There are obviously several dimensions to India’s recent agricultural performance which Finance Minister P. Chidambaram in his budget speech termed as “stellar”. A week before the budget, Agriculture Minister Sharad Pawar had announced that foodgrain production is on course to touch a new record of 263 million tonnes, up from 255.36 million tonnes last year. The good performance is seen with regard to other crops too. Estimates of production of sugarcane, pulses, cotton and oilseeds are also encouraging. A good agricultural season has contained farm prices, and moderating food prices are behind the steep fall in both retail and WPI inflation in January. Just as important, news of a bumper agricultural harvest has, to some extent, dampened inflation expectations. Arguably, the most noticeable feature has been the contribution of agriculture to overall GDP growth this year. The Central Statistical Organisation in its advance estimates has projected growth in agriculture and allied activities at 4.6 per cent during the current year, with overall GDP growing at only 4.9 per cent. Since industry and the usually dependable services sector have disappointed, the farm sector is seen to have almost single-handedly underpinned recent economic growth. Even over a longer period the track record has been good. Over the past ten years, agriculture has grown by around 4 per cent a year on an average, but it must be pointed out that during most of that period the monsoons were satisfactory.
It is obvious from recent experience that supportive government policies by themselves cannot keep agricultural production growing at a high rate during periods when the monsoons fail or are below par. The question has therefore been asked whether during 2014-15, the monsoons will continue to be beneficial. With dependence on the monsoons still being high, for next year the contribution of agriculture to economic growth cannot be taken for granted. Ironically, the very success of agriculture has exposed the weakness of some government policies, which are tilted towards cereals, to the detriment of other essential food products. Specifically, the periodic hikes in minimum support prices and open-ended procurement have resulted in an imbalance, leading to a glut in the production of rice. Minimum support prices have in practice become procurement prices, and with State governments adding to it a bonus, the cost of procurement has become high. Besides, storage has been a serious problem. Government godowns are overflowing at a time when cereal inflation is still high. All this suggests that the government’s major intervention in the farm sector through minimum support prices needs a closer look.
