaining to production decisions in Indian agriculture have mainly been within the context of such a framework. To cite some common re-search endeavours: production functions, popularly of the Cobb-Douglas variety. expressing output as a function of land, labour and material inputs, are fitted to cross-sectional data on holdires, Comparisons are then made between the marginal productivities of inputs derived from such fitted functions (generally valued at the geometric mean level of inputs) and the market prices of the respective inputs in order to draw out inferences about efficiency with which resources are utilised. A question commonly posed, for example, concerns the optimality of labour use which is judged on the basis of whether or not the derived marginal productivity of labour equals the market wage rate. We shall have occasion to indicate in our discussion of the characteristics of the labour market (see Chapter 3) some of the difficulties in treating the market wage rate as an opportunity cost of labour.