graph shows. Call it agri-growth with human face!
The big-bang 51% rise in agri-GDP per worker was presumably propelled by an even more impressive increase of 71.5% in net fixed capital stock per worker in agriculture during 2004-11. No wonder, with each worker better equipped with capital, growth in per worker agri-incomes has accelerated by leaps and bounds, which was never witnessed earlier. That had the most salutary impact on rural poverty ratio (estimated by Tendulkars poverty line), which decreased almost three times faster during 2004-05 to 2011-12 (by 2.3 percentage points per annum) than during 1993-94 to 2004-05 (declining by just 0.7 percentage points per annum). This pace of decline in poverty ratio is robust, and will broadly hold, no matter how one defines poverty levels. Isnt faster poverty reduction one of the most important policy aims of any government in India And if that is delivered, why dont we give credit to the policy and stay its course even more rigorously The problem is poor communication of complex policies and processes that triggered this capital accumulation in agriculture, propelling per worker agri-GDP growth, and fall in rural poverty. Let us try to decipher some of this complexity.
Investments and accumulation of capital in any sector lays down the foundation of growth and prosperity of that sector. Investments in Indian agriculture as a percentage of agri-GDP, have been fluctuating, but broadly hovered around 10-12% during 1980-81 to 2003-04. However, since 2004-05, it had a clear structural break, and by 2011-12, it is now hovering around 20% of agri-GDP. It is coupled with first time drop in absolute number of workforce engaged in agriculture (by about 31 million) during 2004-05 to 2011-12 (as per NSSO). Both are most fundamental, and welcome changes in Indian agriculture since decades, as they equip the agri-workers with more capital and thus raise labour and land productivity. And, that is what seems to have happened.
But what triggered the investments in agriculture It may be noted that in 2011-12, almost 85% of investments in agriculture came from the private sector. Our econometric analysis of this over the period 1990-91 to 2011-12 reveals that private investments respond strongly to the price ratio of agriculture to non-agriculture commodities, and also to the public sector investments in agriculture. But the elasticity of private investments in agriculture with respect to price ratio is almost three times higher than with public sector investments. So, it is basically the relative prices that have been the game changers. Call it the terms of trade impact!
How did it happen Gradual integration of agriculture to global economy has been a part of the overall liberalisation policy since the 1991 economic reforms. In 1990-91, agri-trade (imports plus exports) were less than 5% of agri-GDP, which increased to more than 18% by 2012-13. What this indicates is that our domestic agri-prices cannot be insulated from global prices for long. What happens to commodity prices in global economy percolates to domestic economy, albeit with a little lag. The global food-prices have been increasing since 2003-04, first gradually but then with an almost volcanic eruption in 2007-08. By 2011-12, global food prices as measured by FAOs food price index (with 2002-04=100) stood at 230 and then declined marginally to 210 by 2013. Our domestic food price index (with 2004-05=100) stood at 175 in 2011-12, and continued to rise to 210 by the end of 2013. Both food price indices show a remarkable convergence at 210 by 2013. It shows clearly that our agri-prices are very much aligned to the movements in global prices.
What this means in a two-sector economy was that relative prices improved in favour of agriculture, triggering private investments in agriculture, raising productivity and incomes, and ultimately reducing rural poverty at an unprecedented pace.
But it had a side effect too! Food inflation in India at double digits for the last five years seems to be taking a political toll. Onion price spike in 2013, which was more of a seasonal than an inbuilt trend, seems to dominate the news, while the fastest increase in per worker agri-GDP, and the fastest accumulation of capital in agriculture, and most dramatic fall in rural poverty during 2004-11, all go unnoticed!! Call it lack of effective communication of policies, programs, and consequent burial of their benefits!
Ashok Gulati & Surbhi Jain
Gulati is chairman and Jain is director of the Commission for
Agricultural Costs and Prices (CACP). Views are personal.