Column : The elusive 4% agricultural growth

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Ashok Gulati: Dec 19 2012, 00:45 IST

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

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