Asymmetries in Organizations, Institutions and Policy Signals in the context of Sustainable Governance in India

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Prof Amar Nayak’s paper, with some inputs from me, as trailed below, focuses on ‘Achieving sustainable development for food, nutrition and livelihood security through low cost low risk agriculture and using the producer company/ org (PC) intervention but staffed with professionals’. The paper highlights sustainable approaches to agriculture in the long term, ensuring access to food, nutrition and cash for all producers through agriculture and also meeting the increasing nutritious food needs of the growing populations, value addition for increase shelf life of farm produce to reduce post harvest losses and waste, also trade in the vicinity and opportunities, without compromising the economic, environmental and social bases of the rural poor producer communities. The paper identifies barriers to change, including in institutions, organizations, policies and governance, and potential options to overcome them and covers the enabling environment necessary for transition to systems sustainable in the long term.

Asymmetries in Organizations, Institutions and Policy Signals in the context of Sustainable Governance in India

Amar KJR Nayak1


This article focuses on the present asymmetries in community organizational design, institutional architecture of these organizations and signaling effect of multiple development policies and schemes of the government and consequences of these asymmetries on effectiveness of programme delivery and overall sustainability of rural producer communities in the Indian context.

While these three aspects of community organizational design, their institutional architecture and policy signals are the critical pillars of sustainable local governance, the article based on eight years of an action research and empirical studies across India, argues that at present they are neither symmetric within nor symmetric across each other. The present institutional architecture of the government and community organizations at the last mile are serving as mere agents to deliver various government schemes with people as mere recipients. Further, deployment of multiple institutions at the community level to deliver these schemes tends to increase asymmetries in information in the system leading to opportunistic behavior among both the agents and the beneficiaries. In other words, the current design, architecture and mechanism of public service delivery inadvertently weaken the coordination processes of rural community producer organization/ companys that are crucial for governance in India and long term sustainability of rural producer communities.

Key Phrases

Organizational design, institutional architecture, policy signals, coordination failure, local governance, long term sustainability of rural producer communities

Asymmetries in Organizations, Institutions and Policy Signals in the context of Governance in India for Long Term Sustainability


There has been increasing appreciation among the policy makers and development professionals in India that demand side institutions viz., people’s organization/ companys and institutions at the producer community level are critical for efficient and effective delivery of public services for an equitable society. That better local governance is the foundation to better governance at higher levels of the society is very well understood as has been reflected in the 73rd and 74th Amendment of the Indian constitution.

In the above light, this article discusses the issues of community organizational design, their institutional architecture and the nature of signals that multiple development policies implemented through multiple institutions of the government have on people and their community organizations. Following the exposition of the issues at the heart of local governance, the article proposes some thoughts on how to redesign producer community organization/ companys, their institutional architecture and development policy strategy that can minimize information asymmetry, opportunistic behavior by community members, especially the elite and reduce transaction costs for sustainable governance in the long term at the grass root level viz. the Gram Panchayat.

First, the article delves on the context of smallholder farmers/producers, in terms of their asymmetric disadvantages in resource base, capability base and traditional institutional base in relation to those in the current market economic system. It highlights how this context has shaped the various community organization based development interventions of the government over the last six decades. Second, based on the empirical evidences, it analyses the deficiencies in the supply side institutional and organizational arrangements of the governments and the significance of developing demand side institutional architecture of the producer community organizations.

Third, based on the empirical observations, it highlights the conceptual gaps and theoretical challenges in guiding state policy on optimal design of community organizations and optimal boundary limits of institutional architecture of these organization for better local governance. Fourth, it discusses the dysfunctional signaling effect of development schemes and programmes implemented by multiple agencies of the government on the efficacy of coordination processes in community organizations arising out of high information asymmetries in the present system. Fifth, the article discusses optimal design of rural producer community organization/ company and optimal institutional architecture for these community organizations for the long term sustainability sustainability of their members.

