B.R. Shenoy on Agriculture and Foreign Aid

shenoy[From "An Appreciation of B.R. Shenoy, Economist in the Fall 2013 issue of the Quarterly Journal of Austrian Economics.]

In 1968, Shenoy resigned from Gujarat University and founded  an independent research institution, the Economic Research  Centre, in Delhi. Although weakened by heart ailments, he continued to write many articles (Bhatt, 2001, p. 106). Shenoy  was deeply concerned with the welfare of the rural poor engaged  in agriculture—at the time and currently a majority of people  in India. In his policy analysis, he methodically struck down  the State’s arguments for price controls, import/export bans,  restrictions on private bankers, public expenditures on wasteful  industrial projects, and state monopsony of agricultural goods.  Shenoy points out, “Unduly heavy resource drafts into the public  sector, the weighted emphasis on industrialization, and legislative hurdles to the flow of credit and capital into the farm sector have led to capital starvation of agriculture” (Shenoy, 2004a, p. 169).

State monopsony procurement prices of farm products continue to be commonplace in India and it remains the fact that “…procurement prices…involve confiscation on part of the most legitimate earnings of the peasants and farms producing foodgrain. The social accounting of the phenomenon of procurement prices and the subsidised distribution of foodgrain is broadly that we supplement these confiscated amounts from the Union and state
budgets and utilise the total sum to issue rations to urban people at low market prices” (Shenoy, 2004a, p. 175).

Shenoy was one of the earliest critics of the popular notion that foreign aid transfers help kick-start growth. He was seeing first-hand in India the unintended, yet destructive consequences of US and European aid. In a 1970 paper entitled “Is aid necessaryfor development?” Shenoy writes, “If domestic policies fail to make for harmonious, balanced, multi-sided progress but divert resources into the wrong channels, any amount of foreign aid cannot effectively contribute to economic development. Massive aid is apt to be massively misdirected” (Shenoy, 2004a, 89–90).Shenoy was appropriately disgusted by the perverse effects of aid,which he linked to “…the accumulation of smuggled gold despite semi-stagnant per capita incomes… secret accounts in investments in Switzerland and elsewhere, and of the abandonment of frugal ways for extravagant living by the new rich among the beneficiaries
of planning” (Shenoy, 2004a, p. 96). Shenoy was in a unique position as a highly competent economist in an aid-receiving country.

When the United States began the P.l. 480 food aid program, India bought massive amounts of aid by printing money. Shenoy was able to discern the unintended consequences of this arrangement:

Thus, it is not as if—as Professor Max Millikan, Mrs. Joan Robinson and their Indian followers seem to think—P.L. 480 imports offer abundant scope for accelerated economic growth through deficit financing, foodgrains absorbing inflation. Foodgrains are not the entire package of wage-goods, nor can wage-goods alone enable economic development.For the latter, wage-goods must come with complementary factors of production. The complementary factors being unavailable, P.l. 480 imports of foodgrains do no more than glut the market and demoralize it without furthering economic development…. These imports are a clear case of dumping, though they are heavily dressed up in the garb of benevolence” (Shenoy, 1963, pp. 107–109).


Comments are closed.