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DE RUEHBI #0153/01 0991151
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FM AMCONSUL MUMBAI
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INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 8331
RUEHBI/AMCONSUL MUMBAI 2289
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RHEHAAA/WHITE HOUSE WASHINGTON DC
RUEHLO/AMEMBASSY LONDON 0235
RUEHRL/AMEMBASSY BERLIN 0042
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 0007
RUEHFR/AMEMBASSY PARIS 0126

UNCLAS SECTION 01 OF 05 MUMBAI 000153 
 
SENSITIVE 
SIPDIS 
 
PASS TO USTR FOR AADLER 
 
E.O. 12958: N/A 
TAGS: EAGR ECON PGOV IN
SUBJECT: AGRICULTURAL GROWTH AND DECLINE:  THE COMPLEXITY OF RURAL 
MAHARASHTRA 
 
REF: A. A. 06 MUMBAI 1266 
     ¶B. B. 06 MUMBAI 2054 
     ¶C. C. 09 MUMBAI 0130 
 
MUMBAI 00000153  001.2 OF 005 
 
 
¶1.  (SBU) Summary:  Although Maharashtra is the most 
industrialized state in India, over half of its population lives 
in rural areas, with many dependent on agriculture for their 
livelihood.  For decades, a succession of state and central 
governments has selectively and incompletely promoted 
agricultural growth.  Factors as diverse as political patronage, 
opportunities for migration, and soil conditions have created 
wide and increasing disparities in income and productivity 
between regions.  With nearly 7,000 suicides in the region since 
the beginning of the decade, the problems of the Vidharbha 
farmer in eastern Maharashtra have become synonymous with the 
agrarian crisis that affects parts of India.  Despite a series 
of measures in the last year, including a farm loan waiver and a 
rise in the support price for cotton, agricultural researchers 
and experts believe that these programs have yet to have a 
significant impact on farmers' income in the state. 
 
¶2.  (SBU) However, rural Maharashtra's assessment of government 
agricultural policies is complex and does not necessarily affect 
voters' behavior.  The problems of rural Maharashtra vary from 
region to region, and agricultural experts advise that a 
"bottom-up" approach be used to address its diverse agricultural 
challenges.  In this and two subsequent cables, we will try to 
assess the efforts of the Congress Party-led coalitions in the 
state and at the center in promoting rural growth in 
Maharashtra, and its likely impact on voter attitudes.  End 
Summary. 
 
The Agriculture Sector Remains Declining Portion of India's 
Growth 
------------------------------ 
 
¶3.  (U)  The Indian agricultural sector has exhibited four years 
of relatively good growth on account of good rainfall, which led 
to good crops and overall favorable commodity prices.  However, 
the share of the agricultural sector as part of the total GDP 
has continued to decline.  The agricultural sector accounted for 
only 18 percent of Indian GDP in 2007-08 as compared to 55 
percent in 1950-51.  However, agriculture continues to be the 
main occupation for much of rural India who comprise 70 percent 
of India's one billion-plus population.  Nanasaheb Patil, the 
Principal Secretary for Agriculture for the Government of 
Maharashtra (GOM), noted that the last fifty years of 
development has not led to a shift of population from 
agriculture to industry.  He pointed out that 58 percent of the 
population in Maharashtra -- a relatively more industrialized 
state -- lives in rural areas, and 80 percent of the state's 
rural population depends on agriculture (New Delhi will report 
more on the rural economy septel). 
 
Regional Disparities in Rural Maharashtra 
----------------------------- 
 
¶4.  (SBU) Within India, the state of Maharashtra is marked by 
the co-existence of mixed rural pockets of affluence and 
absolute desperation.  Sugarcane barons in western Maharashtra, 
grape growers in Nashik, and horticulturalists in Pune -- all in 
the north-south belt known as Western Maharashtra -- earn huge 
incomes.  The Konkan region, south of Mumbai along the 
Maharashtra coast, has some of the highest rainfall levels in 
India, but much of it quickly washes into the sea, limiting 
farmers to growing only one rice crop per year.  Meanwhile, the 
poor cotton farmers of eastern Maharashtra's arid Vidharbha 
region face a lack of infrastructure, roads, and irrigation in 
their struggle to survive. 
 
