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Agriculture: Will monsoon bring cheer? - Views on News from Equitymaster
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  • Feb 24, 2001

    Agriculture: Will monsoon bring cheer?

    Despite a normal rainfall in the current year, food grains production has shown reasonable growth in 2000. However, the Economic Survey by the Ministry of Finance casts a rather bleak picture about agriculture production in 2001. We take a closer look at how the agriculture sector performed in 2000 and where it is heading.

    Monsoon disappoints
    The Southwest Monsoon (June-September) normally brings 80 per cent of annual rainfall to the country and covers almost all regions. During the entire season of four months, the country as a whole had an average rainfall of 83 centimeters, which is 92% of the long period average. Thus statistically, the country experienced a normal monsoon, except for some places like Andhra Pradesh, West Bengal and some parts of Uttar Pradesh (these regions had floods). Close to 71 districts primarily situated in Rajasthan, Gujarat and Madhya Pradesh witnessed deficient rainfall in the current year.

    However, agriculture production increases
    Food grains production recorded reasonable growth in 1999-2000, despite below normal rainfall in some regions in 1999. Total food grains output has gone up to 209 m tonnes in the current year from 204 m in 1999. This includes 90 m tonnes of rice - a gain of 3.5 m tonnes (2.5% YoY) over the preceding year’s rice output and 76 m tonnes of wheat (which was 4 m tonnes more than the previous year).

    Food grain production
    Year Area
    (m hec)
    (m tonnes)
    FY98 123.8 192.3 1,552.0
    FY99 129.6 203.5 1,571.0
    FY00 123.1 208.9 1,697.0

    In a decade of agriculture production (i.e. 1990-2000), food grains production area has ranged from 123 m hectare to 130 m hectare, primarily influenced by varying weather conditions. Since the country is believed to have reached a plateau in terms of aggregate production area, the ministry of agriculture expects incremental production rise to be primarily influenced by higher productivity per hectare in coming years.

    Increasing productivity…
    (mt) FY97 FY98 FY99 FY00 FY01*
    Foodgrains 199.4 192.3 203.5 208.9 199.0
    Kharif 103.9 101.6 102.8 104.9 102.7
    Rabi 95.5 90.7 100.7 104.0 96.3

    Exports surge
    Agriculture exports during the year showed marked improvement from US$ 33 bn in 1999 to US$ 38 bn in 2000. However, one interesting aspect to note is the fact that the percentage of agriculture exports to total exports has been on the decline for the last three years. Percentage of agriculture exports to total exports has come down from 20% in 1997 to 14% in 2000 (18% in 1999).

    India’s agri-exports face certain constraints that arise from conflicting domestic policies relating to production, storage, distribution and pricing. If exports of sugar, wheat and rice were to improve, we have to increase productivity. Increasing productivity would lower the output price and thus would give cost advantage. Currently, higher domestic prices in comparison to international prices of products of bulk exports make our exports commercially less competitive.

    Agriculture credit grows sharply
    The flow of institutional credit for agriculture and allied activities has increased from Rs 264 bn in 1996-97 to Rs 446 bn in 1999-2000. Almost all lending institutions viz. co-operative banks (15%), regional rural banks (35%) and commercial banks (24%) have recorded significant increase in agriculture credit in the current year. The total credit flow from all agencies is expected to go up to Rs 515 bn by 2000-2001.

    Capital formation declines
    There is continuing concern about the falling share of public investment in agriculture. This has happened mainly because a large proportion of public expenditure has been going into current expenditure in the form of increased level of subsidy for food and other agricultural inputs rather than creation of assets. Annual investment in agriculture was Rs 135 bn in 1993-94, one third of which was public investment. In 1999-2000, it rose to Rs 187 bn (38 per cent increase over 1993-94) but the share of public investment dropped to 25 per cent.

    Investment in agriculture as per cent of Gross Domestic Product (GDP) is estimated at 1.5 per cent in 1999-2000. During the seven-year period 1993-94 to 1999-2000 agriculture investment has ranged between a low of 1.4 per cent to a high of 1.6 per cent of GDP.

    Bleak outlook
    Though lower rainfall in 1999 did not lead to any decline in crop production due to residual moisture, deficient rainfall in 71 districts for the second year in succession in 2000 is bound to lower agriculture output in 2001. To put things in perspective, states with large number of deficient-rainfall districts were Madhya Pradesh (32), Rajasthan (26), Gujarat (16) and Uttar Pradesh (9). Further, there were 17 districts, which received less rainfall for three successive years 1998, 1999 and 2000. Therefore, the ministry expects the country to face severe water shortage in the summer of 2001.

    The Ministry of Agriculture puts the khariff food grains production for the year 2000-01 at 103 m tonnes compared to last year’s production of 105 m tonnes primarily due to drought conditions in 71 districts for two successive years. The outlook by the ministry also posts bleak prospects of any significant increase in khariff as well as rabi production in 2001 (output estimates have been lowered by 2.6 m tonnes for khariff rice in 2001).

    In view of dismantling of quantitative restrictions (QRs) on imports as per WTO agreement on agriculture, the policy has also recommended formulation of commodity wise strategies and arrangements to protect farmers’ undue price fluctuations in the world market.

    The National Agriculture Policy has aimed at catapulting agricultural growth to over 4 per cent per annum by 2005. If we were to achieve this growth rate, we have to be economically competitive, which is possible only when we increase productivity and removing mundane production techniques.



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