Budget Proposals Insufficient to Improve Farm Incomes-An Analysis: K. Ramasubba Reddy
ABSTRACT: The Economic Survey conveyed concern that even though agriculture plays a vital role in feeding the vast populace and proving raw materials for industry besides sustaining employment to a large number of households, its share in GDP has declined from 24% in FY01 to 17% in FY09. Also, its share in capital formation has been declining over the years. The recent monsoon forecast is not too favorable and the crop output is predicted to be down by 4.7% during 2009-10. It is unfortunate that the issues highlighted herein are not addressed in the budget in right earnest. Agri Minister merely expressing concern in the Parliament about stagnant yields will not help increase crop yields. Concrete, concerted and co-ordinated action on the issues detailed in this paper will, to a large extent, help in increasing agri yields, crop production and farm incomes.
HIGH LIGHTS
i. Stagnant Crop Production,
ii. Non-use of available Irrigation potential,
iii. Power: Slow capacity addition falling far short of demand
iv. Faltering Farm Credit- Rs 2 lakh crore rural/semi-urban deposits diverted to Metros- Shortfall of Rs 60.000 crore Credit to Agriculture
v. Continuous decline in plan outlays and Low Investment in Agri Sector,
vi. Decline in GDP Growth Rate and Share in GDP
vii. Why Agri sector per capita income is low?
viii. CONCLUSION: Constitute Empowered Farm Commission with statutory powers- for improving crop yields and for ensuring a minimum take home income to farmers
1. Stagnant Crop Production
Agricultural growth is characterized by sharp fluctuations and remains vulnerable to the vagaries of nature. For three consecutive years (2005-06 to 2007-08), food grains production recorded an average annual increase of over 10 million tonnes. The total food grains production in 2007-08 was estimated at 230.78 million tonnes as against 217.3 million tonnes in 2006-07 and 208.60 million tonnes in 2005-06. As per the third advance estimates, production of food grains in 2008-09 is estimated to be 229.85 million tones. This is lower than the target of 233 million tonnes set out or the year as also the final estimates of 230 million tonnes for 2007-08
Oilseeds: Total production of the nine oilseeds is estimated at 281 lakh tonnes, which is about 5.5 per cent lower than the production in 2007-08 and about 11.4 per cent lower than the targeted production for 2008-09. As compared to the previous year, there is a decline of 12.3 per cent in kharif oilseed production while in the rabi oilseed production, there is an increase of about 10 per cent. . Oilseed production is projected to fall to 275 by lakh tones by 2012, compared with the requirement of 534 lakh tonnes.
Sugarcane: The production of sugarcane during 2008-09 is estimated at 2,900 lakh tonnes, which is lower than the production of 3,500 lakh tonnes during 2007-08. This represents a decline of 17 per cent over previous year and of 15 per cent vis-à-vis the target for 2008-09.
Cotton: The production of cotton, estimated at 230 lakh bales, is short of the final estimates of 260 lakh bales in 2007-08 by 10 per cent and as compared to the target by 10.5 per cent.
2. Non-use of available Irrigation potential created
The total irrigation potential in the country has increased from 81million hectares in 1991- 92 to 102 million hectares up to the end of the Tenth Five Year Plan (2006-07). Of the total potential created, however only 87million hectares is actually utilized. Under AIBP, State Governments were provided Rs. 28,000 crore as Central Loan Assistance (CLA)/grant for major and medium projects up to December 31, 2008. So far 91 major and medium irrigation schemes have been completed. In 2008-09, Rs. 2,800 crore has been released for AIBP for major and medium irrigation schemes up to December 2008.
UNDER UTILISATION: A good 15 per cent of the irrigation potential in the country remains unutilised primarily because of lack of proper operation and maintenance and incomplete distribution system. The five major factors identified for the gap between the created irrigation potential and its actual utilisation were — lack of proper operation and maintenance, incomplete distribution system, non-completion of command area development, changes from the initially designed cropping pattern and diversion of irrigable land for other purposes. Non-completion of distributaries and minors was another cause for non-utilisation of available water resources for irrigation purposes as was the non-completion of field channels and on-farm development.
3. Power: Slow capacity addition falling far short of demand
Projects of over 45,000 Mw currently under construction are running behind schedule. The latest data obtained from the Central Electricity Authority (CEA) says that projects behind schedule include around 35,000 Mw of thermal power projects and rest 10,000 Mw of hydropower projects, a major chunk of which is scheduled to be commissioned during the current Plan period ending March 2012. The quantum of the power capacity lagging behind schedule is around 65 per cent of the total 66,000 of generation capacity under execution in the country.