¶5.  (SBU) One of the main reasons for this disparity -- beyond 
climatic conditions -- is politics.  Three-time Chief Minister, 
Nationalist Congress Party (NCP) head, and now Union Minister 
for Agriculture, Civil Supplies, and Consumer Affairs, Sharad 
Pawar is from Western Maharashtra, and politicians from that 
region -- largely a dominant caste known as Marathas -- have 
 
MUMBAI 00000153  002.2 OF 005 
 
 
formed the backbone of almost every state government.  State 
governments have ensured that irrigation projects brought water 
to the sugar growing areas of Western Maharashtra instead of the 
nearby Konkan region.  On a recent trip to Konkan, farmers told 
ConGenoff that despite having three Chief Ministers from the 
region, none of them were able -- or willing -- to pry away 
irrigation projects from Western Maharashtra to irrigate lands 
on the coast.  Agricultural researcher Ajay Dandekar blamed 
"sugar politics" for much of Maharashtra's agrarian challenges. 
He pointed out that sugarcane productivity in the state has been 
falling over the last decade.  However, three-fourths of the 
water resources of the state are still diverted to irrigate the 
water-guzzling crop which accounts for less than 10 percent of 
the state's land under cultivation.  The Maharashtra 
government's active promotion of the sugar industry distorted 
cropping decisions and led farmers to plant sugarcane in areas 
unsuitable for cultivation, he added. 
 
¶6.  (SBU)  According to Dandekar, each major politician in 
Maharashtra or his family control at least one sugarcane factory 
or one sugar co-operative.  Sugar lobbyists became so powerful 
that they prevented the growth of any other lobbyists, barring 
the wine (grape) industry which is also in a sugar- dominant 
area of the state.  As a result, the Maharashtra government has 
traditionally promoted policies favoring the sugar and wine 
industry over the cotton sector.  For example, local wines made 
with Maharashtra-grown grapes are exempt from excise duty until 
December 2011, while out-of-state and foreign wines made with 
grapes grown outside Maharashtra pay duties ranging from 150 to 
200 percent of the manufacturing cost.  The government has also 
mandated a compulsory blending of 5 percent of ethanol (made by 
fermenting sugar) with petrol.  (Comment:  Both the sugar and 
wine industries have the financial resources to support the 
patronage and "pork barrel politics" of Maharashtra.  Sharad 
Pawar has a grape named after him called Sharad Seedless grape. 
According to the media, Pawar's family owns vast lands in the 
sugar and grape growing regions of the state.  Pawar's vote base 
does not extend to Vidharbha.  See Ref C for more on Pawar.  End 
Comment). 
 
¶7.  (U) Nevertheless, according to GOM's Patil, the current 
Congress Party led-United Progressive Alliance (UPA) government 
has adopted a rural focus and emphasis on growth in rural India. 
 (Note:  In India, the responsibility for agricultural 
development lies with individual states.  Frustrated with the 
slow pace of agricultural growth, however, the UPA government 
has initiated a number of agricultural programs, discussed in 
New Delhi septel.  End Note).  The government has identified the 
development of an agricultural "exit policy" -- to take farmers 
out of farming and transfer them to other economic activities -- 
as one of its main priorities.  Empowering farmers with 
education, skills and training to enable them to get 
non-agricultural jobs is the answer to uplifting farmers, Patil 
argued.  The central government is also trying to shift farmers 
away from traditional agriculture like foodgrain cultivation to 
"new" agriculture which has higher margins, including 
horticulture, poultry, dairy, fisheries, and animal husbandry. 
The government has also implemented the Bharat Nirman program to 
improve rural infrastructure and enacted the National Rural 
Employment Guarantee Act (NREGA) to provide livelihood security 
to rural India.  (The impact of these programs in Maharashtra 
will be covered septel).  Working together, these programs can 
offer an alternative to agricultural employment and benefit the 
farmers through the development of rural infrastructure, while 
at the same time reduce rural India's dependency on agriculture. 
 
