A NEW MODEL FOR INDIAN AGRICULTURE WITHOUT MUCH DISRUPTION

India is experiencing an agricultural crisis not so much because of low production or drought or other calamities, but for excess production and mismatch of demand and supply in many parts of the country. Farmer suicides have been making news and the fact of the whole matter is that no one has any idea as to what to do to mitigate it. There is plethora of suggestions about good farming practices, development of infrastructure, soil testing and resulting steps, storage facilities, marketing of products, MSP (Minimum Support Price), but there is also dearth of idea as to what should be the future Agricultural Model for India. This is because of if you try to fit in all these then you end up wishing th

at you hadn’t started as the whole idea of good farming practice is for the long run only and common people do not wait that long. Then of course, there is the loan write off which is just as horrible as it is surely very bad economics.

In addition to all this you have around 500 million or so people dependent of agriculture directly and according to statistics they say around 180 million households live on agriculture only. There is yet another static that reveal that 52% of agricultural households are in debt. It is also official that 67% of farmers in this country are marginal and hold less than 1 hectare of land.  Then according to official estimate the country loses Rs 92,000 crores of rupees annually as food wastage.

Yet another striking thing according to the experts and media is that the subsistence level farmers do not commit suicides when compared to those who had taken loans and purchase inputs from external sources other than their own. There are other aspects like ruthless middlemen, black marketers, hoarders, money lenders, bureaucracy and what not. Then there are few cases of farmers cheating and not cultivating and some are in agriculture just for getting loan waivers and so on, but these are very small percentage. However, we shall keep this too in mind while we go about preparing a new agricultural model for India.

There are more statistics and these could be found in the newspapers, journals and in websites. In fact, there are tons of suggestions that mostly aim for better cultivation, better inputs, seeds and fertilizers and also infrastructure and irrigation yet these may take time. But none offers a real life solution that can be the basis of a new agricultural model. However, we shall not dwell on these and go straight for the new structure or model that aims to do the best in the current given situation.

Acknowledging the present chaos in agriculture

Before deciding on anything it is necessary to acknowledge that the agricultural structure as it is seen today is in a chaotic disorder. You have high prices of some agricultural produce in some parts of the country while you have low prices in some other parts. Again, the consumers do not get food cheap and they burn their pockets while the farmers do not cover their production costs while selling their produce to the middlemen who fleece them horribly.

There are also cases of over production and wastages both at the farm as well as storage areas of the country. In other words, you have general situation with burdening fiscal problem that is outright shocking.

However, there is a fine structure in this chaos. They do not fall apart, but remain as a whole although there is this turbulence like you may see in the Universe. This too is a fractal structure. You need to make some technical adjustments and understanding of the agriculture procurement and marketing side in order to create the much needed agricultural produce flow within the larger contest of agricultural farming. Otherwise, the whole thing may look a bit like a mess. In order to make the chaotic or fractal structure look less ambiguous, but as a whole we have to understand the different areas of instability and stability and thus pave way for that natural flow that always exist in the fractal flow. A cluster should be fine tuned and managed taking into consideration its several differences and not left to chance for the benefit of a few in the society.

It also need to be emphasized that in the present current situation elasticity of demand and supply of agricultural produces as analyzed are only at the micro levels only and not at the macro-level although it is stated to be so. In other words, prices oscillate so horribly that price of a particular produce in one part of the country are not what they are at many other places. This brings in a lot of anomalies and no true picture emerges while analyzing the actual price. This is because most products except for the case of food grains do not reach other far flung areas from their place of origin in a time bound manner and due to lack of infrastructure. Again, the country always has plenty at one part and shortage at another for the same commodity. There are also commodities that never reach other parts and simply sold near to their place of origin and the rest dumped as waste. Thus, price is not properly determined.

In this model we shall move straight and directly into the general model for future agriculture taking into consideration that within the chaos there is a structure that can be fine tuned to the country’s needs.

New Model

The new model comes with a few assumptions.

Agriculture in India is like all other businesses yet unlike any of these it is having its own separate and unique buying and selling platform due to small holdings and huge employment potentials and dependency

The Central Government (NABARD and other agencies) are the most important Centers in regulating and administering the flow of agriculture from farmers to the consumers.

All agricultural produce in India are perishable and storing them for long periods of time is very difficult currently

Only land of maximum 3 hectares and below come under the ambit of the new model and all other lands beyond this limit are quite self sustainable and efficiently managed by owners including their marketing

There is no need for loan waivers for this new model as it is self adjustable and sustainable as will be seen below

It is assumed that drought, flood and other natural calamities have to be treated differently under a totally different insurance program altogether

Milk and poultry do no come under the ambit of this new model

Sketch of the Model

You may think that this is just a joke as this doesn’t even look like a model. You may also think ‘what’s the big idea about it’. Well, this is just a general idea where the stress of government participation has been made and emphasized. We will now expand each of these segments to arrive at the most appropriate model. Let us start with the first segment Agricultural Farmers.

Agricultural Farmers: These are farmers engaged in agriculture with a maximum of 3 hectares and below. The government may change the criteria of maximum to be brought into the folds of this model. All produce under this model would be purchased covering the cost of production plus an additional sum for farmer’s well being. This would be country wide MSP (Minimum Support Price) for each particular agricultural products. Further, under this model the farmer is assured of MSP, but will have to apply for crop insurance separately. This is because MSP by itself would be configured to be such that it gives every farmer sufficient returns over the produce. In other words, MSP will by itself act as a surety for sale of the produce. In case of failure due to drought, flood and other calamities then a proper survey by respective village, state and central agencies has to be carried out so that farmers unable to produce would be covered under a separate insurance policy. All this is important to bring about fiscal discipline and arrest the rising NPAs of the banks.

This would remove whatever bad practices of false claims and uncultivated lands. MSP would bypass hoarders, ruthless middlemen and other notorious agencies that make farmer’s life hell.  MSP would also give fillip to farmer’s to make their produce better than simply relying on government agencies to extend monetary help only. Here, MSP means the moment an officer from the State agency has visited and agreed then the purchase has been done.