The Integrated Energy Policy (IEP) has recommended that the country’s power generation capacity need to be raised six-fold, from the current level of around 1,50,000 Mw to 9,60,000 Mw by 2030 in order to sustain a 9 per cent gross domestic product (GDP) growth. The government has failed to meet the targets for the 9th and 10th plans. It even failed to meet the target for the first two years of the current Plan period, adding only 9,263 Mw in 2007-08 compared with the target of 17,000 Mw and 4,900 Mw in 2008-09 against a target of 11,061 Mw of capacity addition.
In order to meet this shortfall, the government has set up a target of adding around 5,600 Mw of fresh power generation capacity by the end of August this year, out of which over 2,000 Mw has already been commissioned so far. CEA has already projected a peak power deficit of well over 12 per cent for the current financial year as compared to less than 11 per cent peak deficit last year
4. Faltering Farm Credit
| i. Diversion Rs 2 lakh crore Rural/semi-urban Deposits to Metros Declining Trends in Number of Branches, Credit and of SCBs in Rural | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| As of Mar 09, number of Rural Branches was 31,489,semi-urban 18,764, urban 15,325,Metro 13.478 and total number of branches 79,056. Percentage of rural branches to total branches declined from 58% in1991 to 40% by Mar 09. Had at least 50% of the branches are opened in rural areas, the number of rural branches would have been 39,500; about 8,000 more branches would have been catering to the banking needs of the rural people. |
| C-D ratio of All Scheduled Commercial Banks in metropolitan centres was the highest (87per cent), followed distantly by rural centres (57 per cent) and urban centres (56 per cent). The semi-urban centres recorded the lowest CD ratio at 50 per cent. As of Mar 09, the credit-deposit (C-D) ratio of All Scheduled Commercial Banks stood at 73 per cent. During the FY 2009, the growth of deposits and advances in metro areas was the same rate at about 20%. In rural areas growth rate of deposits growth was 21%. Advances grew by only 14%. In semi-urban areas while deposits grew by 24%, and advances growth rate was only 16% and in urban areas while deposits grew by 25%, advances grew by only 20%. Percentage of credit given out of deposits collected from rural and semi-Urban areas continues to be less than the percentage of credit deployed in metro areas, indicating continued diversion of deposits from rural and semi-urban areas for giving credit in Metro areas. Rural credit deposit ratio is very low in Northern Region (26%) followed by Eastern Region (39%) and highest in Southern Region (91%). Jharkhand state rural credit deposit ratio is lowest (26%) followed by Bihar and As of Mar 09,deposits from rural and semi urban areas were Rs 8,97,000 crore (rural Rs 3.65 lakh crore+ semi-urban Rs 5.32 lakh crore) where as credit extended was only Rs 4,75,000 crore (rural Rs 2.09 lakh crore + semi-urban Rs 2.66 lakh crore-53% of deposits). If 75% C/D ratio was maintained in rural and semi-urban branches, the rural and semi-urban branches advances would have been Rs 6.72 lakh crore instead of prevailing Rs4.75 lakh crore. Thus a huge chunk of rural/semi-urban deposits to the extent of about Rs 2 lakh crore was diverted rural and semi-urban areas to give loans in metro areas. This trend has been continuing for decades. This is inequitable and at least 75% of rural deposits should be deployed as farm credit and loans to small enterprises. The farmers could have been saved from the clutches of the moneylenders charging high interest rate of 24% to 36% per annum. The additional Rs 2 lakh crore loans that could have been given for farming and running rural enterprises would have generated twice the income and more employment opportunities than when the same loan amount given to traders, realtors and NBFCs in Metros. |
ii. Mandated 18% credit not met- Shortfall Rs 60.000 Crore
Trends in Agri credit flow FY 2008-09 (Rs.in Crore)
|
| NFBC | Agriculture | Industry |
| Mar 2008 | 22,03,038 | 2,73,658 | 8,71,900 |
| Mid-Aug 2008 | 23,14,897 | 2,62,481 |
|
| Mid-Dec 2008 | 24,70.164 | 2,89,501 | 10,18,564 |
| Mid-Feb 2009 | 24,92,165
| 2,97,753
| 10,39,831
|
| Mar 2009 | 26,02,290 | 3,38.656 | 10,54,390 |
Figures in brackets indicate % growth over Mar 08 figure.
As per above data, the banks are shown to have given agri loans amounting to a huge sum of Rs 41000 crore out of total increase in credit of Rs 63,000 crore, constituting about 2/3rd of total annual disbursals, at the fag end of the year in just one and half months (Mid Feb-March 09). As khariff and rabi seasons were over by then, it is intriguing as to what purposes such huge agri loans were disbursed in just one and half months. Definitely it is not for production purpose as both kharif and rabi lending seasons are over by then. The growth figures of increase in agri lendings to an extent of Rs 41,000 is unlikely, unless indirect advances for huge amounts are given in March and shown as agri advances which does not help in production increase anyway.
