Economic development in Palanpur over five decades

Journal of Development Economics Vol. 64 Ž2001. 587–592 www.elsevier.comrlocatereconbase

Book review Economic development in Palanpur over five decades Peter Lanjouw and Nicholas Stern ŽEds.. ŽClarendon Press, Oxford, 1998., pp. xviii q 640 Palanpur, a village in Moradabad district of Western Uttar Pradesh in North India, has been the subject of a number of studies since the late fifties. The most famous of these studies is the one by Christopher Bliss and Nicholas Stern Ž1982.: Palanpur: The Economy of an Indian Village ŽOxford: Oxford University Press.. While the earlier much-celebrated Bliss and Stern volume provided a static snapshot account of the functioning of the rural economy, the present volume, which has been contributed by eight economists, has focused primarily on the dynamics of change. During the last five decades since the independence of India, Palanpur has undergone significant changes. These changes have been reflected in many different aspects of rural life including institutions, farmers’ behavior and their shifting economic fortunes. The main impetus for these changes has come from evolving demography, improvements in agricultural technology and growth of neighborhood towns. The volume analyzes both qualitative and quantitative dimensions of these changes, a task which was facilitated by the availability five household surveys for Palanpur—one for every decade covering the last 50 years of independence Žhenceforth referred to as the survey period.. The first chapter by Jean Dreze and Naresh Sharma is an introduction to the population, society and the economy of Palanpur. The chapter informs the reader that Palanpur is a small-farmers’ economy, whose main source of income is agriculture, although new wage employment opportunities are emerging in the neighboring urban centers within commuting distance. The village has not experienced a demographic transition—both fertility and mortality rates remain high— and suffers from a female–male gender imbalance. Palanpur does not have a well-defined class structure Žand exhibits no explicit class antagonism., but has a complex caste division. Gender inequalities are widespread and are reflected in such diverse spheres as property rights and rigid division of labor. Finally, as expected, Palanpur is essentially a private-ownership market economy that is encumbered by few effective government controls on its production and exchange. The second chapter by Jean Dreze, Peter Lanjouw and Naresh Sharma provides an overview of economic changes that took place in the survey period. The chapter focuses its discussion on three major forces of change—population growth, 0304-3878r01r$ - see front matter q 2001 Elsevier Science B.V. All rights reserved. PII: S 0 3 0 4 - 3 8 7 8 Ž 0 0 . 0 0 1 3 4 - 6

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employment opportunities outside the village and development in new agricultural technology—and explores their implications for asset ownership, private incomes and social inequality. Some of these issues are discussed more elaborately in the subsequent chapters as the outcomes of economic change. This chapter also devotes some attention to the question of availability of public services in Palanpur. While Palanpur has been over the years—at least on paper—the subject of generous attention by public agencies, this has not, however, yielded an increased volume of public services for the villagers. Of the 18 types of public service programs that are presumably operative in the village, the authors inform us that 13 types are virtually non-functional and the rest are only partially effective. With regard to the success of public service programs, the story of Palanpur is not much different from that of the rest of India—or for that matter, the rest of South Asia. The authors note that the failure in public provisioning is more due to political factors than financial or administrative ones. Policies that are strongly supported by the politically influential groups fare better than those that are not. Thus, programs for land consolidation and rural credit, whose beneficiaries include well-to-do farmers, have succeeded more than those that cater to the poorer segments of the society Žfor example, primary education and basic health care.. Given this political-economic dynamic, the authors conclude that improved provisions of public services for the poor would require a significant change in the balance of political power in this rural society, a conclusion that is likely to find wider resonance in much of South Asia beyond Palanpur. The remainder of the book is devoted to the discussion of the economics of change in Palanpur. Chapter three by Christopher Bliss, Peter Lanjouw and Nicholas Stern, which in some sense is the core of the present study, discusses the impact of three major forces of change: population growth, employment expansion and technological change in agriculture. While population has roughly doubled in the survey period, aggregate real income has more than doubled, leading to an improvement in real per capita income. The primary driving force behind this improvement was the expansion in employment opportunities both within the village Žin its agriculture due to new innovative agricultural technology and increased cropping intensity. and outside the village in the urban centers. The story of population change is, however, somewhat more complicated. The authors found no discernible relationship between population growth for a household and its initial income, land holding, caste, education or employment status. This apparent lack of explanation for population growth, the authors suggest, may be due to their crude model and lack of more detailed data that could support a more sophisticated demographic analysis. They, however, find a declining relationship between the ratio of male to female children and the total number of children in the family. While a number of plausible explanations exist, the authors favor the Aboy preferenceB story. After population, the second major force of change relates to expansion of employment opportunities outside the village economy. As the neighboring towns are located in close proximity and outright migration entails

