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Agriculture reforms: Path to GDP growth

Dec 26, 2001

It is a widely known fact that 700 m of India’s billon-strong population is dependent on agriculture, but the sector contributes to less than a quarter of India’s GDP. More worrying is the fact that this share is falling over the years as shown in the chart below. This clearly suggests that reforms in the sector have been largely neglected. Agricultural reforms (particularly legislative reforms) could result in massive GDP growth of the country. The tenth (2002-07) five-year plan is just round the corner. While we are finding it hard to sustain a growth of 5%, the targeted GDP growth for the tenth five-year plan is around 8%. Apart from a strong GDP growth, agriculture reforms would mean broad based wealth creation opportunity and equal wealth distribution. Generally, India’s per capita consumption levels are amongst the lowest in the world. Only a broad based opportunity creation could create a chain demand for other industries thus raising our consumption levels.

The problems that agriculture currently faces are fragmented land holdings, low investments in technology, complex legislative structure and most importantly, inefficient supply chain system. For example, various states currently limit produce from an area to be sold through the ‘mandi’ in that area, limiting free movement of agriculture produce across the country. Further, a food processor cannot directly approach a farmer and is required to go through the ‘mandi’ route to buy his requirement, which results in inefficient and costly supply chain.

It is high time we realize the importance of agriculture in overall, sustainable economic growth. The finance minister has time and again assured his commitments of kick starting reforms in the sector. Though some headway has been made in the last budget by offering incentives for the food processing industry, a lot more is required to be done and we have little time left. A case in point here is corporate/ contract farming which has already shown early success. We would discuss this issue in our next article.

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