|Wednesday, 22 February 2012 16:07|
Picture quite bright if essential reforms carried out
Given how India’s agricultural growth has consistently missed targets—it grew 2.5% per annum in the 1997-2002 period, 2.4% in the 2002-07 period and 3.2% in 2007-12 as compared to the 4% target—the Prime Minister’s call for a 4% growth in the next 5 year period seems so much pie in the sky. Yet, in many ways, India’s agriculture story has transformed dramatically; only those focused solely on foodgrain output fail to see this. From 32% of total output in the early 1980s, foodgrains are now down to around 25% while fruits and vegetables are up from 14% to 17% and livestock from 20% to 26%. In other words, agriculture growth in the future will be driven by non-foodgrains. Capital formation rates, as a proportion of agricultural GDP, between 12% and 15% for much of the last decade, rose to over 20% by 2009-10, raising the possibility that a 4% growth is achievable. Indeed, states like Gujarat have averaged around 10% per annum for the last decade.
But, and here’s the catch, Gujarat’s growth was largely driven by Bt Cotton, as a result of which the area under Bt Cotton in the country rose from just 0.7% in 2002 to over 80% by 2008. If growth is to be driven by new seeds and hybrids, the process of clearances cannot be as slow as it is right now. In the case of cotton, India became the world’s second-largest exporter; the rise in maize output, and exports, was driven by hybrid seeds; as a result, the share of exports to agricultural GDP rose to 10% by 2007-08. But none of this is sustainable if the policy towards export continues to be on-off.
Equally important, if agricultural growth is to be sustained, is what happens to investment levels. Thanks to a policy where government-spend in agriculture is largely subsidies, the government’s share in capital formation is down from around 50% in 1980 to around 20% today—subsidies are around four times the government spending on investment. This is despite the fact that, according to research done by Ashok Gulati (currently chairman of the Commission for Agricultural Costs and Prices), returns on investment are 2-3 times higher than those on subsidies. Returns from spending on agricultural R&D are double even those on investment in irrigation but, as the PM said on Monday, the current system of R&D and spreading this through extension services isn’t really working. Equally important, the Essential Commodities Act allows states to restrict the movement of agri-products and the Agricultural Produce Market Committee allows commission agents to extract huge margins from farmers—until both acts are repealed, a 4% agricultural growth looks unlikely.