Are Farmers Benefitting from Agricultural Development Programs? 
--------------------------------------------- ----------------- 
 
¶8.  (U) Mumbai agricultural specialists have mixed opinions 
about the success of the UPA government's programs for the 
agricultural sector.  Despite four years of growth, the GOM's 
Patil asserted that most farmers in India are not reaping its 
benefits.  The majority -- roughly 80 percent -- of Indian 
farmers are small and marginal, owning less than 2 hectares of 
 
MUMBAI 00000153  003.2 OF 005 
 
 
land (roughly 5 acres).  According to the Indian Agricultural 
Census, the number of landholdings increased from 71 million in 
1970-71 to 120 million in 2000-01.  The census data showed that 
the number of landholdings in Maharashtra increased from 8 
million in 1970-71 to 12 million in 2000-01, and that small and 
marginal farmers comprised 73 percent of total land-owning 
farmers in the state.  Patil explained that increasing rural 
population in Maharashtra puts pressure on the small and 
shrinking landholdings, causing rural per capita income to fall 
even if agricultural incomes rise.  He cited the huge population 
dependency on agriculture as the main reason for the continued 
impoverishment of the average Indian farmer in the state. 
 
¶9.  (SBU)  Srijit Mishra, an agricultural researcher at the 
Indira Gandhi Institute for Development Research (IGIDR), 
maintained that government development programs for the 
agricultural sector are largely "piecemeal" and not on a scale 
large enough to reach all farmers.  According to him, the UPA 
government did not invest "where people matter."  For example, 
he pointed to the government's freeze on recruiting teachers for 
rural schools in Maharashtra, an area already hard-hit by the 
lack of trained teachers and frequent absenteeism.  He also 
blamed poor overall productivity for many of the Indian farmer's 
problem.  In a study conducted by Mishra, he found that the 
average return to farmers was around 16 cents per capita per day 
in 2003.  Mishra claims that even if this were doubled (which 
according to him is not possible), the farmer would currently 
receive an average return of around 32 cents each day which is 
less than the cost of five kilograms of rice   (Note:  Data on 
farm income is incomplete and varies greatly from state to 
state.  These numbers are clearly on the low end of estimates. 
End note.) 
 
¶10.  (SBU)  However, Veena Mishra, the Chief Economist of 
India's largest tractor manufacturing company, Mahindra & 
Mahindra, applauded the intentions behind the government 
programs, but expressed concerns about their administration and 
implementation (septel).  Nevertheless, she admitted that the 
current UPA government focused on rural growth and invested more 
heavily in agricultural programs -- including infrastructure 
like roads, electricity, and markets -- as compared to the 
previous National Democratic Alliance (NDA) government.   There 
has been a substantial upward revision of the Minimum Support 
Price (MSP) for many crops, including cotton, under the UPA 
government which has raised agricultural incomes, she added. 
Another IGIDR professor noted that the vast heterogeneity of 
states -- in terms of climate, people, governance, and 
infrastructure -- makes "one-solution fits all" policies 
impossible in India.  In 2006-07, the Planning Commission has 
mandated that each district adopt a "bottom-up" approach for its 
development plans.  The professor hoped this will kick-start 
"needs-based" development planning for each district in the 
country. 
 