AT THE STIPULATED 18% FIGURE OF NET BANK CREDIT, THE AGRI CREDIT SHOULD HAVE BEEN Rs 4 LAKH CRORE BY MARCH 09. AS OF MARCH09, THERE WAS A SHORTFALL OF Rs 60,000 CRORE IN AGRI LENDINGS AND THIS AMOUNT COULD HAVE BEEN LENT TO THOSE FARMERS WHO BORROWED AT VERY HIGH INTEREST FROM MONEY LENDERS THUS RELEVING THOSE FARMERS FROM DEBT TRAP.
iii. Declining Flow of Institutional Credit to Agriculture (Rs in Crore)
Doubling of growth in incremental credit since 2004 was perhaps achieved quantitatively but without any increase in credit to small farmers. The extent of revival of credit flow to agriculture in the 2000s would have been far less in the absence of a sharp growth in indirect finance to agriculture. About one-third of the increase in credit flow to agriculture between 2000 and 2008 was on account of the increase in indirect finance. Even this growth did not originate from a growth in the traditional components of indirect finance, such as loans for the supply of inputs, power and credit to agriculture. The sharp growth in indirect finance in the 2000s was mostly a result of changes in definitions effected since late 1990s. These changes broadly involved (a) the addition of new forms of financing commercial, export-oriented and capital-intensive agriculture; and (b) raising the credit limit of many existing forms of indirect financing. Indeed, meeting the task of doubling agricultural credit appears to have become much easier for banks as a result of these definitional changes.
The entire growth of indirect finance to agriculture in the 2000s originated from a major expansion of loans with a credit limit of more than Rs 1 crore, and particularly, more than Rs 10 crore. In the year 2000, indirect finance with credit limit above Rs 25 crore accounted for less than one-third of the total indirect advances to agriculture. However, in 2007, indirect finance with credit limit above Rs 25 crore accounted for nearly 60% per cent of the total indirect advances to agriculture.
There was a major rise in the share of direct advances with credit limits of more than Rs 1 crore between 2000 and 2008. The amount of direct advances with a credit limit of more than Rs 1 crore formed 5 per cent of total direct advances in 2000; the corresponding share in 2008 was 12 per cent. The share of direct advances with credit limits “between Rs 10 crore and Rs 25 crore” as well as “above Rs 25 crore” more than doubled between 2000 and 2008. Further, the most important beneficiaries of the increase in direct advances since the late 1990s were the big borrowers. The share of number of loans outstanding to big borrowers under direct finance increased between the mid-1990s and thereafter, and the loan per account increased phenomenally since the late 1990s.All this happened at the cost of reducing credit to small farmers.
Increase in Com Banks share in Agri Credit (78%)-Decrease in co-op credit share12%
As per Budget Papers, CO-operatives disbursed lesser Agri credit of Rs 11,500 crore than previous years’ disbursals, the disbursals being 25% less than previous year’s disbursals. Increase in RRBs’ disbursals was only marginally more Rs 1,400 crore, just 5%more. Increase in Commercial Banks disbursals by Rs 42,500 crore, an increase of 25% over previous year’s credit disbursals, accounted for the entire increase in credit disbursals in 2008-09.
Commercial banks disbursed in 2008-09, Rs 2,23,663 crore, which is 78 per cent of the total farm credit last year. Among the commercial banks, public sector banks disbursed Rs 1,64,350 crore (57per cent) whereas private banks lent Rs 59,313 crore (21 per cent) to the agriculture sector. Cooperative banks provided credit worth Rs 36,762 crore (12.8 per cent) and RRBs Rs 26,724 crore (9.3 per cent). CO-operatives disbursed Rs 11,500 crore less than previous years’ disbursals, increase in RRBs disbursals were only marginally more Rs 1,400 crore and increase in Commercial Banks disbursals by Rs 42,500 crore accounted for the entire increase in credit disbursals in 2008-09.
