Thursday, March 07, 2002
What ails agriculture?
Shankar Acharya
MUCH is being made of the strong growth of agriculture this fiscal year, 2001/02. According to the recently published Advance Estimates of National Income the agriculture sector (broadly defined) is projected to grow by a very healthy 5.7 per cent this year.
Indeed, without this buoyancy in agriculture overall GDP growth would have been well below 5 per cent. However, the current revival masks some worrying longer-term trends.
For a start, it comes after two successive years of poor performance, including negative growth in 2000/01. In a somewhat longer perspective, in the nine years after the crisis of 1991/92 the growth of agricultural value added averaged 3.2 per cent, slightly slower than the 3.6 per cent achieved in the eighties.
What's more, while the first five post-crisis years, 1992-97, saw agriculture boom at an average growth of 4.7 per cent per year, the next four years, 1997-2001, recorded a dismal average of only 1.2 per cent.
Even if we add the very preliminary estimate for 2001/02, the Ninth Plan average annual growth is only 2.1 per cent, less than half the Eighth Plan average of 4.7 per cent.
No wonder GDP growth in the Ninth Plan has averaged barely 5 per cent per year, once we adjust for the "spurious" growth attributable to government pay increases. Experience from all over the world (and our own Eighth Plan experience) suggests that for a country to sustain economic growth at around 7 per cent or higher, agriculture has to grow at 4 per cent or more.
Similar concerns emerge if we look at the growth of production and yield in principal crops which account for about 70 per cent of value added in the "Agriculture and Allied" sector (the rest is attributable to livestock, dairying, fishing and forestry). The accompanying table presents comparative data for the eighties and nineties.
It is quite striking that the average growth rate of crop production has almost halved from 3.2 per cent a year in the eighties to 1.7 per cent in the nineties.
And the decline is entirely due to the sharp fall in yield growth from 2.6 per cent per year in the eighties to 1.0 per cent in the nineties. Furthermore, the deceleration in production and yield affect both foodgrains and non-food crops (each accounting for about half of crop production).
Foodgrain growth has dropped below the rate of population growth, while the non-food growth rate has halved from 3.8 per cent in the eighties to 1.9 per cent in the nineties. Growth of foodgrain yields has halved and that of non-food crops has plummeted to only a quarter of the eighties rate.
Assuming (reasonably!) good correlation between the value added data and the crop production data, it would be reasonable to infer that most of the observed deceleration in the growth of production and yield has occurred in the period 1997-2001; indeed the Eighth Plan period may have seen some acceleration.
So what's amiss? Since agriculture accounts for 60 per cent of India's labour force and a quarter of GDP, one might have expected intense scholarly research to yield an authoritative answer to this question. Alas! That's not the case.
In the absence of definitive answers to the puzzle of the agricultural slowdown, let me venture to put forward some likely reasons.
First, real public investment in agriculture (mostly in major and medium irrigation projects) has actually fallen by a fifth between 1994/95 and 2000/01. Over the same period there has been a 25 per cent increase in real private investment (in mainly farm equipment and minor irrigation), taking the share of private investment in total to over three-quarters.
The rise in total real investment has been modest, reflected in the fall in the ratio of agricultural investment to agricultural value added to a meagre 5 per cent or so.
Second, the maintenance and operation of irrigation systems in most states has deteriorated, partly because of very weak cost recovery as well as widespread entropy in the effectiveness of irrigation departments.
The post Pay Commission pay increases have starved departments of funds for non-salary inputs for operation and maintenance (O&M). As a result, the management and distribution of the critical resource of water has probably worsened.
Third, in most states the rural roads and state highways programmes have not gone anywhere fast for much same reasons that bedevil irrigation departments.
Yet the creation and sustenance of road linkages is crucial for the development of well-functioning agricultural markets.
Fourth, the systems of agricultural research, development and extension services (which played such a crucial role in the Green Revolution of the seventies and eighties) are generally perceived to have become bureaucratic, unaccountable (to farming needs) and unmotivated. The Pay Commission effect of starving non-salary inputs has also taken its toll.
Fifth, although the terms of trade have remained favourable to agriculture as a whole, the natural and necessary diversification away from wheat and rice has been retarded by the pattern of inappropriately high procurement price increases for these crops (they have also created the costly food mountains in public godowns).
Sixth, there is growing evidence that high levels of urea subsidy for many years has distorted the use patterns of nitrogen-phosphates-potassium in a way which has been cumulatively detrimental to soil fertility.
Seventh, especially in the more populous states, agricultural productivity has been hurt by continuing fragmentation of land holdings arising partly form India's peculiarly slow shift of labour force from agriculture to non-agriculture.
This peculiarity, in turn, is largely attributable to rigid labour laws (in the organised sector) and small scale industry reservations, which have seriously damaged the expansion of employment in manufacturing (we have only to compare with the much better experience of East Asian countries).
If these are the right reasons, the solutions to the problems are implicit and clear. But they are not easy!
The author is a professor at ICRIER on leave from his previous assignment as Chief Economic Adviser, Ministry of Finance. The views expressed are strictly personal.
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