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Growth Crisis in Agriculture: Severity and Options at National and State Levels
Growth Crisis in Agriculture: Severity and Options at National and State Levels
Growth Crisis in Agriculture: Severity and Options at National and State Levels
regulations, fiscal policy, trade policy, exchange rate, role of market forces, private sector participation in economic activities, and government controls and intervention in market. The agricultural sector was not targeted directly by the reforms for a couple of years, but it was affected indirectly through changes in the exchange rate, export liberalisation and terms of trade resulting from disprotection to industry. The only measure taken during the early years of reform that had a direct impact on agriculture was decontrol of fertilisers and reduction in the fertiliser subsidy.3 The disprotection to industry resulted in improvement in terms of trade for agriculture during the initial years of reforms. Another factor, which contributed positively to agricultural growth during the initial years of reform was a substantial hike in minimum support prices given by the government, mainly to reduce the gap between domestic and international prices [Chand 2005b], that resulted largely from devaluation of the overvalued exchange rate. The impact of these changes and various other factors was a small acceleration in the growth rate of agriculture during the first six years of reforms (Table 1). The growth rate of GDP in agriculture and allied sectors turned out to be 3.64 per cent during 1990-91 to 1996-97 which was 0.5 percentage points higher than the previous decade. In fact, during the early years of reforms, gap in the growth rate between agriculture and non-agriculture slightly narrowed down. Disaggregation of agriculture into sub-sectors shows that fisheries and horticulture, which accounted for 4.6 per cent and 19.0 per cent of the value of output of agriculture and allied sectors, were the main sources for the acceleration in growth rate of agricultural output in the initial years of reforms (Tables 1 and 2). However, the situation for agriculture turned adverse with the beginning of 1997-98 and this covered all the sub-sectors of agriculture. The growth rates in output of fruits and vegetables decelerated from 5.92 per cent to 3.28 per cent, while fisheries witnessed a decline from 7.41 per cent to 4.30 per cent. The deceleration is also seen in the livestock sector. Output of nonhorticulture crops and cereal groups experienced nil growth after 1996-97. Output of the total crop sector showed an annual growth rate of mere 0.79 per cent while the agricultural sector excluding fisheries showed a growth rate of 1.65 per cent per annum. These growth rates are lower than the growth rates in rural population and workforce employed in agriculture. A clear implication of this growth trend is that the per capita or per worker income in agriculture is declining. This seems to be one of the factors for rising rural and agricultural distress in the country.
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In contrast to the slowdown in agriculture, the GDP of the nonagricultural sector shows a robust and rising growth rate. Using the new base (1999-2000) of National Accounts Statistics, for which some of the data is available, annual growth rate in nonagricultural GDP after 2000-01 is 7.6 per cent, whereas the growth rate in agriculture is hardly 2 per cent.
irrigation in place of NFCS public sector is justified on the ground that more than 90 per cent of public investment in agriculture is used for development of medium, major and minor irrigation [Chand 2002]. Elasticity of GDP agriculture with respect to fertiliser and irrigation was estimated to be 0.157 and 0.5274. Progress and changes in various factors affecting agricultural output, in the corresponding period for which the growth rates were discussed above, are presented in (Table 4). The table shows that as compared to 1980s there was a sharp increase in the terms of trade for agriculture during the initial years of reforms. Agriculture prices relative to non-agriculture prices increased annually by 0.95 per cent. There was also some improvement in the growth of irrigation during the early years of reforms. Public sector investments did not grow during these years, and consequently, growth in the stock of public sector capital formation declined from 3.94 per cent to 1.87 per cent. However, private sector investments in these years showed more than three times growth as compared to 1980-81 to 1990-91. This resulted in the same growth rate in total capital stock in agriculture during 1990-91 to 1996-97 as seen during the decade of 1980s. The pace of expansion in gross cropped area and the pace of diversification were also as strong as 1980s. There was a sharp decline
Table 1: Growth Rate in GDP Agriculture and Non-Agriculture Before and After Reforms
Period GDP Total 5.52 6.01 5.72 6.34 GDP Agriculture and Allied 3.12 3.64 1.66 1.97 GDP GDP GDP Agri- Fishery Nonculture Agriculture 3.29 3.69 1.65 5.93 7.41 4.30 6.88 7.04 7.06 7.65
Notes: * At 1993-94 prices; # At 1999-2000 prices. Source: National Accounts Statistics, various issues, Central Statistical Organisation, government of India, New Delhi.