|
| 2002-03 | 03-04 | 04-05 | 05-06 | 06-07 | 07-08 | 08-09 |
| Co-operatives | 23,716 | 26,959 | 31,424 | 39,786 | 42,840 | 48,258 | 3 6,762 |
| RRBs | 6,070 | 7,581 | 12,404 | 15,223 | 20,435 | 25,312 | 26,724 |
| Commer Banks | 39,774 | 52,441 | 81,481 | 125,477 | 1,66,485 | 1,81,087 | 2,23,663 |
| Total | 69,560 | 86,981 | 125,309 | 1,80,486 | 2,29,400 | 2,54,657 | 2,87,149 |
| Increase over prev year |
| 17,421 (25%) | 38,328 (44%) | 55,177 (44%) | 48,914 (27%) | 25,257 (11%) | 32,492 (13%) |
Source: Economic Survey and Budget Speech Jul 09
Note; Increase in bank credit: 2003-04:18.4%,
04-05:27.5%, 05-06:32%, 06-07:28%, 07-08:22%, 07-08:22%,
08-09:17%
Banks credit to Agriculture
| | 2006-07 | 2007-08 | 2008-09 | 2009-10 Target |
| Co-operatives | 42,840 | 48,258 | 36,762 | 60,000 |
| RRBs | 20,435 | 25,312 | 26,724 | 37.000 |
| Commercial Banks | 166,485 | 181,087 | 223,663 | 2,28,000 |
| Total | 229,400 | 254,657 | 287,147 | |
| Increase over previous year | 48,914 | 25,257 | | 3,25,000 |
| Increase % | 27% | 11% | 13% | 13% |
| Increase in non-food bank credit % | 28% | 22.3% | 17.3% | 20% (est) |
Source: Economic Survey and Budget Speech Jul 09
Credit flow to agri up to Sep 08 was only Rs 95,000 crore, which means that a huge sum of Rs 1,92,000 crore (2/3rd of the total disbursals) was disbursed in the second half of the year by which time Khariff lending season was over. Rabi acreage being less than khariff acreage, one is left to wonder as to what purposes such huge sums were given when it was not possible to account the credit flow for rabi crops. The growth figures of increase in agri lendings to an extent of Rs 1,92,000 is unlikely, unless indirect advances for huge amounts were given in the second half of the year which does not help in production increase anyway.
The government has set a target of Rs 3,25,000 crore farm credit for fiscal 2009-10, just 13% growth over the previous year figure of Rs 2,87,000 crore comprising of direct farm credit of Rs 2,60,000 crore and an indirect farm credit of Rs 65,000 crore. The direct farm credit target will comprise crop loans of Rs 2,00,000 crore with the rest being short-term loans. Bulk of the farm credit—Rs 2,28,000 crore—will come from scheduled commercial banks. Regional rural banks will provide Rs 37,000 crore and co-operative banks Rs 60,000 crore. 10 Jun 2009, ET Bureau
The increase in agri credit flow during2007-08 was 11% (Rs 25,257 crore) and in 2008-09 was 13% (Rs 32,000 crore). Increase in bank credit during the corresponding periods was 22% and 17% respectively. The targeted increase in credit flow during 2009-10 is again 13% ( Rs 38,000 crore). Increase in credit flow to agri culture during 2007-08 and 2008-09 was thus less than increase in total bank credit during the corresponding periods as narrated above. Total bank credit is estimated to increase by 20% in 2009-10,where as targeted increase in agri credit is only 13%. Thus for all the three years agri credit grew/targeted at less than total bank credit growth/estimate. Keeping the need for food security in view, it is but proper and essential that the growth in agri credit should at least be equal to the growth in total bank credit. Accordingly agri credit for fiscal 2010 should be fixed at Rs 3,45,000 crore aiming at 20% increase in the current year instead of Rs 3,25,000 crore at 13%.
Incremental growth rate of credit by banks was about 225% during FY 2004-09. The growth rate of incremental agri advances growth rate during 2004-09 was also about the same. So no higher rate of credit was given to agriculture. Thus the claim of the Government that extraordinary credit was extended to agriculture is not supported by facts.
iv. SMALL FARMERS NOT GETTING ADEQUATE CREDIT
Percentage share of small loans of Rs 25000 declined from 50% in 1990 to mere 10% in 2008. And loans of over Rs one crore skyrocketed by more than 400% during the same period. According to RBI data, institutional credit flow to farmers registered a compound annual growth rate of 47% between 2003 and 2007, but the number of farmer accounts grew by 22% and average loan per account increased by 20%. According to the latest data, only 27% of cultivator households get formal credit. The rest, comprising mainly small & marginal farmers, have no access to credit, though their landholdings constituted nearly 80% of total holdings and 36% of area. NABARD Report]. The loaning should be extended to cover all these farmers in the next five years. By 2012,credit needs of agri sector are estimated at Rs 6 lakh crore by the study group of Planning Commission. Financial institutions should be strengthened to meet this requirement of Rs 6 lakh crore agri credit needed by farm sector by 2012. Inadequacy of farm credit continues to be one of the major bottlenecks hindering the growth in investment and growth in agriculture. The growth of direct finance to agriculture declined in 1990s (12%) as compared to 1980s (14%) and 1970s (around16%). The average share of long-term credit also declined from over 38% to around 36%, adversely affecting capital formation in agriculture.
v. Shortfall Special Agri Credit Plan (SACP)- Credit Flow to Agl From PSBs under SACP (Rs in Crore)
|
| Target | Disbursals | Achievement % | Y-o-y growth % |
| 2005-06 | 85,024 | 94,278 | 111% | 45% |
| 2006-07 | 1,18,160 | 1,22,443 | 104% | 30% |
| 2007-08 | 1,52,133 | 1,33,226 | 88% | 9% |
|
|
|
|
|
|
The Y-O-Y growth was drastically reduced to 9% from 30% during the fiscal 2007.
