Wednesday, June 9, 2010

Wet earth and confusion

Agriculture has grown beyond the monsoon -- but it still mystifies

Yoginder K. Alagh

Memories are short. So now that the Central Statistical Organisation says that agriculture did not contribute negatively to growth, even in the perfect drought, we just nod and walk away. But quite recently there was a lot of breast-beating on the monsoon as the cause of all our troubles this year. There was a time when we knew that in a bad monsoon year the economy would decline by 2-5 per cent. Somewhere in the mid-’90s I pointed out that till the mid-’70s, in half the years growth was negative and in the other half 3-6 per cent — giving us the average Hindu growth rate. But since then we had only two years of growth less than 3 per cent. Understanding matters; it leads to policy responses which determine outcomes. There are actions the government takes which matter, and based on what the great think-tanks say, others take actions which matter too.

When the harvest came in, this column insisted that rice and kharif oilseeds will take a knocking this year. But actually the increase in rice prices this year is lower than it was last year. Also, the procurement of rice is almost at the same level as last year. Our guess was that rice production would be lower. But it turned out that above 40 per cent deficiency in rainfall was in irrigated areas of Punjab, Haryana and UP — and that the shortfall will be not be more than 12 per cent as compared to higher official figure is probably still not far off the mark. With a good rabi, the decline in agricultural GDP may be as low as 1 per cent, which means that the macro outcomes will be decided elsewhere.

This will not make or mar the larger performance of the economy, as we have said before, and the inflationary trend is policy-determined. Like the first half of the year it is extremely unlikely that agricultural value-added will be lower as a share of aggregate demand as shown by its share of private consumption expenditure.

But policy was determined by the focus that output loss would be as high as 4 per cent in agriculture; foodgrains would really suffer with a big fall in area; and there would be a lot of scare mongering. If one wanted to twist the knife, quotes are available aplenty, but that is not the issue. As the chief economic adviser has said, knowledge-based policies make a big difference. We got into the stimulus late year before last and that cost us, I believe, a per cent of GDP. We misread the effect of the kharif drought, and that cost us in opportunities lost. In a fast-growing, fast-changing economy, we desperately need to read the tea leaves, at home and abroad, better.

This is also shown by the fact that prices are rising for the agricultural sectors growing the fastest. Milk has the same weight as grains in the price index now, and eggs are as important as fruits and vegetables. India has to improve its literacy levels on Bharat. It would be nice if comment on agriculture, growth and inflation was at least remotely based on easily available facts. From the point of view of prices, the sooner the stimulus shifts to investment — as in the US, China, other BRICS and elsewhere — from government consumption, as in India, the better off we will be, especially given capital formation was falling until last year and there are no signs of revival this year, in spite of the budget.

According to the Met those parts of India where temple bells ring in joy if water is found at 50 ft will get 93 per cent to 101 per cent of its long-period average. I must say though, that at regional levels, the statistical accuracy of the Met’s long-term forecast work is less reliable.

In a year of the 2004-05 kind, when 13 of 36 agro-met regions had scanty and deficient rainfall, we can lose, as compared to the average, around 10 to 12 million tonnes of grain. There is a big hue and cry to scuttle food security plans. This is wrong. Food security is much too serious a business to put in a stop-go mode. The Congress president has done well to highlight the point that the programme should be targeted to those sections of the population identified from the hunger map of India. There is clearly enough grain for this. What we have to resist is the tendency of ministries to feather-bed their budgets with moneys loaded from these priorities.

Finally there is the documented lesson of the 1987 drought. Plan the works and expenditures. Otherwise as P. Sainath says, with expenditures in programmes leaking like a sieve, everyone loves a drought.

* The writer, a former Union minister, is chairman, Institute of Rural Management, Anand

No comments:

Post a Comment