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high costs and risks, commuting for job to towns has become the norm. Such jobs, which exist for both the skilled and the unskilled, are preferred to those in agriculture. Finally, since agriculture remains the mainstay of Palanpur’s economic life, technological change in agriculture has a crucial bearing on well-being of the villagers. Over the survey period, the village has experienced significant improvements in both rural productivity and agricultural technology, as reflected in the substantial extension of irrigation and the use of chemical fertilizers. The next three chapters give a comprehensive discussion of three outcomes of economic change—namely: poverty, inequality, and nutrition. Peter Lanjouw and Nicholas Stern discuss poverty in Palanpur. To identify the poor and the economically vulnerable, the authors used two indicators, the conventional income measure and the Aobserved meansB index that uses qualitative indicators of the economic circumstances of different households based on local knowledge of the village households. The authors found—not quite surprisingly—that the pictures of poverty that emerge from the different methods are not identical and that income was an inadequate indicator for identifying the poor. While absolute poverty has generally declined in the village over the years, there are significant fluctuations in between years. Some families went in and out of poverty, yet many remained persistently poor. Indeed, the poor are far from homogeneous. They vary significantly amongst themselves in terms of economic vulnerability with different degrees of access to land, outside job opportunities, urban remittances, and family and social connections. In terms of correlates of poverty, landlessness was found to be linked, but not strongly Žpartly because the landless represent a highly heterogeneous group in Palanpur.. Agricultural employment is strongly associated with poverty, while those with access to outside employment opportunities are likely to be free of poverty. While income mobility in the village as a whole has been increasing over time, households that relied exclusively on agricultural work experienced little or no mobility. In chapter five, Peter Lanjouw and Nicholas Stern discuss various changes in the rural economy that have shaped the patterns of inequality in Palanpur. This chapter notes that the arrival of the Green Revolution practices and technologies in Palanpur coincided, at least initially, with a reduction in income inequality. New agricultural technologies, particularly irrigation facilities, help reduce variability in yield and thus have an equalizing effect on incomes. Similarly, tenancy and sharecropping transactions, coupled with family partitioning, have had initially an equalizing effect on the distribution of cultivated holding. However, the expansion of off-farm employment, which was distributed more favorably toward the richer households, helped to introduce some measure of income inequality. The authors note that the links between economic change and the distribution of income in the village are diverse and rather complex and cannot be reduced to a simple story. However, the conventional forces of economic change such as agricultural development, urban advancement, and population growth have had major influence both on the level and distribution of income in Palanpur.

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Nutrition, the third outcome of economic change, is discussed in chapter six by Jocelyn Kynch by using anthropometric data for a sample of 36 cultivating households. Although the sample size is small, it seems to indicate that undernutrition among villagers—which is often reflected in stunting and wasting—is widely prevalent, partly reflecting low household incomes and partly low priority accorded to nutritional needs in the household budget. However, what is notable is that malnutrition is more acute among young girls, suggesting the possibility of Aboy preferenceB in the allocation of household resources. This finding is consistent with other evidence of gender disparity, which indicates a higher infant female mortality rate in the younger age groups. Although the author claims that her analysis is conducted within the framework of Acooperative conflictB in households, she does not make any attempt to empirically test the validity of the framework in relation to the alternative ones. The last three chapters of the book examine three markets in Palanpur: casual labor, tenancy, and credit. Next to cultivation, wage employment—specifically regular and semi-regular jobs outside the village—is the main occupation in Palanpur. Anindita Mukherjee devotes chapter seven to discussing casual labor, which is one of the main sources of employment for the disadvantaged households. Casual wage employment is referred to in this chapter as a Afall-backB occupation of those who have no significant alternative employment opportunities, such as cultivation, regular employment, and productive self-employment. The chapter points out, however, that the market for casual labor in Palanpur is quite isolated. Hiring of casual labor across village boundaries is infrequent, which essentially reflects the synchronic nature of agricultural operations and labor demand between neighboring villages. In terms of labor contracts, they usually take the form of casual labor hired for the day or for an operation lasting a few days; but although the terms of employment are standard, there is no evidence of labor tying or any linking of labor contracts between different periods. While daily wage contracts are more common, piece-rate contracts still represent a significant proportion of total casual labor employment. The chapter suggests that piece-rate contracts tend to be confined to tasks where quality control is relatively easy. That is, the main considerations in the choice between daily-wage and piece-rate contracts are supervision costs and quality control. This chapter ends by reviewing some of the theories of rural labor markets and discussing their applicability to Palanpur. Naresh Sharma and Jean Dreze recount in chapter eight the basic features of tenancy, which is an important institution in the village. A significant proportion of households in the village is involved in tenancy contracts and the incidence of tenancy Žas measured by the proportion of leased-in land to total cultivated land. has been on the increase. As in most other Indian villages, two general types of tenancy contracts exist in Palanpur—the share contract and the fixed-rent contract. This chapter, however, reveals that sharecropping with some cost-sharing provisions is the predominant tenancy contract in Palanpur. The chapter further