1. The Context

The overall context of a small producer or a smallholder farmer in a rural agricultural setting is well understood. The current globally accepted description of producer includes not only small farmers engaged in agriculture but also hunters, gatherers, fishing folk, artisan, crafts persons, tenants, etc. S/he could be characterized as someone who holds or owns very little private property in terms of resources/asset/land with little liquid capital. S/he engages in large number of production activities in low volumes and little product specialization. S/he has bare formal education, has limited access to information, knowledge and adopts rudimentary methods and techniques of production and value addition (processing). S/he has little accesses to good basic infrastructure on health, education, water, electricity, and roads.

While the internal conditions of small famer or landless smallholder producers, who form over 70% of total producers, is rather weak and vulnerable, the external conditions are highly unfavorable for their existence. The agricultural input market is better organized and prices of inputs have been rising. The players in the product market are better endowed with information, resources, capital and are better organized to bargain hard with small farmers/producer communities.

Further, at the village level, sahukars/money lenders/local traders have indeed been on an advantageous position to exploit the small producers. It is indicative of the fact that while prices of agricultural products have multiplied several times in recent years, farm gate prices that the farmers get have hardly increased over these years. In the light of the modern market economic system, the small farmer and the landless small producer is indeed in a highly asymmetric disadvantageous position.

In addition, the uncertainty in weather and climate, especially in rainfall leads to incorrect assessment on timing of sowing by small farmers; makes the situation challenging and highly risky. Further, poor health, lack of knowledge/ primary education in the rural areas and reducing, net incomes from agricultural activities has lead to out-migration of people from rural agricultural communities. Not only has the overall climate of liberalization, privatization, and globalization exposed small agricultural producers to global commodity markets and industrial economic system, the culture of access to own requirement of nutritious food through agriculture has been adversely affected especially with respect to agricultural production of scale. Even in the best agricultural districts, nearly 30% of farmers are making net losses and another 20% are barely making profits from their agricultural activities (Nayak 2013d). While most farmer parents wish that their children stay in their villages; most of their children instead are forced to out migrate from their villages in search of alternate livelihood.
2. Institutional Architecture of the Government

During the last sixty years, the central government and the state governments have experimented and tried with various institutional and organizational arrangements to improve the situation of smallholder farmers and producers as well as the rural agricultural communities. As against the Tata-Birla Plan of industrialization, 1944, that had only 10% provision for the agricultural sector (Nayak 2011), the Government of India since 1947 have been allocating significant budgets towards agriculture and rural development. The central government and the state governments have created constitutional provisions in terms of institutional arrangement and organizational arrangements to resolve the various asymmetries of farmers in general and smallholder producer communities in particular.

The formal cooperative activities began with the enactment of Cooperative Credit Societies Act, 1904, later it was revised in 1912. Primary Agricultural Cooperative Societies were formed from around this period. The Agricultural Produce Marketing Committee Act 1956 and the formation of organization like National Agricultural Cooperative Agricultural Marketing Federation in 1958 were some of the earliest initiatives. Similarly, the state governments have also formed state level departments, independent organizations and institutions to resolve these issues of small farmers.

Subsequently, the government initiated several provisions and institutions viz., Integrated Rural Development Programme (1978), NABARD (1982), PRI through 73rd Amendment of the Indian Constitution, Swarnajayanti Gram Swarojgar Yogana (1999), Mahatma Gandhi National Rural Employment Guarantee Act (2005), Right to Information Act (2005), and National Rural Livelihood Mission (2010). Specifically in the area of marketing, Agricultural Produce Marketing Committee was formed in 1956. Accordingly, the state governments created several provisions like formation of State Agricultural Marketing Boards, Regulated Market Committees, Check Gates, etc. In addition several institutions like the Farmers’ Commission, expert committees on rural credit, cooperatives, etc have been formed to assess and improve the well being of small producers in rural agricultural communities in India.

