2\ SOCIAL SCIENTIST Fallacy: Input subsidies would involve rationing only if their supply is inadequate to meet demand, or if some kind of targeting is involved. There is a strong case to be made against targeting of such subsidies (including cheaper credit) because the benefits are rarely appropriated by the targeted groups, being cornered by those with political power or access to official patronage. 'Universal' subsidies are more effective, but obviously have to be weighed against the total costs. Clearly, those who produce more would always benefit more from input subsidies—that in itself does not constitute an argument for their inefficiency from a production (rather than income distribution) point of view. EMPLOYMENT AND WAGES Proposition 9: Trade controls reduce labour demand by shifting relative prices adversely and depressing agricultural investment and output. The way to increase employment in agriculture, as in other sectors, is to liberalise external trade. Fallacy: Trade liberalisation may actually operate to shift relative input prices in favour of more capital-intensive techniques, rather than the other way around. This occurs through an increase in food prices which usually pushes up the nominal wage, even if real wages may actually be falling even while agricultural machinery is made cheaper through new imports. Thus increased investment and output in agriculture may not be accompanied by employment increases. The falling employment elasticity of output in Indian agriculture provides some evidence of this. Proposition 10: Minimum wage legislation inhibits employment in agriculture. Fallacy: Demand for labour in agriculture is only marginally affected by the minimum wage, and there is no empirical evidence to confirm what can only be called a prejudice. State-wise analysis in India indicates that some states with the highest rates of agricultural employment growth (e.g., Kerala) are also among the few in which minimum wage legislation has been implemented with any degree of effectiveness. Similarly, states with poor implementation of minimum wages and stagnant wage trends over time have shown very little or no increase in agricultural employment in the past decade or more. THE NATURE OF PRICE FORMATION Proposition 11: In the absence of government intervention, markets in developing country agricultures would function satisfactorily in terms of achieving allocative and productive efficiency, and would conform to international relative prices.