The Economic Survey 2002 highlights one important factor that could result in higher GDP growth. That is the performance of the agricultural sector. In fact the survey goes on to say that "Higher agricultural output will help stimulate other sectors of the economy since an increase in incomes of farmers would generate fresh demand for goods and services during 2002". While this is true, we try to analyse the performance of the agricultural sector in the current fiscal and whether it will translate into higher demand.
Past in short…
Agricultural production, over the last two years, has remained depressed in light of less than average monsoon combined with inequitable rainfall. After near stagnation in FY00 and a marginal decline in FY01, agriculture sector is expected to grow by 6% in the current fiscal. This is one of the reasons why GDP, despite a sluggish industrial sector and a weaker external trade environment, is expected to grow at almost 5.4% in the current year. The importance of agriculture in the Indian economy cannot be understated. Though it contributes to just 25% of the country’s GDP, almost 70% of the population depends on this sector for their day-to-day living.
Monsoon led growth…
What led to this higher growth in output? The key reason is monsoon, which was normal to excess in 30 out of 35 meteorological sub-divisions that covers almost 86% of the area. It also needs to be mentioned that this year’s rainfall was more equitable than last two years (last year Gujarat, Rajasthan, some regions in Madhya Pradesh and Andhra Pradesh received deficit rainfall). Just to make it even clearer, of the total 35 sub-divisions, 65% received normal/excess rainfall in FY01. This when compared with just 11% in the previous year puts forth the fact that a better monsoon has been the single biggest reason for higher agricultural output.
Consider the estimated production figures for the current fiscal. This year’s food grain output is likely to be in the region of 209 million tonnes (MT), representing a rise of 7% over the previous year. The Economic survey attributes this to better rainfall in Rajasthan, Gujarat, Madhya Pradesh and Chhattisgarh. Rice and wheat output are estimated to go up by 7% and 5% respectively. From a broader perspective, while Kharif output has increased by 5%, Rabi output is expected to move up by 9% in FY02. Higher growth in Rabi output could be attributed to unexpected rainfall in select Northern states in the last two months.
But productivity languishes…
But has productivity increased? The answer is a bit disappointing. In fact, in the last decade, yields have declined notably, which could be attributed towards lack of mechanisation. While growth in food grain yield has declined from 2.7% between 1980-90 to 1.3% for 1990-2001, cumulative growth in yield (all crop) has come down to just 1% in the same period (compared to a growth of 2.6% between 1980-90). Fragmented nature of land holdings and absence of title deeds have been the key reasons for lower productivity (farmers cannot borrow to mechanisation of farming methods). However, fertilizer consumption is estimated to rise 16% to 19 MT in 2001-02.
Daunting task ahead…
While it is encouraging that output has increased in the current fiscal, some issues have to be addressed with seriousness if we are to reduce our dependence on monsoons. For that, investments, which have remained subdued for the last four years, have to be encouraged.
Economic survey clearly highlights the importance of investment. “Agricultural production requires development of rural infrastructure – transportation, rural roads, power supply, watershed management, cold storage and food processing facilities” Cumulative public and private investment in the agricultural sector has been languishing at Rs 165 bn levels for the past five years. Despite private sector investment restrictions, this segment accounted for as high as 76% of total investments in FY01. On the other hand, the government’s share of total investment has fallen from 33% in FY94 to 24% in FY01. In a sector, which contributes to almost 25% of GDP, cumulative investment as a percentage of GDP is just 1.3%.
If the government is not able to spend, private sector, which is willing to commit funds, should be encouraged. Besides, private sector, single handedly, cannot commit huge funds in building proper irrigational facilities like dams. This is where the government can play a lead role. Over the years, to offset the rise in non-plan expenditure (which includes events like Kargil, elections and Gujarat earthquake), the government has been lowering its planned expenses. This has had significant impact on the agricultural sector. One hopes that Mr. Yashwant Sinha will allow private participation in this sector, which can give a big fillip to the economy.
Though higher food grain production is positive news, the government procures it and leaves it to rot in FCI warehouses. It is estimated that close to 20% of food grain stock rots every year. We have close to 60 MT worth of food stock. We have not been able to export this because of inferior quality.
The focus should be on…
Farmers do not have access to markets. Even if they are allowed, in case of commodities, there is a truncated market structure. Trade in agricultural commodities is still not free for farmers producing cotton, paddy and sugarcane. Such controls and regulations, which were effected by the states under the Essential Commodities Act, 1955, are no longer valid.
The government should also increase the scope of corporate participation in agriculture. This, to a certain extent, will address the issue of consolidation of land holdings. This could improve productivity and yields, as mechanisation is feasible only in the case of larger farms.
Government has to put renewed thrust on infrastructure spending.
Despite being one of the largest agricultural producers in the world, the per capita food grain consumption is hovering around 500 grams a day. Surprisingly, there has been little improvement in this figure since independence. Last year, the country witnessed people dying of starvation in Orissa even while we had surplus stock in the godowns.
We would once again like to add the comment made by Mr. Y. V. Reddy, Deputy Governor, The Reserve Bank of India. “In regard to the importance of agriculture in a broader socio-economic sense, all the three basic objectives of economic development of the country, namely, output growth, price stability and poverty alleviation are best served by the growth of the agricultural sector. It may sound ironic that agriculture is one sector where there is convergence of all the three main objectives of economic policy in India but we seem to have relegated the sector to the background in the process of economic reforms…”
It is high time the government pays attention to this sector.