Soft spot in India's boom: the 60 percent tied to farms

Sitting behind a computer, Sunita Kumari is collecting data from the pension program of a state agency. It's the type of business-process work that international firms are tripping over themselves to outsource to India's high-tech hubs of Hyderabad and Bangalore. But Ms. Kumari is far from either city, or any city for that matter.

She and her co-workers live in Jallikakinada, a village in the state of Andhra Pradesh where the soil is black, banana plantations and rice paddies are always green, and fish ponds are packed with prawns. But the lush surroundings do not translate to riches for the locals, farmers who eke out little more than a dollar a day. As in most parts of India's rural countryside, well-paying jobs are scarce.

To change that, one of the top outsourcing firms from Hyderabad, Satyam Computer Services, has set up a Gram IT center in Jallikakinada. Local high school students and college graduates can land well-paying jobs once found only in cities. Kumari, for instance, earns 2,500 rupees ($55) per month, but since she lives at home with her parents, she says the salary is almost all profit.

"My dream is to continue in this work," she says. In the past, educated people in her village had to move to cities to find jobs, and much of their salaries would be lost in the higher cost of housing and food. Now, she says, "we can make it work here, too."

Stories like Kumari's are still by far the exception to the rule of India's long neglect of its rural countryside. Since frustrated farmers tipped the 2004 national elections and a rural Maoist insurgency spread across the heartland, India's new government has offered some short-term solutions. But Indian analysts say that if the country wishes to sustain its economic boom, it must broaden the benefits of economic reform to the 60 percent of its citizens – and a quarter of the economy – linked to agriculture.

"India cannot sustain an 8 percent growth rate if [a quarter of] the economy is only growing at 1.2 percent," says Rajiv Kumar, director of the Indian Council for Research on International Economic Relations, a think tank in New Delhi. "There's no way that manufacturing or high tech can pull up the rest" of the economy.

More than 110 million Indians are farmers, and an estimated 500 million more make a living primarily off the agricultural sector as laborers, seed and fertilizer traders, tractor mechanics, and so on.

The Indian high-tech industry, by contrast, employs only 1.2 million people, and no matter how fast it grows, the new information economy cannot hope to employ the majority of the country's people – especially the millions who are uneducated.

Instead, analysts say, solutions must be found for the problems facing average farmers like Pilli Arjaya in Bhimavaram. In a good year, Mr. Arjaya may earn a net income of 18,000 rupees ($390) from the two acres he leases, barely enough to take care of the 12 members of his family. But the weather hasn't been good this year, so he has taken out a $200 loan at 36 percent interest.

He'll get by, he says, though it will take years to pay off the debt. For Arjaya, stories of India's emergence as an economic power seem a distant reality: "In coming years, we expect we will develop too. We are better off than our ancestors were. But not much."

India's agricultural sector hasn't always been neglected. The Green Revolution of the 1960s and '70s introduced new seeds that boosted yields and stopped famine.

But it didn't improve livelihoods, and the attention eventually shifted to "new economy" centers that are growing by leaps and bounds. In the high-tech city of Hyderabad, nicknamed Cyberabad, exports in software and hardware grew by 64 percent between 2004 and 2005. By contrast, the 1.2 percent growth rate of the agricultural sector has fallen from 3 percent in the Green Revolution days.

Farmers are among India's poorest citizens. According to the US Agency for International Development, 80 percent of Indian farms are less than 3.5 acres; 62 percent are less than one acre. More than half of India's citizens live on less than a dollar a day.

The sluggish growth and grinding poverty is partly due to the way the government insulates farming from market forces.

Under current Indian law, farmers cannot sell their produce directly to the market. Instead, they must first sell to registered middlemen, who then hold onto the produce until they get the best price. In this system, nearly 40 percent of all fruits and vegetables rot in unrefrigerated government warehouses before they can reach market, according to official government estimates.

The system was designed to prevent shortages and famine – and has largely succeeded in doing so. The downside, however, is that by stockpiling food at home, and subsidizing food prices for consumers, farmers have seen their profits take a dive.

"The government controls the market and distorts the prices," says Jayaprakash Narayan, director of Lok Satta, a good- government watchdog organization based in Hyderabad, the capital of Andhra Pradesh. Mr. Narayan is a former top civil servant in the Indian government. "It's the middleman and the government servant who benefits, not the farmer."