However, in case of crop loss due to calamities a separate insurance agency under the Central Government must be in place. This is because those farmers who are willing to engage in good farming practice would get reimbursement in genuine cases only. A separate insurance like the present Pradhan Mantri Fasal Bima Yojana is a good system although there could be some changes. It would make its own survey while providing the necessary coverage and the respective farmer would have to bear the cost of premium.

As far as loan is concerned this will be treated quite separately and by a separate system which will be discussed later.

Government and other Agencies for procurement

The government and the respective authorized agents under it would do the entire procurement of agricultural produce from the country at MSP at the harvest spots, mandis and state warehouses and also with the help of mobile units. The huge amount that is involved in such country wide large purchases would be recovered through a unique and an entirely new approach of marketing that is again unique only to perishable agricultural produce. This will be revealed in the later paragraphs.

The FCI or Food Corporation of India is one such well structured agency that is involved in large scale procurement of paddy. However, there is need for other procurement agencies to facilitate the procurement of vegetables and fruits. Instead of a single agency fruits and vegetables should be treated separately as under different agencies. Again, vegetables too need to be under different agencies like potatoes and onion for one while cabbage, cauliflower and similar varieties with another and so on.

For example separate baskets should be provided for fruits of each season while distinguishing the other fruits by placing them in other baskets. So also for more or less similar vegetables that are cultivated in the same pattern and in the same season. The idea is that a basket would be such that each authorized agency could make the purchase and the sale in a homogeneous manner. How the sale is to be carried out will be revealed which is quite different from the sale of manufactured goods and consumer items.

How this is to be achieved with limited funds and lesser storage facilities would be revealed as we go to the marketing part of this model.

All agencies however make immediate procurement the very moment harvest is done under the above stated MSP.

Storage of farm produces in Mandis, Storage Centers and In-Transit storage

As stated earlier all farm produces are perishable and assumed to be so hence there is little need for storage but fast movement of the produces from one part of the country to another. Of course, storage facilities could be installed when and there fund and infrastructure is available, but in other places all these would take time. Hence, on the part of each agencies handling their own unique and more or less homogeneous varieties of fruits and vegetables to have an access to good logistics of all types. This is mandatory for the speed of delivery and marketing. Even goods-in-transit would be seen as partly stored for value as the items are perishable.

If a particular agency opts to sell its produce while in-transit it may be allowed and produces may be sent from one mandi to another mandi depending on the shortage of the same commodity at a different location. 

The FCI or the Food Corporation of India has a better systematic way to procure and distribute although there too wastage exists and this may need to removed as well shall see in the marketing part.

Sale of agricultural commodities through Government Agencies

This is also one of the most important aspects of this model and that the State takes the full responsibility of the farm produces with the help of its authorized agencies. The whole idea is to bypass the entire cluster of hoarders, retailers, wholesalers and black-marketers. It also means that independent private participation starts only from the offloading centers of the State agencies. State agencies start to offload farm produce other than milk and poultry through this way from thereon private participation is allowed.

Instead of dragging with the suspense we shall unfold the marketing side of the colossal supply chain here itself.

Marketing part of the Agricultural Produces

Marketing of agricultural commodities are done by the State agencies in an entirely different manner than the usual models that exists in the case of industries, commercial organizations and other services. Here, the products are offloaded in a constant manner in order to keep the flow going uninterruptedly.

The State agencies so authorized may purchase and then sell the agriculture produce right after harvest in four different ways as shown below:

1. The state agencies may make outright purchase from farmers of the agriculture produces as they are found on the field at MSP and make outright sale to wholesalers, retailers and other private agents or cooperatives in bulk from the very same place of origin.

2. The state agencies may make outright purchase of produce from farmers at MSP and sell them in transit to any buyers across the country.

3. The state agencies may make outright purchase of produce from farmers at MSP and sell them at specified locations all over the country as shown in the chart below.

4. All agricultural produces are offloaded to buyers from the storage sites on the first –in-first-out basis thus reducing wastage where ever possible due to rot and spread of fungi and other micro-organisms.

In the above diagram the sale of the agricultural produce is not done gradually, but in haste at the marketing end by the authorized state agencies. The word ‘Throw’ means instant action and not dumping anywhere as wastes. From the above it would become clear that there are 5 different ways to market the produce by the State agencies. These are done via exports, Public Distribution System (PDS), Auctioning to private retailers or wholesalers and food processing units, Co-operative Societies and lastly to others. Other would mean trade fairs, exhibitions and open public auctions. Further, all these are done at the very moment the produces reach each particular destination for ‘Throw’ or call it ‘offloading in haste’. Here, others may be to some other agencies or other marketing platform that the Government may think convenient. Here, the marketing is being made flexible so that there is enough scope for better offloading of agricultural produces. As seen in the diagram the sale is not only quick and fast, but also has a cascading price structure so that offloading or ‘Throw’ is possible. The system here bypasses all sorts of middlemen and private agents and this means from farmers to procurer (Government Agencies) so that it is only at the end of offloading or call it ‘Throw’ that the market economy for agriculture actually starts to operate.

Let us look at the pricing module when such offloading stocks of produces’ are done at ‘Throw Price’ with cascading affect during seasons and slower offloading during off seasons. The hypothetical price is per quintal of a produce.

MSP         LC             t          TC                TP                       MP          MP without TP

100           20            10          130              140                     180                 250

100          20             10           130             130                      140                240

100          40             20           160             170                      200                300

100          30             10           140             140                      150                220

100         10              20           130                80                      130               190

100         10              40           140                90                      140                250

100         50              10           160              170                      200                350

-------     ---------      ----------    -------------     ------------            --------------    ------------

700         180            120         990              920                     1140             1800

--------------------------------------------------------------------------------------------    ------------

Here, MSP denotes Minimum Support Price; LC stands for Logistical costs; ‘ t ‘stands for Perpetual Inventory Cost for very Short Period of Time; TC denotes Total Costs; TP for Throw Price and MP for Market Price.

It is to be seen that in this random suggestive chart the TC is Rs 990/- is way below the MP of Rs 1140/- as the retailers, traders and wholesalers would try to make the maximum profits even for the perishable farm produces. However, it is to be noted that the prices would have spiraled up much more had there been no TP which acts as a sort of pressure to arrest the unbridled hike in MP for the end consumers. The hypothetical food price rise as shown in the above chart is Rs. 1140 per quintal of produce. Without TP the price would have escalated to Rs. 1800 per quintal.