Not only has the government tried to create institutional arrangement and organizations, it has also been pumping a lot of resources through these institutions and organizations for improving the situation of small farmers/producers and rural agricultural communities. One may look at the number of development schemes and programmes that are directed at the district and Gram Panchayat level to appreciate this point.

The annual budgetary provision of only the Ministry of Rural Development is over INR 100,000 crores. As per the NRLM guidelines, the provision per family below the poverty line is INR 100,000 per year. Provision for various types of support viz., credit support, marketing support, livelihood support, natural resource management, watershed development, rural infrastructure, primary health, primary educations, basic infrastructure, etc have been created.

However, the existing institutions and organizations have not fared well in terms of delivery of these provisions to the resource poor and smallholder producer communities. The capacity to absorb, internalize and create long term assets and value by people and community at the grass root level from these public investments have been far from expectations. Indeed, there seems to be a weak link between the public investment and long term impact on well being of the people and the community.

To improvise its delivery capacity, the governments have also increasingly used the services of Non Government Organizations (NGOs) and civil society organizations (CSOs). Thousands of NGOs and CSOs have mushroomed in this process. The social impact of the public investment still remained below par. Additionally, the organizational arrangement with NGOs often lead to capacity building of the NGOs more than the capacity building of the communities. Once the NGOs stop getting funds from a project, the initiatives undertaken in a community also ceases and ironically all the investment made in the NGOs also moves away from the community.

In recent years, governments have been collaborating with industrial organizations especially the large private corporations for improving delivery efficiency of public services. Individual farmers and small producer groups like SHG, CIG, FPO, small producer cooperatives, etc are being linked to large private corporations in the hope to improve the well being of small farmers/producers. The institutional arrangement in some states seems to be gradually moving from a welfare state mechanism to market mechanism under the broader framework of inclusive capitalism. Contract Farming, Public Private Partnerships, Crop Insurance, Agri-business model as per the traditional industrial organizational design, etc., are some examples of the orientation and attempts made by both central and state governments. In recent years, large venture capitalists and large corporations have been seeking support from the governments to undertake grass root level community development as part of their corporate social entrepreneurship.

The government and policy advisers little realize that the basic grain of a traditional industrial organizational design is totally different from that of community organizations at the grass root level. While the former is built on the paradigm of competition, the later is built on cooperation. The position of design variables and the purposes of these two organizational types are so far apart that in the long run, large industrial enterprises will gain at the cost of community organizations in a competitive market economic system (Nayak 2010, 2014a).

In the above milieu of development approaches and challenges, the bright ray of hope to improve the well being of small producer communities including the psychological-social-economically weak communities appears to be the provision of National Rural Livelihood Mission (NRLM) 2010 of the Government of India. The emphasis on building local institutional platforms of the poor and converging all the resources to build and strengthen this local institution is indeed a wise and sustainable way forward for the well being of the poor communities. There are however several questions that need to be answered for the new mission to make a sustainable impact and in the long term.

How will the multiple local institutions interact with each other? Will there be duplication of resources & efforts because of multiple people’s institutions? What will be the cost of operating each of these institutions? Will each of these institutions be optimally designed for operational efficiency? Will the challenges of capacity building, marketing and value addition of the small producers be handled through these institutions? What will be the steps & sequences of implementation? Is it designed for sufficient local resource persons for successful implementation? How long will it take to implement and exit? What is the overall strategy? What will be the total cost of implementation at the GP level? Will these institutions for livelihood cater to other needs of the community viz., health, education, basic infrastructure, etc? Although individual organizations are attempting to resolve some of these questions as they work in the complex setting of Indian rural communities; these questions still remain largely unanswered by NRLM.

The latest attempt of the Government has been to promote Farmer Producer Organizations as Producer Companies as per section IXA of the companies Act 1956. Ministry of Finance and Ministry of Agriculture through NABARD have made a provision to promote 2000 farmer producer companies in the next two years (2014-16). While the Act came into being in 2002, development agencies have been struggling to stabilize the few hundred producer companies that have already been set up during the last twelve years.

