It is not easy to quantify the relationship between rural development and the various determinants discussed in the preceding section. For one thing, there are no time series data available on any acceptable measure of rural development, nor on these determinants, some of which can not be quantifi ed at all. Second, all these determinants keep changing simultaneously, and it is not possible to isolate and measure the contribu tion of any single determinant without resorting to some sophisticated econometric techniques.
A few attempts have been made in the past to measure the impact of some of these determinants on rural development. For instance, Hayami and Ruttan (1970: 895–911) attempted to explain the differences in agricul tural output per worker (a proxy for agricultural development) between a representative group of developed and developing countries, and found that: (a) resource endowment (land and livestock); (b) technology (fertilisers and machinery); and (c) human capital (general and technical education), accounted for 95 per cent of the differences. The implica tions of their analysis for an agricultural development strategy for devel oping countries are clear. An attempt must be made to close the gap in the levels of modern industrial inputs, education and research between the developed and developing countries. Agricultural surplus generated by closing the gap, over and above the amount necessary to maintain the growth of agricultural productivity, must be used to fi nance industrial development. In India as well, a number of studies have been conducted, mostly at the farm level, to determine the effect of land, water (irri gation), fertilisers, labour and power on farm production and income. These studies furnish valuable information about the nature and magni- tude of the impact of various determinants on farm income. However, there is a need for conducting macro-level studies aimed at determining the relationship between some acceptable measure of rural development and various factors affecting it.
MAIN POINTS
1. There are many physical, technological, economic, socio-cultural, institutional, organisational and political factors that affect the level and pace of rural develop- ment. These factors operate at all levels: household, village, district, state, nation and the world as a whole. Depending upon how they are managed, these factors can have both favourable and adverse effects on development. Knowledge about the nature and magnitude of the impact of various determinants on rural development is necessary for rural development managers to be able to use these factors to achieve their goals effi ciently and effectively.
2. In the absence of a single index of rural development, we generally use change in output as its proxy measure and examine the role of various factors that appear to us, on an a priori basis, as important determinants of this measure. It is assumed that a change in output is a function of the changes in natural resources, employment, capital, technology, and institutions and organisations including governance.
3. Measuring changes in output over time is much more complex than often thought.
For this, we need a system of accounts that provides the indicators of output change.
The national income accounts provide the indicators of aggregate output. Some of these indicators are gross national product (GNP), net national product (NNP), national income, personal income and personal disposable income.
4. Physically unlike goods and services, such as wheat, milk, houses, clothes, steel, aeroplanes, banking, insurance, and so on, are aggregated into a single measure by converting the physical units of output into monetary values by multiplying the physical units by market prices. The monetary values of output are, thus, comparable and additive.
5. A gross measure of output, such as the real GNP is not the best indicator of economic growth, as part of the gross output is needed to maintain the stock of capital in a productive form. In view of this, an increase in the real NNP is the best indicator of economic growth. The Composite Rural Development Index (CRDI) and the Human Development Index (HDI) are more comprehensive measures of rural development than the real NNP. But unlike the real NNP, their estimation year after year is not yet institutionalised in India.
6. Natural resources including the environment have a signifi cant effect on output, or economic growth. The environment—or Mother Nature—performs two important functions in the process of economic growth, namely, providing inputs to production processes and assimilating the wastes generated in the process of production. Since our planet Earth is fi nite, closed and non-growing, there is a natural limit to both these critical functions. This means that economic growth cannot be sustained forever.
7. Sustainable development requires that in the process of economic growth, we maintain our natural resources and environment intact and use/harvest only that much quantity which is regenerated naturally. However, it is now possible to augment the natural fl ows/harvest of products of nature through appropriate technological and managerial interventions.
8. Poverty of natural resources does not exclude a high level of economic development, as is shown by the examples of Denmark, Switzerland, Israel, Hong Kong and Japan. These countries have compensated for the lack of natural resources by appropriate technologies, institutions and organisations, and highly developed human resources. India is relatively well endowed with natural resources, but has not been able to develop and utilise them fully and judiciously for the benefi t of its people. Hence the low level of agricultural and rural development in India.
9. Human resources play an important role in the process of development. Research undertaken in the developed and developing countries of the world reveals that for an increase in output, the quality of labour is more important than the quantity.
This is evident from the fact no country with an educated, technically trained labour force is poor, and no country with a predominantly illiterate, untrained labour force is rich. Japan is a country which has almost no mineral or energy resources, but has high economic productivity because of a highly literate, trained and effi cient working population.
10. The poor quality of the rural labour force in terms of education, training and skills, in conjunction with very low per capita availability of capital, explains to a large extent the low productivity and, hence, the low per capita incomes in India’s rural sector.
11. Capital is considered by most development economists to be the key instrument of economic development. Capital formation is, therefore, an important prerequisite of economic development. Much of the new technology such as high yielding seeds, chemical fertilisers and pesticides, tractors, combine harvesters and food processing plants, is embodied in capital. Increases in the capital stock lead to increases in the marginal productivity of labour which, in turn, generally enhances the wage rates.
12. Capital resources can be acquired by domestic saving and/or by foreign aid.
Governments can also acquire resources for purposes of capital formation through taxes and infl ation. India’s rural sector is starved of capital and this is perhaps one of the most serious constraints on rural development.