Further, in the prevailing situation in the country the agriculture produce has to go through a number of hands including unscrupulous traders and black marketers. We denote the situation as A. In the above case namely the situation B, this is changed as the whole structure is made to bypass all the previous anomalies that existed in the Indian agricultural scenario. Hence, situation B is much more superior to A as far as pricing of agricultural produce is concerned and is more beneficial to the end consumer.

Again, suppose say anomalies appear at the MP end and retailers and traders try to take advantage by hiking the prices of the produce for the end consumers then there is TP to effectively check this.

Therefore, in this case we see that MPC + LC + t = TC. While TP acts a stabilizing mechanism even if at random to prohibit undue price hikes.

The inclusion of TP with B and non-TP with A situation makes both situation ‘A’ and situation ‘B’ as mutually exclusive. Here, as demonstrated in the chart they cannot overlap as situation ‘A’ without TP is far different from situation ‘B’ with TP.

Thus, P (AUB) = P (A) + P (B) – P (A n B). Here, ‘n’ is shown as intersection. Then it follows that P (A n B) =0. With situation A and B remaining exclusive the B situation with TP we can come to a strong reason that ‘B’ situation with TP is almost a certainty to happen and therefore the prices at the end consumers would fall. In other words, it wouldn’t be Rs 1800 as shown in the chart, but way below it and perhaps in line with that of TP itself.

Here, we must note that here ‘t’ means perpetual inventory as agricultural produce has to be marketed at once or they simply perish as wastes. This also means that there ought to be continuous stable mechanism at work to ensure the speediest possible delivery system and instant offloading. This can only take place when TP is offered at a hefty discount so that there are quick buyers to take them. In the above, although hypothetical chart the price would shoot up in the absence of TP as it is being witnessed in India.

Further, the government must be prepared to undergo some risk for loss arising out of such model. However, the amount of loss suffered due to the situation B, if any, would be adequately compensated by and large by the loss being made due to farm loan waivers, unscrupulous middlemen, wastages, high risk farm credits and subsidies as in situation A. Hence, situation B is superior to situation A. Above all the government may make provision for a loss, if any that may occur by adjusting the same with budgetary provisioning. By simple reasoning one can understand that the loss over the whole supply chain in all respects would be quite manageable in situation B.

There are certain points to consider while managing a countrywide agricultural policy.

1) If TP = MP then it means that the cost may look just about covered and in that case TC = TP= MP. In such cases it may be due to certain factors like over production of produces, improper logistic spread or low demand by end consumers. Here, the government may have to take action by cutting down certain specific produces or give incentives for exporters.

2) If TP < TC then it means that the cost has not been covered. It must be understood that when TP is introduced then there is always this possibility and therefore the government agencies at best can offload the produces even at broader area and areas previously inaccessible for the commodities. This loss the government may have to bear in this model for sometime as this is the loss that has to be adjusted with profits from other produces. If there is still loss then the same has to be adjusted by making budgetary provision for agriculture. It is the perpetual inventory system that would make TP possible and so also the quick revenue return for the products such that the cycle of produces and cash is on a continuous basis paving way for the much needed supply chain flow for perishables.

3) If TP < or = MSP then it means that the particular produces or group of produces are not being marketed properly or that there is huge glut of the commodities from the producers end. However, it must be noted that during the initial stages of introducing this model there would be such a scenario yet overtime this would get rectified.

4) There must be continuous efforts in improvement of all other factors relating to higher crop yield, fertilizers, irrigation and storage facilities by the authorities such that the model would be able to move from one level to the next level within a period of time.

The Financing part in the New Model

The financing part in the new model for Indian agriculture is actually the revenue flow chart as shown below. This chart is quite different for some special reasons which you may instantly notice. First, this chart deviates from farm risk assessment and crop assessment and other risk factors from the shoulders of the farmers to a separate agricultural insurance company financed by NABARD. Here, the farmers would get loan from banks under NABARD policies yet the banks in turn can only do so under the watchdog of CFRRI (Crop Finance Repayment Risk Insurance for Lending Institutions). The name is only for reference here and it may be in any other name.

The main idea of CFFRI is that it would take the repayment risk from each of the banks account pertaining only to farmer loans. Any kind of loan to farmers wouldn’t get that nod from CFFRI and hence this means that the bank would be paying the same at its own risk and cannot claim any insurance. For instance, the risk assessment would be done by CFRRI speedily and create loan segments for farmers according to repayment capacities.

For instance, a farmer may want a loan on his or her 2 hectares of land for the purchase of a tractor, crop seeds, fertilizers, a TV and washing machine. The Bank may allow or disallow, but the CFRRI wouldn’t take that risky account for insurance. The criteria for eligibility of loans would depend upon the farmers earning capacities from farm under MSP and his past history of repayment. The farm loan may get enhanced over a period of time or for each crop reason (A grade, B grade, C grade and so on) depending upon the farmer’s capacity to pay. The banks in turn run less loss and needn’t resort to waivers or take unnecessary risks as the CFRRI is an institution that offers to take the risk of loan on their behalf. This would greatly reduce the accumulating NPAs of the agricultural banks.

Here, it is to be noted that the farmers have no direct contact with CFRRI and it should remain so. Again, banks are best to negotiate with mostly illiterate farmers while an insurance body like CFRRI is best to deal with complex technical details with a bank body on the same footings. The bank, of course, pays a small premium to the insurance company for each loan policy taken.

The above chart is the best bet for Indian agriculture to remove unnecessary complexities and make the system more fool proof for the benefit of the farming community.

Perpetual Inventory System and Working Capital

Unlike the manufacturing sector or other types of industries, trade and commerce the Indian agriculture has to have a different mechanism of accounting. This means that the State machinery provides the main support between almost 100% private holdings and 100% end consumers. This is due to the nature of almost all the agricultural produce.

True, if the land holdings were made like a free market structure where anyone willing to produce or sell at their risks then chaos would exist that would be threatening to the very smooth farming to marketing of the produce. Further, if the individual land holdings were in the range of 10 or 20 hectares and above then the whole of the agriculture could have operated analogous to that of the manufacturing and trading sector. This would also mean displacement of a substantial part of agricultural population and they would migrate to towns making life impossible for themselves and that of others. In other words, this is not as manageable as it may sound for around 200 or more million of people engaged in agriculture would become jobless.