Farmer Suicides in Maharashtra Continue Despite Loan Waiver 
Package 
----------------------------------------- 
 
¶11.  (U) The desperate condition of many farmers is starkly 
visible in the Vidharbha region in eastern Maharashtra where 
nearly 7,000 farmers committed suicide during 2001-06.  (Note: 
A study by the Madras Institute of Development Studies showed 
that the rate of farmer suicides per 100,000 population was 29.9 
in Maharashtra and 19.2 in Andhra Pradesh in 2001.  The 
comparative figures for the southern states of Pondicherry and 
Kerala were much higher at 834.9 and 142.9, respectively.  The 
general suicide rates in these states were also significantly 
higher than that observed in Maharashtra and Andhra Pradesh. 
The suicides in this region have attained national attention due 
to the concentration of suicides among farmers in this region, 
as well as the sheer numbers of suicides.  Statistically, 
farmers across the world are more prone to suicide than other 
occupations.  End Note).  Traditionally, cotton has been the 
main crop in Vidharbha, although farmers have recently also 
diversified into growing soyabean.  IGIDR's Mishra explained 
 
MUMBAI 00000153  004.2 OF 005 
 
 
that the geologic characteristics of Vidharbha are not conducive 
to water harvesting.  So, the drought-prone region is under dry 
land farming and largely dependent on rainfall.  Historically 
low cotton prices, coupled with the high cost and risk of 
growing cotton in a drought-prone, non-irrigated area, has, over 
time, depressed the returns to the Vidharbha farmers.  In 
meetings with Vidharbha-based interlocutors, ConGenoff learnt 
that even with irrigation, only 40 percent of the region's 
farmland could be irrigated because of the region's geography 
and topology. 
 
¶12.  (U) The GOM's Patil said that cotton cultivation requires a 
minimum investment of USD 360-500 per hectare.  Therefore, 
"shocks" like crop failure due to low rainfall or spurious 
inputs (usually fake seeds), unexpected medical expenses, or 
social obligations like weddings, can cause the farmer to fall 
into a self-perpetuating and never-ending debt trap, he 
explained.  Mishra observed that the average outstanding debt of 
the Vidharbha farmer is USD 500-800 from multiple sources 
including banks and moneylenders.  Nevertheless, GOM's Patil 
opined that the social stigma attached to non-payment of debts 
and the sensitive nature of farmers may cause him to end his 
life.  (Note: See ref A and B for more details about farmer 
suicides in Vidharbha.  End Note). 
 
¶13.  (U) In 2005 and 2006, the central government implemented 
two relief and rehabilitation packages amounting to USD 965 
million for Vidharbha farmers that included debt rescheduling, 
interest payment waivers, cash disbursements, and funds for 
improved irrigation and water harvesting.  However, a recent 
report on farmer suicides and debt waivers by Narendra Jhadav, 
the former Chief Economic Advisor to the Reserve Bank of India, 
found that "there was no significant decline in the absolute 
number of farmer suicides in Vidharbha even after two years of 
implementation of these packages."  According to Maharashtra 
state government data, 1,241 farmers in Vidharbha committed 
suicide in 2007, as compared to 1,448 farmers in 2006. 
 
¶14.  (SBU)  In 2008, the government announced a USD 12 billion 
debt waiver and debt relief program for marginal and small 
farmers across India.  Of this, USD 2 billion has been allocated 
for farmers in Maharashtra.  Both Patil and Mishra of IGIDR 
noted that the farm loan waiver program had limited 
applicability and impact as it only applied to loans taken from 
public sector banks and excluded debt owed to moneylenders, a 
large component of the overall lending, especially in Vidharbha. 
 At a recent conference, S. L. Shetty, the Director of an 
economic research institute, criticized the government's farm 
loan waiver program as being "too selective" and rewarding 
willful defaulters.  He doubted whether the loan waiver truly 
solved the farmer indebtedness problem, and pointed out that 
suicides continued even after the program was announced.  He 
argued that the government funds allocated for paying off farm 
loans would have been better spent on upgrading irrigation 
facilities and educating the farmer's families.  Mishra of 
Mahindra believes that the farm loan waiver program created a 
"moral hazard" and destroyed the growth of rural credit culture. 
 She accused many farmers, who had the ability to pay, of using 
the waiver to excuse themselves from repayment of all dues and 
obligations. 
 
