May 11, 2000|
Monsoon Waiting for touch down
Agriculture and allied activities account for over one-fourth of Indias total output. Industry accounts for another quarter, and services accounts for the rest. This should moderate the view that India is an agriculturally driven economy. Nevertheless, the agriculture sector has in recent times played a critical role in determining overall growth.
This is not a coincidence when one considers the fact that a majority of the population derives its incomes from agricultural and related activities. Although this implies low per capita incomes, it nevertheless adds up to represent tremendous buying power. To put this in perspective Hindustan lever, which has a turnover in excess of Rs 100 bn, derives 50% of its revenues from rural areas. And this is just one company. Scores of others have ventured into these markets and found to their surprise the tremendous buying power hidden under the veil of mass poverty.
In recent years, GDP growth has been affected by the growth in agricultural sector in no small measure. In FY98, the Indian economy (industrial sector) entered a slowdown. The situation was made worse by a fall in agricultural output. This is represented by the sharp fall in GDP growth. However, in FY99, even as the industrial sector reeled, growth in agriculture lifted overall GDP growth rate. In FY00, agriculture played spoilsport even as industrial growth raced ahead to 7.9%.
Why are we trying to draw this correlation? In view of the talk of a drought, understanding the historical relationship becomes necessary. A drought will affect agricultural output as well as industrial sector (as demand cool off). A slowdown in investment activity could further hit economic prospects. This could prove to be detrimental from the point of view of both near term and long term growth.
The meteorological department has yet to confirm the talk of drought. Moreover, the situation could be salvaged, atleast in part, by the abundant food stocks and foreign currency reserves. And, who knows, the rain gods may after all bless us for the twelfth year running.
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