But in our present scenario and with the model as above we can raise the productivity level by keeping the MSP reasonably high so that there would be a dramatic shoot up of demand in the rural areas which in turn would nourish all other industries and trade.

Hence, the government offers a middle support between the producers and the end consumers. The agricultural procurement at MSP is financed by it and then the same money is made to rotate so that a substantial part, if not whole, is retrieved through the process of TP (Throw Price). Here, we see a perpetual inventory being created by the government agencies and when the revenue is received from the TP pricing the cash is further utilized for giving support to further MSP for other seasonal crops or horticultural produce.

This means that the cash that is being utilized by the Government is both for perpetual inventory for the Government as well as its Working Capital. Nevertheless, the government agencies suffer losses at least in the short time for most of the cash is not recovered as we have seen above. This is because the State needs to keep both the interest of the farmers at MSP and that of the consumers. And this is only possible by foregoing a part of the profit and even offer hefty discounts of 25% and above to retailers by cleverly and quickly auctioning the produces at TP.

During drought or crop failure this is easier managed as then you only need to import the produces that are in shortfall. But in the case of bumper harvest discounting heavily as shown above is the only way out.

The State agencies would then suffer losses when there is bumper crop and then this loss would be adjusted with the budgetary provision. Yet as stated earlier the B situation is much more superior to situation A as the losses could be better managed and adjusted with improved digitization and trained manpower who would be able to make the right TP to act so that eventually a trade off is made during lean season when the produces sell at higher prices.

It is also reasonable to understand that the loss in situation A versus situation B would be much higher as there are inherent anomalies in the whole structure and accounting procedures. Apart from that the State would be facing loan waivers and banks increased NPAs making the entire spectrum of stress level daunting and shocking.

An entire system of accounting and keeping the whole flow going on in an uninterrupted way would enable the whole of the agricultural supply chain to bring in more value. The model would take care of wastage as well as correct pricing including profits for each particular produce.

Technological Improvement, High Automation and Unemployment (PART II)

This is second part of the essay under the same title written earlier. It has been stated that when higher value is attained the more is the automation process required or carried out and therefore the greater is the unemployment rate. It is also assumed here that there is no change in the demographic pattern in the country and each supply chain is on the process of automation.

In this second part of the series the discussion will range from not just changes taking place in the demographic pattern of a country, but the difficulties that may arise in the labor forces when the transition is made from low skilled, medium skilled to high skilled. In order to throw light into the aspect we will use the same example of the pyramid yet study the same not just on one side, but on all four sides. The pyramid base stands on a square and therefore it has four sides. The structure of the pyramid is therefore more elaborate here as each of its faces or sides shows interrelationship between demographic patterns affecting each supply chain, automations taking place within the supply chains, appropriate skills and training required for the workforce and the government intervention mechanism.

Problems of automation

It has already been shown in the preceding essay how automation may create immense problems for firms in a supply chain when demand for products is tepid and large scale unemployment do not create the necessary aggregate demand for them. Since, many large firms would take the opportunity to automate even faster and faster to lower cost, the end result unfortunately would be squeezing the pockets of the very small and medium industries and employed workforce that eventually exit the scene or remain unemployed and thereby are not in a position to purchase the products these larger firms in the supply chains are producing. This is the vicious circle that leads to recession when the problem is seen spreading to most of the other supply chains in an economy.

(Read Technological Improvement, High Automation and Unemployment (Part I). The figure given below explains how automation would rise in a supply chain where the bottom levels represents very low level automation and the higher up automation reaches its height where eventually only very few people are able to find employment. The Y or Z segment is never reached in the real world yet not quite impossible either.

Again, if several supply chains in an economy resorts to high levels of rapid automation then it will have to bank heavily on exports to enable these supply chains to survive as domestic market may not be able to sustain their purchase. Again, the biggest problem such economies would face is that they would need to come to an unusually long term agreements with lesser automated economies or non-automated economies as the price of their products may be too high for such economies to purchase. Hence, gestation period over a decade or more would be necessary to recover the cost of such products brought forth due to high levels of automation.

Automation again may make it mandatory for economies to resort to bringing in very high skilled immigrants and not just any of the common crowd. This is because of continued upgrading in the levels of higher automation where newer inputs are required and more worthy migrants are needed.

Another problem with automation is that the highly skilled labor force of an economy with specialized skills in robotics may find themselves unemployable in the lower end of the segments namely a, b, c, d or e if  the economy slides down sharply due to recession or depression.

Very high level of automation in an economy that has reached the higher levels of P as shown in the diagram would make the lower ends of the pyramid like a, b, c, irrelevant and immigration of common crowd would eventually prove to be disruptive.

Employed and Unemployed Workforce in Economics

Before going deeper into analysis of automation and its effect on the population of a country there is need to understand what employment is and what constitutes unemployment in its truly economic sense. In economics it is not the whole of a country’s population that constitutes the labor force, but those that seek jobs. In other words, ‘Employed’ means those who seek jobs and get them while ‘Unemployed’ means those who seek jobs and do not get them.

This also means that there are people who form part of the overall population of a country and who do not seek jobs at all. These people do so because they hold some inheritance or are looked after by others who are well employed. These again may be spouses of individuals who do not need to work or those who are covered under a security system or others who are under pension schemes. It is therefore apparent that those who seek are those eligible for jobs and not otherwise. Even self employment is akin to seeking and getting a job to do work on ones own terms.

Here, it is seen that in an economic perspective increase in child births or decrease due to death or increase or decrease in ratio of aged over younger in the overall population has no direct bearing on the workforce other than ascertaining the probabilities of a distant future outcome. This also means that if a country produces children like a large factory may mean nothing as per workforce is concerned. The determining factor of workforce in a partially automated or semi-automated or fully automated economy means quality and not quantity.

It is seen that although aggregate demand and consumption rises where overall population is huge it is unfortunately narrowed down to food consumption and some basic consumption levels only and not quality consumption on all fronts the latter which is instrumental in spiking up activities of production on wider and broader ranges.