Across the board, the institutions of the government for implementing these programmes are highly hierarchical, bureaucratic, centralized and top heavy with high transaction costs. While the supply side institution of the government seems to be well defined and overwhelming, the demand side institutions viz., people’s organizations or community organizations have not been well conceived. Figure 1-2 are sample institutional architecture of the Odisha Livelihood Mission and Karnataka Watershed Development.

Figure 1

Figure 2

The centralized institutional architecture is similar across other states viz., Maharashtra, Bihar, North East Region, M.P., A.P. and others (Nayak, 2014b). More than 65% of the capacity building budget is employed on training and capacity of the officials and project managers of the institutions of the government leaving little for the knowledge, capacity building of the local resource persons of the demand side institutions, viz., the producer community organization/ companys.

3. Design of Producer Community Organization/ Companys & their Institutional Architecture

The critical design issues of organization in general and community based producer organization/ companyss in particular are the issues of size, scope, technology, management and ownership. However, these issues have not been carefully looked into for long term sustainability of these organizations. Understanding optimal span of institutional architecture is also crucial for enabling effective relationships of these producer organization/ companys in the given external market system.

There have been some insightful contributions of scholarship and policy in agriculture and rural development, especially in institutional and organizational studies. For example, at least 3 of the 25 committees on cooperatives during the last about 100 years of cooperative movement in India, have recommended to keep the cooperatives smaller in size. Similarly, the National Commission on Agriculture (1976) and National Commission on Farmers (2004) have recommended smaller clusters for regulated market facilities for small farmers under the PACS. However, there has been little attention to implement these recommendations.

Caution on size with regard to organizational design for overall long term sustainability has been fairly referred to in the past (Schumacher, 1973, Reserve Bank of India, 1914, Mehta, 1960). While ‘economies of scale’ has been the basis of efficiency for industrial production during the last about two and half centuries since Adam Smith (1776), the significance of scope and diversity has appeared in several descriptions (Marx, 1927, Kondratiev, 1921, Panzar & Willig, 1977, Teece, 1980, North, 1984, Nayak 2013c, 2014).

While intensive technology has been the basis of competitive advantage in industrial production, appropriate and local soil and agro climatic technologies have been cited as the basis of efficiency and sustainability in agriculture (Howard, 1940, Shiva, 1993, IAASTD, 2009, Collette, 2011, Gopalakrishnan, 2012, UNCTAD, 2013, Nayak 2013c).
Since Adam Smith (1776), the significance of private ownership (Mason, 1994) to efficiency has been highlighted; at the same time, the significance of trusteeship (Sethi, 1986) and common property (Ostrom, 1990) has also been discussed in literature. Similarly, the significance of managerial skills in industrial production is well appreciated (Taylor, 1997, Barnard, 1968, Chandler, 1993) and its significance and most importantly, its adaptation to farmer producer organization/ companys have also been elaborated in detail (Nayak 2013a).
Further, even if the organizational design of one or a few community based producer organization/ companys are optimized, the chances of their sustainability in the long term will depend on how stable their relationships are with other external organizations and institutions. In other words, if asymmetries across these community organizations are not minimized, these demand side community organizations are unlikely to have stable transactional relationships, the basis for their long term viability. Empirical observations show that there are only a few well developed institutional architectures of the producer organization/ companys in the country.

Kaira Dairy Cooperation (AMUL) in Gujarat and Karnataka Milk Federation (Nandini) and SHG Federations of Andhra Pradesh are a few with stable institutional architecture of producer organizations. However, the spans of boundaries of institutional architectures of these producer organizations are spread over the whole of their respective states. Whether these are optimal institutional boundaries for these communityproducer organization/ companys has hardly been discussed. The general perception has been that of larger the sphere of influence the better it is for the producers/members. However, empirical evidences on the net gain to members of these producer organizations/cooperatives and their overall participation in decision making processes of these large networks are not commensurate to investments (Nayak, 2014b).

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