vi. Lesser share in Sectoral Credit Deployment- (Rs in Crore)
| Sector | March 2009 | Variation 07-08 | Variation 08-09 |
| NFGBC | 2602,290 | 401,650 | 3.99.400 |
| Agriculture | 338,656 | 44,966{11.20} | 63,313{15.85} |
| Industry | 1054,390 | 169,536{42.21} | 187,515{46.95} |
{Percentages in brackets indicate % share in incremental credit}
Credit to agri sector vis-à-vis agri GDP was only 39% compared to credit to industry share of 75
5. Low Investment in Agri Sector
i. Gross Capital Formation in Agriculture (Rs in Crore at 1999-2000 prices)
| Year | GDP | Agl CCF | AGL GDP | AGL CCF as % of GDP |
| 2004-05 | 2388,768 | 57.849 | 482,446 | 2.4 |
| 2005-06 | 2626,101 | 66,065 | 511,013 | 2.6 |
| 2006-07 | 2871,120 | 73,285 | 531,315 | 2.5 |
| 2007-08 | 3129,717 | 79,328 | 557,122 | 2.5 |
The Gross Capital Formation (GCF) in agriculture as a proportion to the total GDP has shown a decline from 2.9 per cent in 2001-02 to 2.5% percent in 2007-08. As Gross Fixed Capital Formation is estimated at 35% of total GDP, 18% there of being agri sector’s share in GDP, should be invested in improving agri infra, This works out to more than 6% of the total GDP which means investment in agri infra should be doubled
ii. Agri sector Investment growth rate (at constant 1999-00 prices)
Share of Agl In total CGF (%) AT 1999-2000 PRICES
| Year | Public Sector | Private Sector | Total |
| 1999-00 | 6.0 | 11.9 | 10.2 |
| 2000-01 | 5.8 | 11.3 | 9.7 |
| 2001-02 | 6.7 | 13.7 | 11.7 |
| 2002-03 | 6.5 | 11.5 | 10.3 |
| 2003-04 | 7.4 | 9.2 | 8.8 |
| 2004-05 | 7.8 | 7.7 | 7.7 |
| 2005-06 | 7.9 | 7.1 | 7.2 |
| 2006-07 | 8.2 | 6.6 | 7.0 |
The share of agriculture & allied sector in total GCF after showing a marginal increase during 1999-2000 to 2001-02 has been continuously declining. It stood at 10.2 per cent in 1999-2000, increased to 11.7 per cent in 2001-02 and thereafter declined to 7 per cent in 2006-07. The decline was mainly attributed to decline in the private sector despite increase in the share of public sector. This should be at least 18% of the total GDP, being the share of agri sector in the GDP which again means that investment in agri infra like irrigation, power, rural roads, godowns etc, should be doubled.
iii. Gross Capital Formation by Industry at Constant Prices (Percentage)
| Sector | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07 | 07-08 | 08-09 |
| | | | | | | | | | |
| Agl | 9.7 | 11.7 | 10.3 | 8.8 | 7.7 | 7.4 | 7.2 | 6.7 | |
| | 37.0 | 32.4 | 38.3 | 42.2 | 49.2 | 50.4 | 51.5 | 50.1 | |
| Servs | 53.3 | 55.9 | 51.5 | 49.1 | 43.1 | 42.3 | 41.4 | 43.2 | |
| GDP | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | |
Source : Central Statistical Organisation.
In terms of economic activity, capital formation was highest at 50% in industrial sector. The share of agri sector continuously declined from 9.7% in FY 01 to 6.7% in FY 08.The share in capital formation of agri sector continued to be the lowest among all sectors.
iv. Gross Capital Formation by Industry at Constant Prices- Growth rate- (Percentage)
| Sector | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07 | 07-08 | 08-09 |
| Agl | 2.2 | 2.7 | 2.5 | 2.2 | 2.2 | 2.3 | 2.3 | 2.3 | |
| | 8.6 | 7.4 | 9.4 | 10.7 | 14.1 | 15.9 | 16.9 | 17.4 | |
| Servs | 12.4 | 12.8 | 12.6 | 12.5 | 12.4 | 13.3 | 13.6 | 15.0 | |
| GDP | 23.2 | 22.9 | 24.4 | 25.5 | 28.7 | 31.6 | 32.8 | 34.7 | |
Source : Central Statistical Organisation.
The growth rate of capital formation in agl sector was stagnant around 2% during this decade while the growth rate of industrial sector doubled from 8.6% to 17.4%. This clearly proves continues neglect of investments in agriculture. v. Shortfall in Disbursal under Rural Infra Dev Fund (RIDF-upto2009- Rs in Crore)
| Total Allocations | 88,386 |
| Disbursements | 53,775 |
| Shortfall | 35,511 |
| % Of shortfall | 40% |
| Allocation for 2008-09 | 14,700 |
| Disbursals Up to Feb 09 | 8,200 |
| % Of shortfall | 44% |
Year after year, the shortfall in disbursals continues to be around 40%, since inception of the Scheme. Disbursal level should be improved substantially.