Demographic pattern of population with respect to economic activities

A population of a country in economical perspective means that it undergoes changes in relation to the supply and demand of labor or workforce with each stage of automation (non-automation, semi-automation or full automation). Population in economic perspective has nothing much to do with the overall population of a country. For instance, if a person seeks job and trains to do so is said to be a seeker of job. This means that an individual who never seeks anything does not become a part of the workforce nor has the potential of becoming part of a workforce. Hence, workforce in economical term means those that seek jobs and get them and those that seek jobs and do not get them.

In sharp contrast when ascertaining the rate of consumption and aggregate demand the whole of population is taken into consideration and not just the job seekers alone.

From the above it means that when the population increases or decreases with respect to productivity it is only in relation to the level of stress the workforce experiences during work and the transition problems it faces in the economy. Some salient points when there is an increase in workforce population (economically) are as follows:

Increase in Workforce population (seeking employment)

·         Increase in skilled and semi-skilled people in the population due to special training and education

·         Migration of labor seeking employment from other countries

·         Higher ratio of working younger workforce population in relation to retired or semi-retired older workforce population. (This has nothing to do with higher levels of overall aged population with that of overall younger population). The unemployed workforce population is still job seekers and includes people with disabilities, people not getting appropriate placements or is reluctant to work due to lower pay.

·         Higher levels of automation in different supply chains rendering skilled and semi-skilled workforce surplus and unemployed.

·         Economic growth stalls or enters negative territory with firms in several supply chains experiencing unutilized capacities resulting in excess labor.

·         Winding up of firms – large and small – increases the workforce population

·         Some part of workforce fails to catch up with the higher level of skill requirements due to improper training and non-standard education rendering them unemployed and thereby increasing unemployed workforce.

Decrease in Workforce Population (seeking employment)

·         Decrease in skilled and semi-skilled workforce due to several reasons (educational, economical and political)

·         Decrease in migration of semi-skilled and skilled workforce

·         Higher ratio of retired or semi-retired workforce population in relation to younger workforce.

·         Outflow of skilled or semi-skilled workforce from the economy to other regions or countries

·         Death due to diseases, war or accidents

·         Government rules and regulation in controlling the rapid growth of high automation in supply chains

·         Appearance or creation of newer supply chains in the economy

Transitional stages of automation

Little is heard about automation during its transitional momentum but more is reported about the havoc that automation may create among the general workforce in an economy. It is the transitional stage of automation from one level to another that creates the maximum disruption on the workforce in an economy. Transitional stages occur from lower to higher level segments of the above pyramid. Each pyramid signifies one particular supply chain and not all. As one goes up from c and above then one realizes that in each segment there is greater degree of risks involved in the employment process.

The workforce has to increasingly rely on newer training procedures and education to increase their skills in lieu of the increasing automation introduced within each of the successive segments of the pyramid. As one goes up the segments the narrower is the opportunities available for general workforce or semi-skilled people and only skilled people are able to move up.

During each transitional stage in majority of such supply chains the government has to step in with rules or regulations as discussed in the Part I of the essay. These may be either intrinsic or extraneous interventions or both. If there is no such action then this causes maximum disruption for the workforce and greater pain in transition. Special training and education has to be imparted substantially to these workforces.

Obviously, lesser job opportunities are also available due to narrower segments on the upper levels of the pyramid. It is usually because of higher levels of automation taking place in supply chains. Naturally, the value of goods and services too go up enormously. This is the curse of value concentration.

Growth in relation to workforce employment

Growth in relation to workforce employment can be studied by taking each individual supply chain. There are four sides or faces for the pyramid each side signifying the influence over growth pattern of a supply chain. The four sides of the pyramid are population demographics (Face I), automation process (Face II), education and training for workforce (Face III) and government interventions (Face IV).

The first two sides of the pyramid represent population demographics and automation process and these are namely the Face I & Face II. Given below is the diagram.

Here, in Face I of the diagram each segment of the pyramid symbolizes the workforce increase or decrease when automation is simultaneously carried out as in Face II. Population at a or b segment is representative of ordinary crowd with little or no skills and as the economy picks up there will be shortage of skilled labor for operating basic automation systems and therefore the transition to higher levels of skills and training becomes mandatory and is quite a painful transition for labor as most of them may prove to be incompetent during this transitions. There would also be similar stress experienced when quality immigrants are not there for filling up vacancies.

The transition period of the whole workforce from low levels of skills to higher skills may take several years and in some cases a decade or more. It is also seen that in the higher levels of automation as in ‘P’ segments there is a distinct acceptability of workforces irrespective of their physical and age wise handicaps that are relatively more to be found in the levels of a, b, c, or d.

This means that age and physical disability or gender would prove to be of no hurdle so long as the workforce is highly skilled. Here, skill means more brain power and work associated with greater thinking and imagination and less of physical movements.

Below there is yet another diagram representing the other two faces of the pyramid namely the training and education Face III and government interventions Face IV. Here, in Face III, it would be necessary on part of firms within each of the supply chains to train and educate their labor force to take skills to the next level so as to be able to retain their high performance of productivity. They must also be able to operate the higher levels of automation process as the economy picks up and therefore need to update their knowledge and skills to handle the same.

There is also the need for quicker government responses if several supply chains start off automation in a rapid way.

At higher segments of ‘p’ one would find that it is immaterial if the person is 25, 45, 65 or 75 years of age so long as their brain is working perfectly. Again, there will be as such no differentiation between physically fit or handicapped people as on the higher levels as there is less need for physical movement. Again, there are no gender differences at these levels.

In the above diagram showing Face III & Face IV the Ph signifies the higher levels of ‘P’ while Pl signifies the lower levels of ‘P’. It is at this stage that the transition from lower to higher levels is most painfully experienced by the workforce in an economy. The same holds true for Face I and Face II too. It is also obvious that it is the Face III and Face IV of the pyramid that holds the promise of mitigating the highly stressed workforce and they must be given skilled training and specialized education to enable to go to higher levels.

The government may intervene by looking at the scenario of the unemployed workforce and may even invite non- workforce part (Idle populace) of the population to undergo specialized training and higher levels of education to handle jobs so as to sustain the growth of the economy. More automation may look more promising yet there must be generally significant percentage of population who are at the higher end of the income bracket to sustain high demand and consumption levels including those small and medium industries entrepreneurs. Otherwise, though the firms within each supply chain produces very high value added products there will be no demand to sustain them if unemployment persists. This is the curse of value concentration as explained in the Part I of the essay.

