How to Profit from Small Caps
Click here to know now!

Our all-new mutual fund
portfolio service!
Sign Up for Free Newsletters
Honest Truth by Ajit Dayal
Straight from the Hip by J Mulraj
Back to Budget 08 Homepage


Get More Info
  • STOCKSELECT
  • SECTOR REPORT
  • RELATED VIEWS
  • SPECIAL REPORT
  • INTERVIEW
  • MYSTOCKS

  • Views Search

    Portfolio Tracker
  • VIEW PORTFOLIO
  • Equitymaster.com : Agriculture: Grain of truth
     
  • PRINT THIS
  • E-MAIL THIS
  • FEEDBACK
  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  FEBRUARY 28, 2008

    Agriculture: Grain of truth
    MYSTOCKS | FREE NEWSLETTER

       
    Agriculture is the mainstay of Indian economy. Apart from being an important source of raw material for many industries, it provides employment to 52% of the workforce. However, its share in the country’s GDP has declined from 36.4% in 1982-83 to 18.5% in FY07.

    The overall production of food grains was estimated at 219 m tonnes (MT) in FY08, which is lower than the fiscal’s target of 221.5 MT. The production of non-food crops, particularly sugarcane, cotton and jute, however, exceeded both the targets and the levels achieved in the previous year. In the current year, as per the second advance estimates of crops' production, shortfall is expected in Rabi crops. Further, the overall food grains production in FY08 is expected to fall short of the target by 2.2 MT. Most worrying is the fact that the food demand in India is outpacing supply, thus stoking inflationary fears.

    Agricultural production
    (Million tonnes) FY07 FY08
    Crops Target Actuals Target Actuals
    Rice 93 93 93 94
    Wheat 76 76 76 75
    Pulses 15 14 16 14
    Total Foodgrains 220 217 222 219
    Total oilseeds 29 24 30 27
    Sugarcane 270 356 310 340
    Source: Ministry of Agriculture, Goverment of India.

    Initiatives taken: Will they be implemented?

    • The 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 305 districts of 16 states of the country. The total outlay for NFSM is Rs 4.9 bn during the Eleventh Five Year Plan (2007).

    • National Development Council (NDC) launched the Rashtriya Krishi Vikas Yojana (RKVY) with an allocation of Rs 25 bn for the Eleventh Five Year Plan. The RKVY aims at achieving a 4% annual growth in the agriculture sector during the Eleventh Five Year Plan period. The program aims to incentivise the states to increase the share of investment in agriculture in their state plans. An outlay of Rs 1.5 bn has been approved for FY08.

    • The National Policy for Farmers focused on the well being of farmers, access to modern technologies and irrigation facilities, credit and insurance, MSP (minimum support price) implementation and appropriate social security scheme for farmers.

    • Initiatives were also announced for plantation crops. Along with a special purpose Tea Fund for funding replantation and rejuvenation activities, an estimated outlay of Rs 0.6 bn till the end of the Eleventh Five Year Plan has been announced for the tea sector. Further, an outlay of Rs 1.2 bn has also been earmarked for the implementation of the National Horticulture Mission (NHM) scheme during FY08.

    • Various options for addressing the issue of agricultural indebtedness were taken up by the government. Proposal of setting up of the Price Risk Mitigation Fund to compensate farmers in extreme situation of price collapse is being planned.

    Food management- Not up to the mark
    Procurement of food grains from farmers at remunerative prices, distribution of food grains to the consumers at affordable prices, and maintenance of food buffers for food security and price stability are the basic objectives of food management. This year, the degree of achievements of these objectives was not up to the mark.

    While the overall procurement of wheat and rice declined to 28.3 MT in FY08 (35.8 MT in FY07), lower production of wheat, low stocks of wheat in the central pool and aggressive purchases by the private traders increased the farmers’ woes. This was inspite of raising MSP and a ban on exports for a certain period.

    The sugar sector witnessed a downturn during the year on account of higher production and lower prices. In order to help the sector, government announced measures like creation of buffer stock of 5 MT, export assistance, extension of moratorium on outstanding term loans and blending of ethanol with petrol to improve the financial position of sugar factories.

    Challenges and outlook

    • The agriculture, forestry and fishing sector is estimated to grow by 2.6% during FY08, as against the previous year’s growth of 3.8%. Weather-induced fluctuations, reduced capital investment and declining levels of yield in major crops are the reasons for lower growth.

    • Gross capital formation in agriculture relative to GDP has shown an improvement from 9.6% in FY01 to 12.5% in FY07. This, however, needs to be raised to 16% during the Eleventh Five Year Plan to achieve the target growth of 4% in this sector.

    • The need is to accelerate the growth of the sector as domestic price stability and food security critically depend on growth in this sector. Strengthening of the long-term policy framework at broad sectoral level is the need of the hour. Also, focus on improving inter and intra-sectoral linkages along with outcome-oriented perspective in the implementation of public programmes in the area of irrigation, fertilizers, adoption of improved practices and market access is needed.

    • Subsidies should be implemented in such a way that the resource allocation and returns from there are optimized. Further, land productivity and strengthening the farm sector also needs to be targeted. Strengthening the procurement machinery in states is also needed.

    • The investment outlays on irrigation facilities should be stepped up along with focus on efficient use of water resources. Putting in place proper risk mitigation policies is necessary given the several risks that farmers face such as future price and monsoon conditions

    To conclude…
    Despite a steady decline of its share in the GDP, agriculture is still the largest economic sector and plays a significant role in the overall socio-economic development of India. Except for an increase in the rate of growth of credit supply to farmers, there has been a deceleration in the growth of all the other factors aiding agricultural growth. The growth estimate has also been lowered for the year. With more than half a billion people depending on agriculture, this sector cannot be ignored.

    Once a self sufficient in staple foods, India increased food imports 54% YoY as of September 2007. Though initiatives are being taken by the government to improve the growth of the agricultural sector and well being of farmers, it calls for better implementation of the policies. Better usage of funds, greater investment in irrigation and development of high-yielding variety of crops are needed for higher growth and long-term stability in the agricultural sector.

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More
     

    © Equitymaster Agora Research Private Limited
    www.personalfn.com | www.equitymaster.com
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us