6. Decline in GDP Growth Rate and Share in GDP
Agri GDP, which was nearly half of the total GDP in 1951 has been registering continuous fall as the graph below shows, and by FY 2008 fell by 2/3rd of its share in 1951.
But farm employment did not go down proportionately by 2/3rd during the same period. It went down only by 1/4th during the same period. Consequently per capita income of agri workforce sharply declined vis-à-vis services work force.
Employment —Sectoral Shares
| Sectors | 1993-94 | 1999-00 | 2004-05 |
| | % | % | % |
| Agri, Forestry, Fishing | 64.8 | 59.8 | 58.4 |
| Mining&quarrying | 0.7 | 0.6 | 0.6 |
| Manufacurung | 11.3 | 12.1 | 11.7 |
| Elect, Gas, Water supply | 0.4 | 0.3 | 0.3 |
| Construction | 3.1 | 4.4 | 5.6 |
| Trade, hotels, | 7.4 | 9.4 | 10.3 |
| Transport, storage, communiction | 2.8 | 3.7 | 3.8 |
| Financing, Ins, Real Est, Busn. Services | 0.9 | 1.3 | 1.5 |
| Community, Social&Personal services | 8.6 | 8.4 | 7.8 |
| Total | 100 | 100 | 100 |
1a. During the current decade also the share in GDP of Agri sector is continuously declining year after year from 24% in 2000-01 to 17% in 2008-09, where as the share of service sector has increased from 56% to 65% during the same period.
Decline in Sectoral Composition of Gross Domestic Product at Factor Cost (Percent)
| Sector | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07 p | 07-08 Q | 08-09R |
| Agri | 23.9 | 20.4 | 21.4 | 21.7 | 20.2 | 19.5 | 18.5 | 17.8 | 17.0 |
| | 20.0 | 19.3 | 19.9 | 19.4 | 19.6 | 19.4 | 19.5 | 19.2 | 18.5 |
| Services | 56.1 | 56.7 | 58.9 | 58.9 | 60.2 | 61.1 | 62.0 | 63.0 | 64.5 |
| CSMS | 15 | 14.7 | 14.3 | 14.3 | 14.2 | 13.9 | 13.4 | 13.1 | 13.9 |
| GDP@FC | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
Source: Central Statistical Organisation
1b. Agricultural growth has been subject to large variation over the decades. The 1970s interregnum is particularly marked by the severe deceleration in agricultural growth, followed by a recovery in the 1980s, and a slowdown thereafter.
GDP Trends since 1950s (Percent)
| | 1950s | 1960s | 1970s | 1980s | 1990-91 | FY 1992-97 | FY 1998-2003 | FY 2004-07 | 2007-08Q |
| Real GDP growth | 3.6 | 4.0 | 2.9 | 5.6 | 5.3 | 5.7 | 5.2 | 8.7 | 9.0 |
| AGL | 2.7 | 2.5 | 1.3 | 4.4 | 4.0 | 3.7 | 0.9 | 4.9 | 4.9 |
| Industry | 5.8 | 6.2 | 4.4 | 6.4 | 5.7 | 7.0 | 4.1 | 8.3 | 7.4 |
Mfg | 5.8 | 5.9 | 4.3 | 5.8 | 4.8 | 7.5 | 3.9 | 9.1 | |
| Services | 4.2 | 5.2 | 4.0 | 6.3 | 5.9 | 6.4 | 7.8 | 10.2 | 10.8 |
1c. Agri GDP growth rate was subject to wide fluctuations, from
-7.2 in 2002-03 to +4.9% in 2007-08 and registered only 1.6% for 2008-09. Industry GDP ruled high for 4 years up to 2007-08, but started decelerating thereafter and recorded lowest rate of 3.9% during 2008-09.