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mentions that the basic structure of the cost-sharing provision is that output and non-labor inputs are shared equally between landlord and tenant, while the tenant is the exclusive provider of labor. This basic pattern is supplemented by a number of additional provisions in the form of the tenants having to provide a stipulated amount of farmyard manure per acre, etc. The authors highlight two important issues from the study of sharecropping in Palanpur. First, sharecropping should be viewed as a partnership involving both cooperation and conflict between tenant and landlord. This view is in contrast with the popular view that sees sharecropping as a device to exploit the farmer and with the conventional economic theoretic perspective that posits sharecropping as a principal-agent model. The principal-agent formulation has led to many useful insights, but the authors contend that it has important limitations—for example, it cannot explain the motives for equal sharing. Second, the Green Revolution has brought about important changes in tenancy relations in Palanpur, as in the rest of North India. In particular, they note that the tenants own almost as much land as landlords in Palanpur, and are not in any sense poorer than the landlords. Sharecropping has thus been a great equalizing factor in bringing about parities in social status between tenant and landlord. However, this parity of status between landlord and tenant has been achieved at the exclusion of the landless from the tenancy contracts Žas they become increasingly disadvantaged in the face of increasing capital intensity. and an increased incidence of leasing-in on the part of the large landowners. The features of the credit market in Palanpur are discussed at length in chapter nine by Jean Dreze, Peter Lanjouw and Naresh Sharma. As one would expect, the credit market in the village does not work well and is heavily segmented. Public lending institutions play a prominent role in Palanpur’s credit market, accounting for nearly 80% of total debt outstanding. The chapter, however, argues that such outstanding institutional debt reflects many years of accumulated borrowing and sluggish repayment. This is compared to private credit which is typically more expensive and tends to have higher recovery rates. Despite its relatively small volume, private credit is very critical to many poor households which do not have access to institutional loans and therefore borrow from private sources at comparatively exacting terms. This inequitable credit arrangement, the authors argue, has resulted in a number of adverse consequences, such as: inactive land market, slow pace of technological change, low educational investments, limited development of non-agricultural self-employment, emergence of implicit-credit arrangements, and economic insecurity. To resolve the institutional credit conundrum, the authors emphasize the need to enhance repayment incentives Žthrough group lending, as practiced by the Grameen Bank and others. and improve creditworthiness of the poor. It may, however, be noted in passing that notwithstanding their impressive repayment rates, recent research suggests that the micro-credit programs based on group lending had less impact on poverty reduction than is generally believed. Reducing poverty while maintaining financial discipline is a difficult challenge for

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any poor community. At the moment, improving the repayment performance is a first-order priority for Palanpur, but it is a task which is by no means easy. This is especially in view of the fact that the incentives to repay, according to the authors, have been greatly undermined by widespread corruption, fostered by political patronage. For addressing the institutional credit problem, the chapter rightly concludes that institutional corruption needs to be eradicated. But that would in turn require comprehensive institutional reforms and a willingness on the part of the society to enforce them, which may be a rather tall order for much of today’s South Asia. As it is expected, all chapters are not of the same quality—some are better presented than others. Nevertheless, overall, this is a very interesting book about the changing rural economy in India. Although Palanpur may not be a representative village in many respects, much of what is said about the village is true of the large part of rural India and parts of South Asia. Indeed, many of the empirical facts and regularities presented in the book about rural poverty and rural economy are not entirely new. Many of these have been reported by other studies on South Asia. However, what distinguishes the book is its intensive focus on a particular village and its lucid amalgam of economic analysis with broader social analysis that infuses discussions of the social structure, social mores and the dynamic of the village politics. While the volume makes substantial use of data and quantitative methods to analyze the various issues, it is eclectic in its use of techniques, which range from simple tabulation of data to more sophisticated regression analysis. Despite this substantial reliance on quantitative analysis, the flow of the book is smooth throughout. The empirical work has been presented in a simple pellucid way that would be accessible to a wide variety of readerships beyond professional economists. Despite the high quality of research presented in the book, the significant missing aspect is a rigorous discussion of policies. The overarching question that hovers in the minds of policymakers is: If the vast rural economy of India has to be transformed from its present poor primitive state to a modern affluent entity, what needs to be done? Those who are working in the difficult terrain of policies in their daily lives and looking for answers to such a question may not find much enlightenment in the book. It is admitted that addressing such policy questions within the framework of the present study is difficult, but for such a study to be useful beyond being merely an analytical contribution, integration of these questions is extremely important. Notwithstanding this lacuna, the volume is highly recommended for those who are interested in development economics, particularly in the issues of poverty and economic transformation in South Asia. M.G. Quibria Asian DeÕelopment Bank Institute, Kasumigaseki Building 8F, 3-2-5 Kasumigaseki, Chiyoda, Tokyo 100-6008, Japan