Non-Farm Incomes Rising and Rural Sector Seen as a Huge Growth 
Opportunity 
--------------------------------------------- ------- 
 
¶15.  (U) However, some agricultural experts noted that while the 
agricultural sector is beset by challenges, non-farm rural 
income is growing (more on this septel from New Delhi). 
According to the latest Central Statistical Organization (CSO) 
data, the non-farm sector accounted for 48 percent of rural GDP 
in 1999-2000, as compared to a 28 percent share in 1970-71. 
Most of the growth in non-farm activity came from the 
manufacturing, hotels and restaurants, and construction sectors. 
 In a research report, Roopa Purushothaman of Future Capital 
Holdings, argued that the rural-urban disparities are slowly 
 
MUMBAI 00000153  005.2 OF 005 
 
 
disappearing in India due to the rise of the non-farm sector 
which has become a key driver of rural growth.  Another 
professor at IGIDR pointed out that agricultural income can only 
rise if productivity increases, since the government raises 
agricultural prices only occasionally.  As farm income continues 
to stagnate, the share of non-farm income in rural GDP naturally 
rises, he argued. 
 
¶16.  (U)  However, S. Chandrashekhar, an IGIDR researcher on 
urban-rural disparities, suggested that remittances from urban 
to rural India form a significant portion of non-farm rural 
income, particularly in Maharashtra.  On ConGenoff's recent trip 
to the Konkan region, political leaders and journalists 
described the region's economy as a "money order economy."  For 
over a century, children in farm families have been migrating to 
Mumbai for work and sending back money to their families. 
According to observers there, this consistent additional income 
enables farm families to survive on one rice crop a year, and 
compensates somewhat for the lack of irrigation and other 
agricultural development programs. 
 
¶17.  (U)  Mahindra's Mishra has seen a gradual shift towards 
non-farm activities in rural India over the last five years. 
She was uncertain whether the shift was the result of government 
programs which employ rural household members to develop rural 
infrastructure projects or whether it was driven by rising 
economic growth.  She noted that the non-farm sector which is 
driven by domestic savings and, therefore, unaffected by the 
global financial crisis, can feed off rising agricultural 
incomes even if urban consumption shrinks.  Rahul Sharma, Head 
of Rural Information for Mahindra & Mahindra, emphasized that 
small and marginal increases in rural demand translate to huge 
payoffs to the corporate sector.  India's total tractor 
manufacturing capacity is 850,000 tractors each year.  Assuming 
there are 85 million rural households (there are much more), 
then a one percent increase in rural demand for tractors would 
equal the entire tractor manufacturing capacity of India, he 
explained. 
 
¶18.  Comment:  (SBU)  As a large, complex, mostly rural state 
with climatic variations, there is no "one size fits all 
approach" to improving agricultural growth in Maharashtra. 
While the country's media focuses on the tragic condition of 
farmers in the Vidharbha region, farmers in other parts of the 
state have used government programs and policies to improve 
their living standards.  This is a testament to the fact that 
some regions have been neglected while others have been richly 
rewarded due to political patrons, such as Sharad Pawar in 
Western Maharashtra.  Going forward, centralized policymaking 
may not be the best recipe for addressing localized rural 
problems, but state bureaucracies -- including agricultural 
extension networks -- are usually not prepared to meet these 
challenges.  Indeed, agriculture is the Constitutional 
responsibility of Indian states, and it was only after five 
decades of neglect that the central government started 
developing programs and committing resources towards the 
agricultural sector.  As a result, it is possible that 
district-level policymaking and resource allocation, coupled 
with improving non-farm incomes for the region, may provide a 
better future for farmers in Vidharbha and elsewhere.  However, 
even "bottom-up" plans for agricultural development require 
centrally planned infrastructure development -- such as roads, 
power, and irrigation -- to be successful.  In the next cables 
in this series, we will look at how these programs shape voter 
attitudes and behaviors.  End Comment. 
FOLMSBEE