Sectoral Growth Rates of Gross Domestic Product at Factor Cost
(At 1999-00 Prices) (Percent)
| Sector | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07 | 07-08 Q | 08-09 R |
| Agri | -0.2 | 6.3 | -7.2 | 10.0 | 0.0 | 5.8 | 4.0 | 4.9 | 1.6 |
| | 6.4 | 2.4 | 6.8 | 6.0 | 8.5 | 8.1 | 10.7 | 7.4 | 2.6 |
| Services | 5.7 | 6.9 | 7.5 | 8.8 | 9.9 | 11.2 | 11.3 | 10.8 | 9.4 |
| CSMS* | 4.7 | 4.1 | 3.9 | 5.4 | 6.8 | 7.1 | 5.7 | 6.8 | 13.1 |
| GDP@FC | 4.4 | 5.8 | 3.8 | 8.5 | 7.5 | 9.5 | 9.7 | 9.0 | 6.7 |
Source: Central Statistical Organisation. *CSMS-Community, social and personal services
Agriculture and allied activities registered a growth rate of 1.6 per cent in2008-09 as compared with 4.9 per cent in 2007-08.The share of ‘agriculture and allied activities’ has been showing continuous decline while the services sector is witnessing a rise during the period 2000-01 to 2008-09
1d. Agri sector share in the growth of GDP is minimal around 1% during the current decade, the share of services sector doubled from 3% to 6%. The increase in growth rate of GDP is garnered by services, leaving agri and industry sectors high and dry and stagnating.
Sectoral share in the Growth of Gross Domestic Product at factor cost (Percent)
| Sector | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07P | 07-08Q | 08-09R |
| Agri | -0.1 | 1.5 | -1.7 | 2.1 | 0.0 | 1.2 | 0.8 | 0.9 | 0.3 |
| | 1.3 | 0.5 | 1.3 | 1.2 | 1.7 | 1.6 | 2.1 | 1.4 | 0.9 |
| Services | 3.2 | 3.8 | 4.3 | 5.2 | 5.8 | 6.7 | 6.9 | 6.7 | 5.9 |
| CSMS | 0.7 | 0.6 | 0.6 | 0.8 | 1.0 | 1.0 | 0.8 | 0.9 | 1.7 |
| GDP@FC | 4.4 | 5.8 | 3.8 | 8.5 | 7.5 | 9.5 | 9.7 | 9.0 | 6.7 |
Source: Central Statistical Organisation
In 2008-09, the sectoral contributions to growth worked out to be 4.5 per cent for ‘agriculture and allied activities’, 7.5 per cent for industry and 88 per cent for the services sector as against the contributions of 10.0 per cent, 15.6 per cent and 74.4 per cent, respectively in 2007-08
Sectoral Contribution to the Growth of Real Gross Domestic Product (Percent)
| | 2000-01 | 01-02 | 02-03 | 03-04 | 04-05 | 05-06 | 06-07 | 07-08 | 08-09 |
| AGL | -2.3 | 29.5 | -44.7 | 24.7 | 0.0 | 12.6 | 8.2 | 10.0 | 4.5 |
| INDUSTRY | 29.5 | 8.6 | 34.2 | 14.1 | 22.7 | 16.8 | 21.6 | 15.6 | 7.5 |
| SERVICES | 72.7 | 65.5 | 110.5 | 61.2 | 77.3 | 70.6 | 70.2 | 74.4 | 88.0 |
Source: RBI National Income Review-MB Jul 09
1e. Incremental GDP growth rates reveal that both Agri and Industry sectors are losing out to service sector year after year. Services sector, employing only 25% of work force, is gaining at the cost of real economy continuously and garnered 88% of the incremental GDP share in FY 09. In particular, Community, Social and Personal Services segment is gaining disproportionately and this segment alone garnered a quarter of incremental GDP growth in FY09, where as both Agri and Industry sectors, employing 75% of the work force, shared between them only 12% of the incremental GDP growth. Pareto principle of 20/80 is working here. This is not a healthy sign and indicative of fundamentally faulty pricing system of outputs of real economy.
Sectoral share in incremental GDP growth (In Percentage)
| Sector | 2008-09 | 07-08 | 06-07 |
| 1.Agriculture | 4.5 | 10.0 | 8.2 |
| 2.Industry | 7.5 | 15.6 | 21.6 |
| 3.Services | 88.0 | 74.4 | 70.2 |
| 3a.Trade etc, | 37.77 | 37.32 | 34.70 |
| 3b.Finance etc, | 17.06 | 18.61 | 19.44 |
| 3c. Community,soc,per Services | 25.60 | 10.10 | 8.16 |
| Total (1+2+3) | 100 | 100 | 100 |
The Standing Committee on Agriculture made very apt observations: that ‘Agricultural development has been ignored since 1990s. Fix remunerative prices for agri produce- “where hunger rules, peace can not prevail”. The prices of agricultural produce received by the farmers are lower than the prices of the same prevailing in a free market and are often less than the cost of cultivation. The focus of our development is more towards raising industrial production and recently on the service sector; this lop-sided growth of our economy is increasing the gap between the rich of the cities & poor farmers of the villages, Farmer centric policies which can only solve our food security and unemployment problem are not on the agenda of the successive governments. Employment in the agriculture sector as share of total is 52%.