If on the other hand there is need to explore natural resources or products and services that perhaps run for and towards serving the very purpose of automation and robotics due to their unavailability on earth or easier access like that in outer space then this may be sustainable. In this case the motive to run such enterprise should be based on the larger interest and needs of the general workforce as the cyclical pattern suggests that human being create the ultimate demand for goods and services and not otherwise. In future this may happen due to the changes in the lifestyle options of the human beings.

For instance, if several group of people on earth in the distant future at the heights of their robotics and fanciful entertainment spirits start to play real game of star wars with each of their fully automated positions in different moons of Jupiter and Saturn through remote control from earth then an enormous supply chain starts to form. This becomes so huge that the entire GDP of several economies may increase several thousand folds with firms within each supply chain on expansionist phase. However, if these very groups of people change their lifestyle options and think that all this is simply waste of time and energy and they rather meditate and lead a tension free life in peace, then the whole of the supply chain would come to a standstill. But the worst assault due to this would be on the GDP of each of the countries and may be so severe in its magnitude and painful to the workforce population that generations of people or the countries may never be able to recover from the crash and deflation for several centuries. This is the larger picture yet one may be able to understand the smaller picture too from this.

In short, when recession or economic downturn happens it is the highly automated economies that will experience the maximum pain and sufferings than a non-automated or semi-automated economy. This is seen in the upper segments of ‘P’ when the growth slides as seen in the diagram below.

This means that robotics is good so long as it serves immediate needs of human beings, but automation that is stretched beyond that may mean throwing oneself on to the winds of economic and social uncertainties and disasters of future outcomes in the economy.

The Snake and the Pyramid

In the following diagram the snake represents the growth momentum in the particular supply chain while the pyramid has four sides. The growth is spiral form and encircles all the four sides as seen on the coils of the snake.

Here, the snake coil over each segment as it reaches the top stages. In the diagram the snake coil has overlapped another of his coil around the pyramid and this is because of the slump in the supply chain or stagnant growth during that period of time. However, there may be more such overlapping of coil over the other and not limited to just one as in this diagram namely ‘cc’.

It is also seen that the chances of slump are more when automation is increasing and the amount of stress experienced by the workforce is significantly higher.

The government intervention on Face IV is necessary in such cases when the economy experiences downturn. The Face III would be imperative to provide newer tools and education so as to keep the workforce updated on their level of skills and enhancing them further. When the economy is in recession the level of automation needs to be curtailed or workforce population needs to add as in Face II and Face I respectively.

Technological Improvement, High Automation and Unemployment

Technological Improvement, High Automation and Unemployment

There is an ongoing debate about continuous technological improvements happening in our society with high degree of automation occurring in almost all areas which were previously flowing with personnel now filled with the latest automatic and robotic machinery that create more unemployment than employment. The saddest part of this scenario is that the process of rapid change occurring in almost all sectors of an economy means that the resulting gaps between skilled and unskilled or semi-skilled people are enlarging to such an extent and without any control that even those who are very specialized are not able to keep in line with the stupendous advancement in technology and this shows that a time would sooner or later arrive when most part of the population, skilled or semi-skilled, would be rendered absolutely useless.

This scenario has become one of the most intriguing phenomena that have raised serious doubts as to whether economic progress means welfare of the machines or that of the human beings. This problem is faced not just by skilled people only, but the problem has become a force to be reckoned for even the highly specialized, qualified and experienced individuals and the die hard fans of automation too. Never in their life had they dreamed that they would be creating a Frankenstein monster which sooner or later would be engulfing them too. This is something analogous to the die hard capitalists of the world who bent upon making money itself do their work easier and make more profits without any limits drawn whatsoever and without even duly considering the real economy such that eventually everything ended up into a world wide economic and financial crisis in the year 2008 of which they nor their governments had any control at all. The same is quite true here too.

It is now seen that high technology firms or companies have now taken yet another route towards even greater trouble for the unemployed of our world today. These companies and organizations have resolved to create and invent technologies that are by far even more superior to what we see in the world, but even to beat and stay ahead of competition by feeding into a supply chain that is already thriving on technology with even more and more automation. In other words, these companies are now aiming at achieving to revolutionize the very art of innovation in automation and take it to a very high level where they actually get into a more secured position of competitive advantage by manufacturing only very high sophisticated automated products for those searching for more automation and thereby feeding into an already saturated, non-manned system ensuring a full fledged supply chain of simply robotics and nothing else.

The Curse of Value Concentration   

The greatest threat faced by human beings on our planet is the curse of value concentration. This means that where there is constant rate of value addition it also inevitably means that there is constant rate of automation process in each of the firms in a supply chain. It is only through the process of automation that more and more values to a product can be added and the customers get the best for their money. In other words, this also means that manual work and efforts do not add as much value to products as automation does. This again brings us face to face with another shocking yet revealing picture and that is human beings are at best a physically disabled specie and although good at initial creative efforts for further development of technology and automation they are rather insignificant in their contribution for fast and constant repetitive process that automation is capable of. This is the Curse of Value Concentration.

In our socio-economic society a physically disabled person is not the only person with disability, but the most perfect men and women whom we talk about are only just less disabled than the rest and never quite abler enough to be anywhere near to that of the machine. This is the reality.

This aspect is very important if we are to understand the nature of employment and the subsequent unemployment that people are subject to due to rapid advancement of automation. Without understanding the picture in its proper perspective it is almost impossible for us to understand why rules and regulations are important equally for the employee, employer, industries, business class, multinationals, venture capitalists, contractors and so on and these will be shown later on in subsequent paragraphs.  If we do not understand this phenomenon then we remain mute observers to ideological conflicts, tensions, aggressive politics and overall bitterness and rivalry.

There are several advantages to automation as not only it saves time, avoids clumsiness, but also brings about repetition and perfection for replicating products and services by drastically reducing costs and overhead expenses and thereby bringing about economies of scales. This means that no human being is capable of beating the perfection brought forth by technology and hence as stated earlier we as specie are rather disabled physically in front of automation. The high level of automation brings forth unsurpassable value addition to human consumer goods and services as well as overall well being for the consumer who is employed and able to provide for it.