13. The rate of capital formation in the rural sector has been low vis-à-vis the rate required for achieving a higher level of rural development. Furthermore, much of the surplus generated in the sector is siphoned off to the urban sector for a variety of reasons, including a lack of institutional arrangements for mopping up small savings and providing incentives to small savers.
14. Technological advance is the most important factor that accounts for economic development. In many ways it is the sine qua non of development, that is, it is development. Studies in the advanced countries have shown that increases in natural resources, employment and capital have accounted for less than one-half of the increases in output over time. The bulk of growth must, therefore, be accounted for by technology. Many students of development, notably Schumpeter, Schultz and Rostow, have constructed theories of development which have technological advance at the very centre of concern.
15. The critical question is, of course, how to promote a high rate of technical change.
This can be done by creating the general economic climate which is conducive to innovation and knowledge building. Educational and research institutions are crucial at all levels of development. In India, the extent of use of the available new technology in the rural sector is very low, which explains the low level of rural development to a large extent.
16. Institutions and organisations are important aids to development. They affect agricultural and rural development in many different ways, including the provi- sion of production inputs and services, reduction of transaction costs, enhancement of bargaining power of rural producers, infl uencing investments and savings, and bringing the two together, and so on.
17. There are many forms of organisations, such as public (government), sole propri- etorship, partnership, company, cooperative and charitable trust, that can—and in fact, do—cater to the needs of the rural people in India. The form of organisation suitable for promoting agricultural development should fully identify with the interests of the people, and should be fully oriented—both organisationally and
operationally—to meet their needs. In India, the Anand pattern dairy cooperatives have demonstrated what appropriate institutions and organisations can do to initiate and foster agricultural and rural development.
18. It is not easy to quantify the relationship between rural development and the various factors that affect it. This is mainly because there are no reliable time series data available on any acceptable measure of rural development or on its determinants. However, only a few attempts including the one made by Hayami and Ruttan have been made in the past to measure the impact of some of these determinants on rural development. There is need for conducting macro-level studies aimed at determining the relationship between some acceptable measure of rural development and various factors affecting it.
NOTE
1. The Club of Rome report, The Limits to Growth (Meadows et al. 1972), for example, predicted that if the current patterns of population growth and resource consumption continue, the world economic system would collapse by the mid-twenty-fi rst century.
QUESTIONS FOR DISCUSSION
5.1. Discuss how human resources can have both favourable and adverse effects on development.
5.2. What are the limitations of real net national product (NNP) as a measure of rural development?
5.3. Most of India’s natural resources and environment are degraded and polluted due to mismanagement. Suggest measures for their restoration and making them more productive so as to sustain, if not improve, the present rate of economic growth.
5.4. India’s rural sector is starved of capital and whatever surplus is generated in the sector is siphoned off to urban areas for various reasons. Suggest measures for reversing this trend.
5.5. India now has access to the latest agricultural technologies but its crop yields are still very low relative to those in such countries as China, Mexico, Israel, Japan, the USA and Canada. Explain why.
5.6. Discuss the strengths and weaknesses of a cooperative as an organisation for promoting rural development.
5.7. What are the problem in quantifying the relation between rural development and its determinants?
99
6 Rural Development Policies
L E A R N I N G O U T C O M E S
After having gone through this chapter, students should be able to
z defi ne public policy and differentiate the concepts of ‘policy’, ‘programme’ and
‘project’;
z illustrate how a public policy, say, rural credit policy, curbs as well increases the freedom of a farmer borrower;
z identify the major reasons why we need a ‘Rural Development Policy’ in India;
z explain the major goals of ‘Rural Development Policy’ and their rationale;
z explain the concept of ‘Hierarchy of Policy Goals’, and illustrate how and when a goal becomes a means of achieving a superior goal;
z know the major Rural Development Policies of India and their salient features and
z critically examine the implications of globalisation and liberalisation for rural development.
INTRODUCTION
Webster’s dictionary defi nes ‘policy’ as a defi nite course of action selected (as by the government, an institution, a group or an individual) from among alternatives, and in the light of given conditions to guide and usually to deter mine present and future decisions. The most common social and
political usage of the term ‘policy’ refers to a course of action or intended course of action conceived of as deliberately adopted after a review of possible alternatives, and pursued or oriented to be pursued. The policy process is the formulation, promulgation and application of these courses of action. Here, we will concern ourselves with public rural development policy, by which we mean actions taken by the government in the pursuit of certain objectives of rural development. Rural development, as usual, includes agricultural development as well.
It is important to distinguish at the outset between: (a) policy; (b) pro gramme; and (c) project. Policy is a comprehensive term and connotes, as mentioned earlier, a set of intended actions. It subsumes programmes which are narrower in scope than policy, but more specifi c with regard to what is to be done, how, by whom and where. A policy has to be translated into a number of programmes before it can be implemented. A project is highly specifi c and detailed in terms of its objectives, loca tion, duration, funds and executing agency, and lends itself to planning, fi nancing and implementation as a unit.
A programme may consist of several projects. A rural development project may be defi ned as an invest ment activity, where resources are expended to create a producing asset from which we can expect to realise benefi ts over an extended period of time.
This chapter fi rst presents a few basic elements of public policy, including a conceptual framework and rationale of public policy. This is followed by an overview of India’s major public policies related to the rural sector. Finally, we briefl y discuss the important implications of globalisation for rural development. The main objective of the chapter is to familiarise the student with the basic elements of public theory and the salient features of India’s rural development policies launched from time to time.