Farmers do take their frustrations out at the ballot box. In the 2004 election for chief minister of Andhra Pradesh, voters turned out Chandrababu Naidu, an economic reformer who focused heavily on attracting more high-tech businesses to Hyderabad. His opponent, Congress Party candidate Y.S.R. Reddy, won by promising free electricity to farmers. The only problem, Narayan notes, is that in farming districts electricity comes rarely, if at all.

In addition to offering free power, the current Congress-led government in New Delhi came to power in 2004 by guaranteeing work programs for rural citizens, generating millions of temporary jobs at $2 a day in building roads and cleaning out irrigation canals. Andhra Pradesh is at the forefront of the rural employment project, identifying 60,000 possible jobs in 13,056 villages starting in April.

Yet it will take more than make-work programs to bring prosperity to Indian farmers over the long-term. Rather, new industries that take advantage of rural resources need to be developed, experts say. One promising industry, foodprocessing, has brought a trickle of new foreign and local investment and is offering India's farmers hope.

"You can't expect a miracle, you have to evolve it, slowly," says Richard Saldanha, who, as a former corporate executive with the food manufacturing company Hindustan Lever, attempted to bring food processing into rural areas. He is now a top marketing executive with the Times of India. "We think that if you go to a village, and put huge infrastructure in there, this will make a difference. But unless they have ownership, that won't capture the spirit and passion of the people. They'll just get alienated by it."

Mr. Saldanha adds: "My suggestion is that you take a good region, and then build a tooth-to-tail supply chain, and link it with the demand chain. Don't do it across the nation, but in one focused area. Build an island of excellence, and then build another and another. Connect these 10 to 20 places with each other, and you'll have a network. Instead of a critical mess, you'll have a critical mass."

In the western state of Gujarat, Canadian potato-chip-maker McCains is soon set to announce a new potato-chip factory, buying specially grown potatoes from hundreds of Indian farmers on contract.

The Pepsi-Cola company has recently started a similar contract-farming arrangement with sugar farmers in Punjab.

On top of for-profit enterprises, some Indian companies are funding development projects out of a sense of social responsibility. At a construction skills school in Bhimavaram, funded by Satyam, a man named Katik Pinumala is coming to the end of a three-month training period in concrete form construction techniques. Other graduates of the program have landed jobs with the Larsen & Toubro Corp., earning 4,500 rupees ($100) a month, and Mr. Pinumala hopes to follow in their path.

"We're poor farmers," says Pinumala. "I can help my father if I leave the village and take a job in the city. His whole life, he has farmed other people's land, and earned 50 rupees – pennies more than a dollar – a day. I can help my family and improve my economic status, too."

In Jinnuru village, a low-lying area of flooded rice paddies and coconut palms, Satyam's sister foundation, the Byrraju Foundation, has also ventured into more traditional areas of agricultural extension that would normally have been handled by the state government.

The foundation is sending field experts out with cameras that allow farmers to photograph areas where pests or disease are taking a toll. The trainers in the field show the farmers how to send the photos to Byrraju-selected agricultural experts via the Internet. Through this system, Byrraju has been able to deliver week-by-week advice for farmers on how to increase their yields.

The results this spring have been extraordinary. In Jinnuru, a test site, farmers under the program have been able to increase their yields by 20 percent, from 35 to 40 bags of unhulled rice per acre up to 52 bags, says V. Pullam Raju, an agricultural expert with the Byrraju Foundation, which was set up by Satyam founder Ramalinga Raju.

"This is the first effort of its kind for rice paddy," says Mr. Raju, who is not related to the Satyam founder. "Expert advice is coming to the small farmer using the latest technology. Many farmers are saving expenses, by using only as much pesticide as they need, and are increasing their yields."

But in Jinnuru village, it is clear that such positive stories are still highly unusual, and that there is much work to be done.

Eighteen-year-old B. Suresh graduated from 10th grade last year, one of 12 kids in his village to do so, but now he has joined his father, mother, and sister out in the rice fields as a farm laborer for 50 rupees a day. His father, B. Peddiraju, says he had planned to send his son to university, but stopped giving money for school when it became clear they couldn't afford it.

"I could not afford to send him to college, so I said, that's it, and put him into labor," says Mr. Peddiraju, taking a break from harvesting rice. "I know that India is developing, but I don't know of any other opportunities for us."