May 6, 2004|
We need another 'Green revolution'!
India, world's 11th largest and Asia's 3rd largest economy, grew at a scorching double-digit rate during the third quarter of 2004. Aided by good monsoons, which led to a turnaround in the agriculture sector, the country's GDP growth climbed 10.4% on a YoY basis as against 8.4% registered during the second quarter and 5.7% during the first quarter of the current fiscal. And as per estimates, GDP will land up growing by more 8% during the FY04. Now the question arises that, is this kind of growth sustainable? In this backdrop, we had asked our audience the following question "In your view, is the 8%+ GDP growth sustainable in FY05?"
The poll results indicate that majority (63%) of the voters are optimistic and believe that more than 8% growth in the GDP for FY05 is sustainable. Where as around 34% voters are of the view that the kind of GDP growth achieved in FY04 is not sustainable. The results are important because at some point higher GDP growth expectation will lead to higher return expectations from the stock markets.
Looking at the optimism of voters it is important to highlight the reasons for the higher GDP growth during FY04. The break-up of GDP growth shows that higher growth is largely due to 7.4% growth in manufacturing and 16.9% growth in agriculture. While numbers are encouraging, we should remember that higher YoY growth in agriculture to some extent is due to lag effect (down 4% last year). Also due to better monsoons, the area under cultivation increased, thus resulting into higher growth overall. However, there has been no improvement in the productivity. Let's have a look at the correlation between GDP and agriculture growth in last 14 years.
The graph above shows high degree correlation, now what remains to be decided is, can agriculture sector growth provide the same kind of support as it did in FY04? Well, if we look at the yield per hectare growth number for last few years the growth has been dismally low at 2.5%. That means, whenever agriculture sector has shown a growth of beyond 2.5%, it has come mainly due to increase in the area under cultivation. On an average, productivity for grains like wheat, rice etc is more than double in countries like France, US, Argentina, and Brazil as compared to India. So there is need for much required land reforms.
We would like to conclude by saying that, services and industry sector will keep growing at a steady pace of 7%-9%. But if there has to be sustainable growth in the agricultural sector, there is need for better irrigation facilities, better seeds, better machines and better technology for farmers. In a country where more than 70% of the agricultural land is still dependent on monsoon for irrigation, this aspect cannot be ignored.
Although government has been speaking about it but looking at the speed of reform introduction in other sectors, it seems even this sector will witness some fundamental improvements going forward. But definitely it will take time to come in. Till then, GDP growth may continue to exhibit an uncertain behaviour and may never be able to reduce its dependence on the monsoons. The green revolution may have occurred once in the country, but if a target of over 8% GDP growth has to be realised we may well need another green revolution.
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