Let us briefly review the background of the macroeconomic imbalances (trade deficit and budget deficit) that were tolerated. Traditionally, India took so-called stop-go policies to maintain macroeconomic balances, but this equilibrium principle began to collapse in the latter half of the 1970s. The logic behind it can be explained as follows. The Green Revolution brought farmers into the market economy with the aim of self-sufficiency in food-supply, and formed a multi-layered wealthy farming class (positioned as the middle class in the overall social structure) sensitive to prices. The poverty class also became sensitive to the price of food in the public distribution system by which foodgrains were supplied at lower price than the market price. Consequently, as the subsidies increased, farmers and the poverty-class people turned into "rent seekers" through democratic elections. This process was the phenomenon that is said to have brought about political awakening as well as political decay, and such rent-seeking communities, as called by Kruger, spread in the agricultural sector and among the low-income groups. As the ruling parties in recent years have no possessed firm monopolistic advantage since the latter half 1970s, the political operations have been more and more inclined towards populism with society increasingly in pursuit of rent. Government expenditure has not been appropriately controlled and the macroeconomic imbalances have been revealed. While many argue about development and democracy (or development dictatorship), in the democracy in India, negative aspects affecting its development have come to the fore.
4-2 Trends of Agricultural Fixed Capital Formation
The trend of agricultural fixed capital formation is one of the central disputes over today's Indian agriculture (Figure 1-11). On this issue, it is argued (1) that the growth of real capital formation in the agricultural sector stumbled in the 1980s, and (2) that the private sector's capital formation began to increase, whereas that of the public sector started to decline in the mid 1980s, so that thereby the growth rate of the agricultural sector's capital formation is more or less edging up.