C 0.7689 Rainfall (per cent of longrun average (LRA) 0.2189 Terms of trade (-1) 0.4211 Public sector capital stock (-1) 0.6136 Institutional credit 0.1442 Fertiliser: NPK Crop intensity (per cent) Irrigation (per cent) AR(1) 0.7564 Important statistics: R-squared 0.9871 Adjusted R-squared 0.9846 Log likelihood 66.2511 Durbin-Watson stat 2.0726
0.1528 0.1570
0.0452 0.0827
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in the growth of fertiliser use and electricity used in agriculture, but this was more than compensated by expansion in area, irrigation, diversification5 and movement of terms of trade in favour of agriculture. After 1996-97, almost all factors except credit, turned unfavourable for the growth of agricultural output. Net sown area witnessed a decline at the rate of 0.55 per cent which was not compensated by an increase in cropping intensity. Gross cropped area also declined on the trend. The biggest setback to output of the crop sector came from the decline in terms of trade for agriculture and slowdown in expansion of irrigation. The terms of trade for agriculture after 1996-97 declined annually by 1.63 per cent. Liberalisation of trade has led to increased integration of the domestic market with the international market. Accordingly, a downward trend in international prices of agricultural commodities after 1997-98 has been transmitted to domestic prices resulting in a deterioration in ToT for agriculture. As compared to 2.62 per cent annual growth in irrigated area during 1990-91 to 1996-97, the later period shows an annual expansion in irrigation by just 0.51 per cent. The main causes of slowdown in irrigation are (a) deceleration in public and private sector capital formation after 1996-97, (b) decline in electric power to agriculture most of which is used for tubewells, and (c) stress on water resources. The pace of diversification also slowed down in the recent years. Thus, the main factors which led to a slowdown in agriculture at national level after 1996-97 are: (a) decline in the area under cultivation, which seems to be a result of expanding urbanisation and industrialisation, (b) deterioration in the terms of trade for agriculture, (c) stagnant crop intensity, (d) poor progress of irrigation and fertiliser, (e) decline in supply of electricity to agriculture, and (f) slowdown in diversification. One more factor related to the performance of agricultural sector is risk in agriculture. Risk in agriculture, measured as deviation from trend in GDP at current prices, shows a more than 50 per cent increase between 1985-86 and 1995-96 and 1995-96 and 2004-05 (Table 5).
of NSDP agriculture during 1984-85 to1995-96. These states recorded 5.52 and 6.66 per cent annual growth rate in value added in agriculture during Period I. Another low productivity state which witnessed more than 5 per cent annual growth in output during the first period was Gujarat. All the states except Orissa, which had productivity lower than the national average, witnessed a higher growth in productivity as compared to the national average during 1984-85 to 1995-96. This shows that the growth experience during the decade before 1995-96 favoured agriculturally underdeveloped states more than the other states. Agriculturally developed states, in terms of productivity, namely, Punjab and West Bengal, also witnessed a reasonably high growth in output during 1984-85 to 1995-96. However, the growth rate in Kerala was just close to the national average. Haryana witnessed a relatively high growth (4.60 per cent) in this period. Agricultural output in Tamil Nadu also increased at a high rate between mid-1980s and mid-1990s. This decade turned out to be very adverse for Orissa and Bihar (including Jharkhand) both of which witnessed very high year to year fluctuations in agricultural output with a negative growth rate. High growth rates in NSDP agriculture during 1984-85 to 1995-96 helped West Bengal and Punjab maintain their lead in agricultural productivity towards the mid-1990s. But Rajasthan, despite a high growth rate during the first period, remained at the bottom in agricultural productivity. On the other hand, Kerala maintained the top position despite a relatively moderate growth rate. The growth experience of the decade after 1995-96 is very different than that of the previous decade. It turned adverse for most of the states. The most affected state was Kerala, where the NSDP in agriculture shows an annual decline of 3.54 per cent. This relegated Kerala from top position to fifth position in productivity per unit of land. The other states to witnessed a declining trend in NSDP agriculture during 1995-96 to 2004-05 were Tamil Nadu and Madhya Pradesh (both new Madhya Pradesh and Chhattisgarh).