As agri sector GDP fell year after year since 1950s from 48% to 17% now, per capita income of agri workforce also dwindled sharply. Studies by the planning commission and others show that while the income ratio between agri workers and non-agri workers during 1951 was 1:1.8, it got widened to 1:2.8 by 1984, it further widened to 1:5.2 by 2004 and it is estimated by the Centre for Development Economics that whereas agricultural sectoral GDP stood at nearly Rs.3 lakh crore in 2002-03, it will rise to no more than Rs.4 lakh crore (+33%) a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9 lakh crore to around Rs. 20 lakh crore (+120%), further widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6 lakh crore to Rs.16 lakh crore. The disparity between agri and non-agri sectoral GDP is going to increase from 1:3 in 2003 to 1:5 by 2012. The Eleventh Plan candidly confesses: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.”
7. Why Agri sector per capita income is low?
Under pricing of Agri produce resulted in depriving farmers of their rightful income:” Concentrate on the income of farmers and productivity will take care of itself” Says Prof. M.S.Swaminathan. He touched at the heart of the solution by saying that the objective of policy-makers and others in the field of agriculture should be to make farming profitable and remunerative rather than focusing on production and productivity alone.
The Eleventh Plan candidly confesses: “GDP per agricultural worker is currently around Rs.2, 000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.”
13.Fair output pricing and more investments essential for augmenting farm income Findings of National Commission on Farmers (NCF)
During the nineties the profitability in agriculture declined by 14% mainly due to stagnancy in yield growth and increase in prices of inputs outpacing the increase in prices of output. The margin deteriorated particularly for cotton, almost all coarse cereals and oilseeds. Even if we look at the latest cost of cultivation for major food grain crops for 2005-06 [CACP data] and compare it with MSP prevailing in 2004-05, it would appear that the C2 costs were not covered even by MSP in many States e.g.; Paddy: A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal, Jowar: A.P, Assam, Haryana, Karnataka, Kerala, M.P, Tamil Nadu & West Bengal. It would be extremely unlikely that in long run farmers would continue to cultivate those crops where the C2 costs are not recovered.
The NCF, therefore recommended that, Commission on Agricultural Costs and Prices (CACP) should be an autonomous statutory organization with its primary mandate being the recommendation of remunerative prices for the principal agricultural commodities of both dry farming and irrigated areas. The MSP should be at least 50% more than the weighted average cost of production. The “net take home income” of farmers should be comparable to those of civil servants.
An analysis was published in EPW OF 11TH April 2009, of the agricultural situation. In all regions where the study was conducted, including a primarily food growing region like WB, it was found that the small farmers face a decline of their incomes to drastically low levels which can not satisfy even consumption levels of required subsistence norms. In the cash crop cultivating regions of Andhra Pradesh, income decline pervades the production by some large farmers as well. The decline is also of such intensity where even non-payment of debts barely allows attainment of the required consumption levels for a good number of households in these classes. In contrast, a few large farmers retain a sizeable surplus from cultivation but they are just about able to manage and cover their required consumption expenditures.
The analysis also shows that Low output prices do not allow the realisation of any net surplus to farmers. This means farm produce is underpriced and the amount is diverted to urban and metro areas by way of food subsidy at the cost of farmers. Simultaneous scaling down of government investment toward inputs and infrastructure required by agriculture, has hindered the process of capital accumulation that is so essential for furthering agrarian transition in the country.
8. CONCLUSION: Constitute Empowered Farm Commission for improving Crop Yields and for ensuring a minimum take home income to farmers
i. Prof.M.S.Swaminathan rightly pointed out that ‘recommendations of the 6th Central Pay Commission, which provide benefit to 4.5 million central government employees and 3.8 million pensioners, were not only accepted but were improved upon by government. Establishing an Empowered Farm Commission with statutory powers, which can go into the totality of the crop productivity and incomes of farmers, and ensure improvement in crop yields and a minimum take home income to farmers. The recommendations of the National Commission of Farmers on the steps needed for increasing the income of small producers, as well as the need for ensuring minimum support price not only for wheat and rice but for a wide range of millets, pulses, oil seeds and tuber crops should be implemented. Further, provision needs to be made for establishing a national grid of warehouses for grains and cold storage structures for perishable commodities. The prevailing mismatch between production and post-harvest technologies should be ended. The National Policy for Farmers presented in Parliament in November 2007 makes a commitment that government will try to ensure income and work security to farm families.
ii. “Farmers livelihood always under threat and continues to be the riskiest profession”: Creation of two crore jobs in the non-farm sector in the rural areas over the next twenty years is necessary to achieve a nutrition secure
iii. The Government should try to address the issue of converting this commitment into well-defined programmes and resource allocation. Much has been done during the last five years to revitalise our agriculture and to reduce agrarian distress. Much, however, remains to be done to do justice to the genuine needs of the majority of our population who constitute the farming community.’ Pride of place would have to be given to agriculture and skill development — the first for raising productivity and the second for transferring workforce out of farms and traditional services into industry. These are the basics;
No comments:
Post a Comment