However, in sharp contrast, products made out of hand or semi-automatic machines by far just remain only a poor cousin to the high level of technology and automation that larger firms employ.  The same is the case with smaller firms in a supply chain that has not the power or the financial prowess to match the giants in the same supply chains and may not be able to keep with the level of quality demanded by the larger and highly automatic technologically driven firms. These firms would sooner or later exit from the supply chains and the larger firms would soon enough drive their own level of automation to even higher stage where they wouldn’t need the service of the smaller firms resulting in huge unemployment. This surely means that the larger firms under no circumstances would absorb the displayed workforce even if special training is enforced and the requisite skill is gathered by the workers. This results in huge overall cost reduction for the larger few firms in a supply chain resulting in passing on the benefits of high value to the end consumers.

The below given diagram represents the automation process by firms in a supply chain in a form of a pyramid where the bottom level ‘a’ is the least automated stage while the ‘z’ is the stage of complete automation. At ‘b’ stage the firms in a supply chain tends to automate or mechanize grass roots manual tasks while as the level goes up to ‘d’ or ‘e’ the firms have more or less optimized the requirement of automation with that of enabling workers to perform tasks to the best level resulting in apparent ease and comfort of doing their tasks. Here, there is no unemployment as such and workers are made comfortable to do their task with least efforts with the machines in their hands or technology at their disposal. Here the rate of efficiency of manpower is the highest and so also the minimum level of value addition that customers are quite comfortable with.

The ‘p’ stages varies according to the type of supply chains and is not limited or extended to what is shown in the diagram. The ‘p’ stages are the stages where workers are subject to the harsh reality of facing up to rapid advancement of technology and automation rendering their own jobs as useless. Here, in these stages value addition is paramount and goes up very significantly relative to the additional value created at ‘d’ or ‘e’ levels.

At the top of the pyramid namely the ‘x’ stage the value addition is unsurpassable although there will be sparse manpower managing the super powerful automated machines. At this stage there will no need for low skilled technicians or even technologists too. Entire operations would be handled by a handful of highly skilled and experienced staff only. The supply chain would attain a status of highest degree automation whereby a majority of the firms in the chain would exit resulting in mass unemployment.

At stage ‘y’ there will be no need for even the highly or extraordinary skilled personnel as few directors of the companies would be able to handle the entire operation by pressing buttons.

  

At ‘z’ stage there will be perhaps only less than a dozen people or one or two individuals where employment of skilled, highly skilled and technologically experienced would become absolute zero. Maximum value is achieved by the consumers yet unfortunately this may backfire as the purchasing power of people due to mass employment would get drastically reduced. There will be only one or two or perhaps at the most three very large firms exercising control over the whole chain. In reality no firms has reached this stage, but with no proper rules or regulation on businesses this may be achieved in the near future. Undoubtedly, this would lead to mass unemployment unless otherwise other unique supply chains emerge to fulfill the gap.

Unpredictable Swings in Economic Cycles

When there is mass unemployment due to high degree of automation as shown above the economy becomes very volatile. The business cycles would be become extremely shorter as firms in the majority of supply chains would be producing better and better value added products yet due to unemployment there will be no off-take for the same due to paucity of funds with the lower levels of populace and lower production levels. Here not only workers become unemployed, but smaller firms in the supply chains exhaust their capital resources and exit from the scene altogether resulting in inability to purchase more capital goods. A vicious unforeseen cycle follows and the larger firms at best try even harder to create conditions that force the smaller and medium industries exit hoping to monopolize full or part of their whole supply chain.

This will result in sudden short periods of recovery and followed by recession and sudden depressions that would render economic instability and an ungovernable economy. For the economy to go through path of more sustainable recovery there is need to push demand of products and services from the lower bottom of each of the pyramids in an economy namely ‘a’, ‘b’, ‘c’, or ‘d’ stages when employment is maximum alongside some automation that has made the jobs easier and more comfortable to handle. This can be only achieved with direct interventions by the governments as society exists for human beings and not for machines. The problem can be rectified with newer supply chains appearing on the scenes yet this is not as easy as it sounds in a recession headed economy.

It is also seen that however fast a person may have been trained and skilled it still remains considerably lower when compared to the progress of technology and recurring updating the ongoing process of higher levels of automation receives periodically such that a person is always like a nomad searching for a suitable pasture  This is true for firms that are small and medium and trying to make their best efforts for catching up with larger highly capitalized firms and thereby losing out of the race due to dearth of capital and demand within their own supply chain. It is no secret that a sound education and training may go a long way in solving some of the problems resulting out of low level of skills by workers, yet this takes time and may not match with the steady process of value addition through continuous process of automation.

The only way that a government may govern is by controlling the stages of these pyramids at the bottom levels with extraneous and intrinsic interventions aiming at raising employment than simply reining in technologies and the process of automation. This will ensure better aggregate demand in the economy and in turn reducing the volatility of economic cycles. This would also mean that on the higher levels of automation even the large firms would experience the heat and subdued demand from the general populace as well as small and medium investors rendering the automation itself as self-destructive.  

Although newly emerging supply chains may provide some respite yet they may not prove to be enough to absorb the displaced unemployed. This is the Curse of Value Concentration and it affects the business cycle too and makes it too volatile. In fact, the cycle would resemble something like a series of continuous “W’s crisscrossing on the narrow parallel lines on the graph. This means for every few weeks of robustness shown there will be a few quick weeks of fall followed again by some quick temporary sort of recovery followed again by a sudden fall. This is due to improper off take of demand for goods and services in an economy.

At stages ‘x’, ‘y’ and ‘z’ things would go worse if all or almost all the pyramids in different supply chains attain that stage with full automation and exemplary values.

Extraneous and Intrinsic Interventions

It must be understood that to check the proliferation of the automation process governments may not be able to intervene substantially and thoroughly as one would like to imagine. It is in fact quite impossible for countries to stop the R & D centers and put a bar on human curiosity. Again, nations may differ and those agreeing may still secretly carry out automation for getting that highly enviable comparative advantage for their economy. It is to be noted that technological inventions and technological flow into firms rather than being halted can be very well channeled based on sound extraneous and intrinsic interventions. This is where the supremacy of human intelligence is displayed versus that of the machines. The basic understanding and the need for a stable platform for a positive social order comes out of the understanding that the economy runs for the human beings and by the human beings and along with other human beings. A company and labor are not separate entities, but their merging is essential for a just society. Hence, regulatory authorities and the government must make it mandatory to enact laws, rules and regulations so that a just social order is achieved and which in turn would instill growth through the purchasing capacities of a larger spectrum of employees and small and medium businesses. It is no secret in the present times that the small and medium businesses are more labor intensive than larger ones.