Table 4: Growth Rate in Area, Input Use, Credit and Capital Formation in Agriculture Before and After Reforms
(Per cent/year) Variable 1980-81 to 1990-91 0.430 -0.080 0.510 2.280 8.255 14.162 5.600 0.189 3.939 0.642 2.085 3.810 1990-91 to 1996-97 to 1996-97 2004-05 0.430 0.040 0.390 2.620 2.401 9.390 5.600 0.947 1.872 2.134 2.010 7.466 -0.480 -0.550 0.070 0.510 2.044 -0.159 4.800 -1.630 1.976 1.721 1.838 15.336
Gross cropped area Net sown area Cropping intensity Gross irrigated area NPK use/ha NSA Electricity consumed in agriculture/ha NSA Area witnessed crop shift (per cent) Terms of trade Public sector net fixed capital stock/ha NSA Private sector net fixed capital stock/ha NSA Total net fixed capital stock/ha NSA Credit supply/ha NSA
Note: Growth rates in the area and crop intensity are up to year 2003-04. Sources: (1) National Accounts Statistics, various issues. (2) Agricultural Statistics at a Glance, Ministry of Agriculture, Government of India, New Delhi. (3) Economic Survey, Ministry of Finance, GoI, New Delhi.
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After witnessing a growth rate of 6.66 per cent during 198485 to 1995-96, Maharashtras NSDP in agriculture remained almost stagnant during the next 10 years. Similar was the experience of Orissa, where agricultural output remained almost stagnant even after witnessing a negative growth during 1984-85 to 1995-96. Except Bihar, Jammu and Kashmir and Himachal Pradesh, all other states showed a deceleration in growth of NSDP agriculture after 1995-96. Agriculturally developed states like West Bengal and Punjab had been able to maintain a growth rate higher than the national average during 1995-96 to 2004-05. However, agriculturally underdeveloped states like Rajasthan, Maharashtra, Karnataka, Gujarat, Orissa and Madhya Pradesh witnessed a less than 0.50 per cent growth rate after 1995-96, which was very low in itself and as compared to national average of 1.85 per cent. The growth experience of the two periods shows that before 1995-96 the growth rate of agriculture in most of low productivity states was much higher than the national average and after 199596 their growth rates not only declined, but also turned out to be much lower than the national average.
Table 6: Level of Aggregate Productivity and Growth in NSDP Agriculture in Various States
NSDP Ag/Ha NSA at Trend Growth Rate in NSDP Current Prices Agri at 1993-94 Prices 1984-85 1994-95 2003-04 1984-85 1995-96 and and and to to 1985-86 1995-96 2004-05 1995-96 2004-05 2264 2319 2863 4168 3748 3496 4973 6654 4478 5863 6617 5338 6561 6672 8736 9499 8467 9564 7912 8586 9406 9667 12712 13499 14175 14481 17763 18622 18743 19124 20204 20413 20896 23283 24228 25270 26604 30554 31296 34863 35417 38370 13984 13013 16745 17939 19375 26115 26404 19842 34349 28915 32654 44727 40653 39811 40426 40671 36677 71775 48154 69113 53743 72295 66864 56341 5.52 3.63 6.66 -1.18 5.09 3.92 3.62 -1.71 3.18 2.82 1.65 4.95 1.64 4.60 2.18 4.63 4.00 3.60 0.30 -0.91 -0.23 -0.05 0.10 0.11 0.48 0.03 1.85 2.82 3.51 5.39 2.69 1.91 1.87 0.95 -1.36 3.51 1.98 3.25 1.36 2.67 2.16 -3.54
State
Rajasthan Chhattisgarh Madhya Pradesh (old) Madhya Pradesh (new) Maharashtra Orissa Gujarat Karnataka All-India Bihar (new) Bihar (old) Jharkhand Andhra Pradesh Uttar Pradesh (new) Uttar Pradesh (old) Assam Tamil Nadu Himachal Pradesh Haryana Jammu and Kashmir Uttranchal West Bengal Punjab Kerala
Sources: (1) State Domestic Product (State Series), Central Statistical Organisation, GoI, New Delhi, various issues (available at www.mospi.nic.in/mospi_cso_rept_pubn.htm) (2) Agricultural Statistics at a Glance, Ministry of Agriculture, GoI, New Delhi.
