A crisis ignored

The advance estimate of national income in 2011-12, released recently by the Central Statistical Organisation points to a decline in India’s GDP growth rate from 8.4 per cent last year to 6.9 per this year. The government, obsessed with growth rates, is deeply disappointed. Hence there is already talk of the need to respond and demands that the Reserve Bank of India should reduce interest rates are being heard. There are others, however, who would not waste time with numbers such as these. Not because, as a pure growth number, 6.9 per cent cannot be dismissed as too low, especially when the world is still in the midst of a recession. Rather it is because they do not see growth rates of even 8 and 9 per cent as being indicative of economic health when there is much else that points to poor performance.

Remaining within the growth discourse high GDP growth rates have been viewed with scepticism because for more than a decade now much of India’s growth has been based on incomes generated in the services sector, with the goods producing sectors either languishing or performing poorly. Seen from that perspective there are other elements in the recently released growth projections that should give cause for concern. Principally, the ‘agriculture, forestry and fishing’ sector is expected to record growth of just 2.5 per cent in its GDP during 2011-12, as against the previous year’s growth rate of 7.0 per cent. Within agriculture, the value of food grains production is expected to slow to 2.3 per cent as compared to 12.2 per cent in the previous agriculture year.

The problem here is not that agricultural output has registered a dip just with respect to the previous year. In a country where in many regions agricultural production is still dependent on the vagaries of the monsoon this should not be surprising. Rather, the problem is that decline in annual growth occurs in a context where for two decades now production in the agricultural sector has been languishing. Taking a long view, agricultural production has been stuck in the two per cent-plus range since Independence. And as the accompanying Chart illustrates, even after the 1980s, when the Indian economy reportedly migrated out of the “Hindu rate of growth” to a higher growth trajectory, agriculture has remained stubbornly on the 2 per cent plus growth trajectory.

The government has tended to play down this aspect of the growth scenario. In fact, early into the XIth Plan, it had argued that India had not merely seen a substantial acceleration in its aggregate GDP growth rate to 8-9 per cent per annum, but that the evidence was pointing to this dynamic affecting agriculture as well, generating hopes of a four per cent or more rate of growth in that sector. It is now clear that such assessments based on a few years’ data had come too early and were wrong. Agriculture as a sector still languishes.

In fact things seem to be getting worse. Though the aggregate rate of growth of agriculture seems to have remained constant, even if low, a more disaggregated view points to significant differentials across crops. Thus, the observed low rate of growth has been sustained in the 1990s and the 2000s because of specific categories of crops like fruits and vegetables and oilseeds. On the other hand, food grain production seems to have decelerated during the last two decades when compared to the 1980s and coarse grains and pulses have recorded particularly low rates of growth. That is, agricultural growth has been maintained even at its low level because of higher growth in a few non-staple crops.

As some economists not beguiled by the statistics have noted, this evidence points in two directions. The first is that in the period of reforms, when the Indian economy had ostensibly turned dynamic as suggested by the GDP growth figures, agriculture continued to be neglected, resulting in a silent agricultural crisis. That neglect had many components. Public investment in agriculture has been in long-term decline. The extension system aimed at reaching new agricultural technologies and information on better farming practices to India’s agriculturists has either been dismantled or allowed to degenerate. Agricultural research, which served India well during the Green Revolution years, has been given inadequate attention and resources. And a “reform”-induced combination of trade liberalisation and domestic deregulation, has raised costs while inadequately compensating farmers with remunerative prices, damaging the viability of crop production and increasing farmer exposure to income volatility.

The second is that the country is experiencing a food crisis that is concealed by claims of self-sufficiency. The per capita availability of food in a country where much of the population is below the level of nutritional adequacy has been low and declining. This has for much of the period not proved to be much of a problem because low incomes and purchasing power among a significant section of the population kept demand in check as well. But with low levels of per capita availability persisting even as the indirect demand for grain on the part of the well-to-do has increased, food prices are finally turning buoyant in India, squeezing the poor even further. Farmers may not be benefiting from remunerative prices, but consumers have to pay more.

Put together this and other evidence indicates that Indian agriculture is in the midst of a crisis that adversely affects farmers and the non-farm poor. But given the government’s obsession with growth this receives far less attention and provides much less cause for concern than the projected 1.5 percentage point decline in the official GDP growth rate.