It also stands to reason that when there are sound and leak-proof policy frameworks in place then over a period of time newer supply chains would emerge to semi-automate or provide specific tools for the industries in other supply chains that have reached or are in the process of reaching the ‘d’ or ‘e’ stage of the above pyramid. This would ensure more jobs for the people and better opportunities as well as bring about increase in purchasing capacity of the employees for buying consumer products and services and for smaller industries the required cost effective tools for increasing economies of scale. This would entail the industries at stages ‘d’ or ‘e’ to remain profitable and sustainable and needn’t exit due to lack of capital funding by forcing them to compete with larger industries in their particular supply chain.

Extraneous Interventions

The extraneous interventions by the regulatory authorities or the government by the process of law would be to provide a platform for the distressed or the unemployed outside the existing supply chains of an economy. This would mean that the government would make budgetary provisions for giving jobs to the unemployed or semi-employed directly. In India we have the Mahatma Gandhi National Rural Employment Guarantee Scheme (M.G.N.R.E.G.S). This is an excellent way to tackle the rural unemployment that come in the wake of drought, untimely monsoon, Tsunami, floods, earthquakes, crop failures, pest attacks and other calamities.

Similarly, a country may also provide a welfare fund allotted for those that are unemployed in the urban areas for a specific period of time. The framework of these laws may be carried out by keeping in mind the fiscal deficit of a country. In similar way the government may interfere directly in certain areas like self employed, small or medium industries and provide incentives and restructure taxes in such a way that they may remain profitable and employ more people in the process.

The pros and cons of extraneous interventions are as below.

Pros

·         There is a direct mechanism for intervention by the government or governing bodies to provide relief to a section of the affected unemployed populace

·         There is a minimum basic pay for the efforts of the employees till such time they find work in other supply chains.

·         Employees are socially accepted and they have an aspiration for living a good life sooner or later.

·         The small and medium industries stand a better chance of remaining profitable and sustainable without the fear of being obliterated from the scene by large industries with high level automation and obstructionist capital formation by larger industries.

·         Capital formation and worthiness for institutional finance are much easier and readily offered to them as the rule of law is a guarantee of business success and sustainability. Some industries may be given special incentives like tax rebates. Some areas which are labor intensive can be given structural support by the government. Here, banks may lend with reduced risks too. 

·         Supply chains are not narrowed for the benefit of a few large highly automated industries, but broadly provided for generating more demand for consumer goods and services as well as for capital products as on a broad footing the populace have more money at their disposal to spend

·         The GDP will increase sustainably and there will be no more volatile short economic cycle which is actually a bane for policy makers.

Cons

·         It may have a direct impact on fiscal deficit if the amount allocated is more than the country can afford after due budgetary allocation for other important investment proposals and welfare measures. It must be targeted for those that are eligible for it and not every one of the population

·         Some leakages may occur yet these are to be tackled firmly and with proper digitalization of the process of payment and allotment of jobs

·         The jobs are to be economically viable if not in the present then at least in the future. Allotted money shouldn’t be used for the sake of employment.

·         Tasks performed by the labor should be economically viable as in the short time or future government may be able to levy taxes and other duties to recover the money spend in order to shorten the fiscal deficit.

Intrinsic interventions

These are interventions by the regulatory authorities or the government directly through and into the supply chain activities. Here, laws are framed so that there is lesser chance of smaller and medium industries to exit from the scene or made to do so easily by competitive forces exerted by larger industries. By and large financial institutions too become flexible in lending to the series of such steadied firms that law has made provisions for.

Pros

·         Rules and regulations are laid down so that a section of the products are mandatorily purchased by the larger firms from smaller firms existing in the same or other supply chains irrespective of high automation potentials.

·         Broad based lending by financial institutions are made possible and risks spread over a broader area

·         Different rates of taxations on firms within the same supply chain below the stages of ‘e’ or ‘d’ levels. On higher stages firms are taxed more due to runaway automation process detrimental to the interest of the smaller firms as well as employees of the society. This means that larger firms would attract more taxes than smaller firm depending upon the stage they are.

·         Industrial zones may be segregated from real estate and land ownership as a firm may be purchased or sold by one or more manufacturing firms strictly and not by or to an outsider with interest in land value only. In other words, an industrial zone land may not be purchased by an old age home shelter or a beauty saloon, but must be available only for manufacturing alone.

·         Shops and establishments must be only sold for the very purpose of running shops and establishment and not for residential purposes. Capping of such wanton or free transfers for any other purpose is in the best interest of the businesses, employees and society on the whole and there must be stringent laws for these. Where empty shops remain it will serve as good bargain purchase for yet another set of new investors without hiking of rentals or property prices abnormally

·         The supply chain has more employment potential and generates its own demand to feed the products and services produced by larger industries in the same supply chain. In other words, demand generation both for consumer products and industrial products would be high and steady.

·         There will be much less volatility in economic cycles

·         There will be no direct effect on the fiscal side unlike the extraneous interventions as taxes and duties are directly imposed on all units and with broader improvement the return by way of taxes would also be high. In fact, this wouldn’t unbalance the fiscal picture.

Cons

·         There may be stiff opposition from larger firms in a supply chain as they would like to maximize their profits to the maximum with least human labor as possible.

·         Some leakages may still happen and the law should be enforced strictly without any loopholes

·         Some spaces or supply chains like e-commerce would need a separate definition and rules so as to get the maximum benefit to the society and the public for full employment potential

·         Value concentration may at best remain in areas of health care only

Hence, while formulating policy frameworks for better job opportunities in supply chains the government may act with prudence and better understanding of different types of supply chains and their potential to absorb manpower and thereby increase aggregate demand for products and services. A comprehensive data may be collected for different types of supply chains in an economy so as to make things easier for governance.