1985-86 to 1995-96 1995-96 to 2003-04 1985-86 to 1995-96 1995-96 to 2003-04 Bihar 1985-86 to 1995-96 1995-96 to 2003-04 Gujarat 1985-86 to 1995-96 1995-96 to 2003-04 Haryana 1985-86 to 1995-96 1995-96 to 2003-04 Himachal 1985-86 to 1995-96 Pradesh 1995-96 to 2003-04 Jammu and 1985-86 to 1995-96 Kashmir 1995-96 to 2003-04 Karnataka 1985-86 to 1995-96 1995-96 to 2003-04 Kerala 1985-86 to 1995-96 1995-96 to 2003-04 Madhya 1985-86 to 1995-96 Pradesh 1995-96 to 2003-04 Maharashtra 1985-86 to 1995-96 1995-96 to 2003-04 Orissa 1985-86 to 1995-96 1995-96 to 2003-04 Punjab 1985-86 to 1995-96 1995-96 to 2003-04 Rajasthan 1985-86 to 1995-96 1995-96 to 2003-04 Tamil Nadu 1985-86 to 1995-96 1995-96 to 2003-04 Uttar Pradesh 1985-86 to 1995-96 1995-96 to 2003-04 West Bengal 1985-86 to 1995-96 1995-96 to 2003-04 All-India 1985-86 to 1995-96 1995-96 to 2003-04
NAC: Not available or not comparable. Sources: (1) Land Use Statistics at a Glance, Directorate of Economics and Statistics, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India, New Delhi. (2) Agricultural Statistics at a Glance, Ministry of Agriculture, Government of India, New Delhi.
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these states. We tried to explore this further, and from the secondary data, it seems as if farmers in these states are shifting crop pattern away from cash crops to low value crops. The reason for this could be a stress on water resources and high level of market risk associated with high value crops. However, this needs further probing.
purchase of modern inputs. Three, decline or stagnation in public investments in irrigation and other infrastructure during the 8th and 9th Five-Year Plans in real terms. Improved technology is most important for the growth of output. Available evidence shows that there is a big gap between the level of yield with improved farm practices in farmers fields and the yield with practices followed by the farmers. Besides the need for extension to transfer improved technology to farmers, the critical factor in this is the availability of quality seed. Most of the farmers do not distinguish between seed and grain and use common grain as seed. Research institutes have very limited capacity for seed multiplication and they can supply only quality seeds in small quantity. So far production and supply of quality seed were mainly entrusted to public sector agencies, namely, the National Seeds Corporation and the state level seed corporations. Compared to the need for quality seed in the country, these corporations as such are serving a limited purpose. India needs to develop a competitive market for seeds by expanding the role of public sector and by encouraging private sector in seed business in a big way. We feel that transferring some of the subsidies from other inputs to seed would be more paying.
