Jul 2, 2009|
Agriculture: Needs renewed focus
"Agriculture not only gives riches to a nation, but the only riches she can call her own" reads a quote by English poet Samuel Johnson.
Though agriculture contributes 17.8% to India's GDP (down from 21.7% in 2003-04), it still forms an important part as 52% of the country's population still depend on it for its livelihood. However, inspite of such a large dependence, in 2008-09, the growth originating from agriculture and allied activities declined to 1.6% (as per the revised estimates). This is lower than the growth of 4% witnessed during the last 2 years. As per the ministry, the reason cited is a higher base effect.
Though for the last three consecutive years (2005-06 to 2007-08), food grains production has recorded an average annual increase of over 10 million tonnes (MT), the pace is slower to match the increasing demand. While as per the third advance estimates, production of food grains in 2008-09 is estimated to be 229.9 MT, which is a marginal improvement of 1.97 MT over the second advance estimates for 2008-09, it is lower than the target of 233 MT set out for the year.
Food grain production - target shortfall
||3rd advance estimates
||% change vis-a- vis targets for 2008-08
|Total food grains
- The Department of Agriculture & Cooperation, Ministry of Agriculture, launched a centrally sponsored scheme on National Food Security Mission (NFSM) to increase the production of rice, wheat and pulses. Increasing production through area expansion, productivity enhancement, creating employment opportunities and enhancing farm level economy are the areas of operation. NFSM is being implemented in 312 districts of 17 States of the country. The total outlay of NFSM was Rs. 8.8 bn during 2008-09.
- Under Rashtriya Krishi Vikas Yojana (RKVY), an outlay of Rs. 29 bn has been provided.
- In January 2006, the Government had announced the package for revival of short-term rural cooperative credit structure involving financial assistance of Rs. 136 bn along with NABARD. So far, 25 states have executed the MoUs. The government is also considering a scheme for revival of long-term cooperative credit structure.
- The Government of India has also approved a rehabilitation package of Rs. 169 bn for 31 suicide prone districts in four States of Andhra Pradesh, Maharashtra, Karnataka and Kerala.
- Positive results are also witnessed in increasing the flow of institutional credit for agriculture. The credit flow has grown by 14% CAGR over the last three years.
- In the Union Budget 2008-09, the Government had announced a scheme for an agricultural debt waiver and a debt relief for farmers with the total value of overdue loans being waived estimated at Rs. 500 bn and a one-time settlement (OTS) relief on the overdue loans at Rs. 100 bn.
- The production of horticultural crops also increased from 191.8 MT in 2006-07 to 207 MT during 2007-08. Government has taken several steps to focus on the growth of horticulture crops. Progress is being witnessed in this field. Under the National Horticulture Mission, in 2008-09, Rs.10 bn was released for the scheme.
Food management- showing some improvement
Food management includes procurement, distribution and maintenance of food grains to have greater objective of food security and price stability. The focus is to induce farmers by offering them fair value of their produce and distribute food grains at subsidized rates to 65.2 m BPL families. This also involves establishing grain banks in food-scarce areas and strengthening the Public Distribution System (PDS). Though there has been an improvement this year, the percent is on the lower side.
- Though the overall procurement of rice and wheat and predominant cereals improved to 37.6 million tonnes (MT) in 2007-08 from 35.8 MT in 2006-07, it still continues to remain below the levels of 42.4 MT witnessed during 2005-06. Procurement of rice in FY09 was 32.8 MT as compared to 26.3 MT in 2007-08. This can be attributable to an early application of MSP for the next crop season. Procurement of wheat, however, increased only in a limited way to 11.1 MT, compared to 9.2 MT in 2006-07. Sugar however, saw a decline leading to higher sugar prices. For 2008-09 sugar season, sugar production is presently assessed to be about 15 MT, down from 26.3 MT last season.
- The offtake of food grains under TPDS and other welfare schemes has been increasing in the last five years and has gone up from 31.3 MT in 2002-03 to 37.4 MT in 2007-08.
- The economic cost of food grains witnessed an increase this year on account of substantial increase in the MSPs (Min. Support Prices) of rice and wheat. Economic costs consist of MSP as the price paid to farmers, procurement incidentals and the cost of distribution. Economic cost of wheat went up by 12.9% in 2007-08 (RE) to touch Rs. 1,371.3 per quintal while that of rice was Rs. 1,572.6 per quintal in 2007-08 (RE), higher by 11.4%. Higher costs and lower productivity fuelled by higher debts led to suicides of farmers across the country. Due to higher costs, inflationary pressure and rising raw material costs was witnessed.
- The stock position of food grains as on April 1, 2009 stood at 35 MT as against 19.6 MT last year. This is adequate for meeting the requirements under TPDS and welfare schemes during the current financial year.
- While the economic cost has gone up, the issue price has been kept unchanged since July 1, 2002. This has resulted in an increasing incidence of food subsidy. A 40% YoY growth was seen in the food subsidy during 2008-09 (prov).
Challenges and outlook
The agriculture sector in India continues to face a challenging scenario. With the rain gods not yet smiling, situation looks scarier.
Not much progess
|Compound growth rates (%)
||1990-91 to 2000-01
||2000-01 to 2007-08
||1990-91 to 2000-01
||2000-01 to 2007-08
- On the supply side, the yield of most crops has not shown any significant improvement. Further, in some cases, it has fluctuated downwards. The scope for an increase in the net sown area is limited and farm size has been shrinking. With India's rising population, we may soon face scarcity. The need is to accelerate the growth of the sector as domestic price stability and food security critically depends on growth in this sector. Hence there is a critical need to focus on improving productivity.
- Along with core activity, step up of growth of allied activities and non-farm activities is needed. This can lead to value addition. Further, rural focus particularly in infrastructure is needed. The irrigation sector also requires a renewed thrust both in terms of investment as also modern management. There is considerable scope for development of micro-irrigation systems and watersheds and in the use of a participatory approach for achieving the same. Larger focus on improving inter- and intra-sectoral linkages along with an outcome oriented perspective in the implementation of public programmes in the area of irrigation, fertilizers, adoption of improved practices and market access is needed.
- A large gap exists between the producer prices and consumer prices. This needs to be narrowed down through proper marketing support. Development of marketing infrastructure and storage and warehousing and cold chains is needed to help address this issue.
- The government should lift the ban on futures trading on rice, sugar, tur and urad. This will result in price discovery which would help farmers and other stakeholders. Also, sugar sector needs to be decontrolled.
- 73% of farmer households have no access to formal sources of credit. Hence, keeping in mind their risk bearing ability, credit and financial products specifically designed to meet the needs of the farming sector is required.
- There has to be a focused attention on sustainability of agriculture with due emphasis on environmental concerns. New investment, new technologies especially in crop forecasts and crop estimation, Remote Sensing technology and System for Climate Risk Management in Agriculture and strengthening of the long-term policy framework at a broad sectoral level are the call for of the day.
As said by Benjamin Franklin, "There seem to be but three ways for a nation to acquire wealth. The first is by war, as the Romans did, in plundering their conquered neighbours. This is robbery. The second by commerce, which is generally cheating. The third by agriculture, the only honest way, wherein man receives a real increase of the seed thrown into the ground, in a kind of continual miracle, wrought by the hand of God in his favour, as a reward for his innocent life and his virtuous industry."
Rural sector (including agriculture) is being increasingly seen as a potential source of domestic demand and hence a greater focus is needed. Further, with the monsoons expected to be below normal this year and the world economic recession still continuing, the Indian agriculture may face difficult times ahead. While the government has taken measures, the rate of implementation and progress remains lower. Focused attention and strong execution is the order of the day.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407