Column : The elusive 4% agricultural growth

Written by Ashok Gulati | Ashok Gulati | Updated: Dec 19 2012, 06:15am hrs
Since the economic reforms started, India has been targeting 4% growth in agriculture GDP to ensure that the reform and growth process is inclusive. But so far, except during the initial years of 1992-96, when agri-GDP did grow by 4.8% per annum, the overall target of 4% in agri-growth has remained elusive. For the full decade of 1990s, i.e., from 1991-92 to 2000-01, the average annual rate of growth of agri-GDP was only 2.8%, and during the decade of 2000s, i.e., from 2001-02 to 2011-12, it was 3.2%. Thus, the story of agri-growth, over the two-decade period, is hovering around 3%. Does this mean that India is not capable of achieving 4% growth in agriculture Or is it that its strategy needs some rethinking and tweaking

Normally, to decipher growth of any sector, one looks at it as the outcome of investments and capital output ratios. This is typically a supply-side strategy, which implicitly assumes that there is ample demand for whatever is produced. The Planning Commission has been assuming that the capital output ratio in agriculture hovers around 4:1. Graph 1 shows that the investments (gross capital formation) in agriculture, both by public and private sectors, had been hovering between 8-13% during the 1980s and 1990s. Given a capital output ratio of 4:1, it was natural that the agri-GDP grew by around 3%. But thereafter investments in agriculture have seen significant improvement crossing 20% of agri-GDP by 2009-10. This should have logically given 4-5% rate of growth in agri-GDP. But this has not happened even in the Eleventh Plan, which could get only 3.3% growth in agri-GDP.

However, at the state level, the picture is very mixed. Looking at the average annual rate of growth in agriculture and allied sector, along with its coefficient of variation (CV) which captures its volatility, it is interesting to see that in the decade of 2001-02 to 2011-12, the top five states that could get agri-GDP growing at more than 6% per annum were Gujarat (9.6%, its latest data is for 2010-11), Rajasthan (9.2%), Chhattisgarh (8.8%), Madhya Pradesh (7.5%) and Jharkhand (6.9%). None of these top performing agri-states were in the first five in the decade of 1991-92 to 2000-01. On the other hand, large states like West Bengal, Uttar Pradesh, and even Punjab and Kerala registered growth rates of less than 3% in agri-GDP during the decade of 2001-02 to 2011-12. That raises an issue: is it a streak of good rainfall that catapulted some states ahead of others or is there any strategic policy behind their successes If so, what is it, and how far this is likely to be sustainable

Since India is a large country and each state has its unique features and agro-climatic factors, it may be worth analysing the story of each state separately and learning lessons from each other. This is not attempted here, but suffice it to say that we believe that the target of 4% rate of growth at all-India level is very much achievable, if one is ready to consider demand-side hypothesis rather than remain hooked to only supply (investment) side story. The hypothesis to consider is whether the demand side, i.e. in terms of access to lucrative markets, has been missing. For example, how far Gujarats success story in agriculture, driven by BT cotton, is dependent on cotton exports to China What will happen if cotton exports are banned Will Gujarats agri-GDP growth collapse

Similarly, in the case of Madhya Pradesh, soyabean has been a major driver, and lately wheat, whose production has increased by 75% in five years. While soyabean growth is driven by exports of soyameal, wheat is driven by government intervention in the form of extra bonus that the state has been announcing on MSP announced by the Centre. Wheat procurement in the state has increased from less than a million tonnes five years back to 8.5 million tonnes in 2011-12. If the state had not provided this extra impetus through bonus or enhanced procurement, or if soyabean meal exports were banned, would Madhya Pradesh have experienced such high rates of growth in agriculture

Again, Chhattisgarh has stepped in marketing of paddy, by announcing an extra bonus on MSP, and much enhanced procurement, as Madhya Pradesh did in wheat. So, the hypothesis to test is whether the states which got access to lucrative markets for their main agri-products, either through exports or by recently improved marketing access by the state, performed better than those which either did not have good marketing arrangements, or had saturated that potential long back (like Punjab for wheat and rice).

Needless to say, this hypothesis needs to be rigorously tested, but on the face of it, getting access to good markets is critical to achieve 4% growth in agriculture. This would need a strategic shift in policy thinking from being supply driven so far, to demand driven. This would mean that we must get our trade policy reforms high on agenda, and have a predictable exports policy, as also getting the domestic markets right or what is often called behind the border reforms. These market reforms have the potential to pay rich dividends.

The author is chairman, Commission for Agricultural Costs and Prices. This column has been co-authored by Surbhi Jain, joint director, Commission for Agricultural Costs and Prices. Views are personal