Conclusions
The growth rate analysis shows that the initial years of reforms were somewhat favourable for agricultural growth, but the postWTO period witnessed a sharp decline in the growth rate of almost all sub-sectors and commodity groups in the agricultural sector. Another disquieting aspect of the recent growth process is that the agricultural and non-agricultural sectors are on a disparate growth path. At the state level, the growth rate has turned negative in four out of 20 major states while six states show a growth rate ranging between 0.10 and 0.95 per cent. Further, the growth rate of agriculture in most of the low productivity states was much higher than the national average during 1984-85 to 1995-96. However, after 1995-96, their growth rates not only declined, but also turned out to be much lower than the national average. The main reasons for deceleration and stagnation in agricultural output after 1995-96 are a slowdown in growth of fertiliser use, irrigation, and energy (electric power) in some cases,
Table 8: Level of Cropping Intensity, Irrigation, Fertiliser and Power Used in Agriculture during 2001-02 and 2003-04
State Cropping NPK Power Irrigated Irrigation Intensity Kg/ Cons/ha Area Actual Potential as (Per Cent) Hectare KWh (Per Cent) Per Cent of Current GCA 122 146 135 114 180 173 148 116 135 127 127 150 186 128 117 154 176 135 176 28 105 89 270 80 91 118 87 38 95 55 328 40 171 188 213 121 1240 9 123 1577 1415 34 160 832 85 274 549 30 1374 244 1927 292 178 598 41.1 14.3 47.6 35.9 83.2 19.3 40.5 25.0 14.9 26.1 17.1 26.6 96.6 29.5 51.0 68.4 50.8 39.9 75.6 66.8 123.5 44.6 71.7 35.0 72.4 39.7 70.8 44.7 32.7 69.9 82.5 25.2 72.7 94.8 62.7 60.7
Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Jammu and Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh West Bengal All-India Source: See Table 7.
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a stagnation or even a decline in other cases. Crop intensity and area under cultivation have also shown either a poor growth or a decline. Diversification towards high-value crops has also slowed down and in some cases farmers have been diversifying away from the high-value crops towards low-value, less risky and less input-demanding crops. The terms of trade for agriculture have shown a deterioration and agricultural incomes faced an increased instability in the recent years. Low level of input use and low productivity in most of the states offer some ray of hope to revive agricultural growth, but this would require simultaneous efforts on several fronts. These include (a) stepping up investments and putting in place suitable institutional mechanisms to exploit irrigation potential that exists in most of the states; (b) increasing power supply to the sector; (c) promoting fertiliser use by expanding the distribution network and improving credit facilities for farmers; (d) establishing competitive seed markets and ensuring attractive prices for seeds; (e) improvement in terms of trade for agriculture; and (f) measures to mitigate risk in farming. EPW Email: rc@ncap.res.in
2 This is evident from growth rate in workforce in agriculture and rural population which showed an annual increase of 2.36 per cent and 1.61 per cent respectively between 1991 and 2001. 3 However, subsidy on nitrogenous fertilisers was subsequently restored and other fertilisers remained decontrolled. This changed prices in favour of nitrogenous fertilisers, which accentuated in balances in use of different type of fertiliser. 4 Some studies use public investment or capital formation made during a year to estimate impact of public sector capital formation or infrastructure investments on output. This represents only an addition to stock and amounts to using first difference of the variable of capital stock. As public investment has a life of several years, we feel that cumulative value of net fixed investments reported as NFC, stock is more relevant for growth of output than investment made during one year. 5 Extent of diversification was captured by estimating changes in area under different crops between two points of time.
References
Chand, Ramesh (2000): Emerging Trends and Regional Variations in Agricultural Investments and Their Implications for Growth and Equity, Policy Paper 11, National Centre for Agricultural Economics and Policy Research, New Delhi. (2005a): Exploring Possibilities of Achieving Four Per Cent Growth Rate in Indian Agriculture, NCAPWorking Paper (01)/2005, National Centre for Agricultural Economics and Policy Research, New Delhi. (2005b): Whither Indias Food Policy: From Food Security to Food Deprivation, Economic and Political Weekly, 40 (12): 1055-1061, March 12. Planning Commission (2006): Approach Paper to 11th Five-Year Plan, Government of India, New Delhi.
Notes
1 According to the XIth Plan approach paper, agricultural growth rate has fallen from 3.2 per cent during 1980 and 1996-97 to a trend average of 1.5 per cent subsequently.
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