Importance of Agriculture to the Indian Economy

“Everything else can wait but not agriculture” – Pt. Jawahar Lal Nehru

1950-51

1952-53

1954-55

1956-57

1958-59

1960-61

1962-63

1964-65

1966-67

1968-69

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

2012-130%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Services

Manufactu ring

Mining andQuarrying

Industry

Agri- culture

Composition of India’s GDP

Why has the contribution been declining ?

• More urbanization and employment opportunities in services sectors• Small land holdings- 1.16ha (2011,individuals and institutions) –which

inhibit large scale mechanization ,and are a less than optimum use of labor resulting in disguised unemployment .

• Less irrigated area -35.2%(2010)• Low cereal yield –for 2009-2013 ,it was 2.95 ton/ha ,as compared to 5.83

ton/ha (China) ,4.6 ton/ha (Brazil) , 1.86 ton/ha (Russia) ,and 3.65 ton/ha (South Africa)

• Lack of land reforms ,storage facilities work as disincentives .• Lack of infrastructure –access to markets• Government policies – MSP,power subsidies to wheat and rice have

distorted the diversification .

WPI –link to agriculture ?

Apr-05Jul-0

5

Oct-05Jan

-06

Apr-06Jul-0

6

Oct-06Jan

-07

Apr-07Jul-0

7

Oct-07Jan

-08

Apr-08Jul-0

8

Oct-08Jan

-09

Apr-09Jul-0

9

Oct-09Jan

-10

Apr-10Jul-1

0

Oct-10Jan

-11

Apr-11Jul-1

1

Oct-11Jan

-12

Apr-12Jul-1

2

Oct-12Jan

-13

Apr-13Jul-1

3

Oct-13

-5

0

5

10

15

20

25

All CommoditiesFood

Source :http://eaindustry.nic.in/Download_Data_0405.html

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

2012-13

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Gross Fiscal Deficit & Revenue Deficit as % of GDP

Gross Fiscal DeficitRevenue Deficit

Fiscal Deficit

• High Fiscal deficit to decrease unemployment has increased inflation .• High prices oil are cascaded in the supply chain ,leading to price rise .• Hence ,increased borrowing crowds out the private sector investment .

Fiscal Deficit and Subsidies

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-2011

2011-120

20000

40000

60000

80000

100000

120000

Fertilizer Subsidies

Imported P+KUreaTotal

Year

Rs cr

ores

Source : http://www.thehindubusinessline.com/features/investment-world/macro-view/underestimating-subsidies/article3266293.ece

• Subsidies form a significant portion of government expenses .• Total subsidies increased from Rs 67,498 crore in 2007-08 to Rs 208,503 crore in 2011-12 .• Effective subsidies to farmers are 40 to 75 % for fertilizers and 70 to 90 % for irrigation and electricity.• Apart from overshooting budget estimates ,they also have unwanted effects like overutilization of inputs ,leading to environmental degradation .• India performs worst amongst BRICS countries .

Dependence on rainfall

• Monsoon plays an important role in agricultural productivity .• Dependence on rains results in switch to lower yielding crops like jowar, bajra ,pulses ,etc. • To produce mare water intensive crops ,groundwater resources get depleted ,which becomes a sustainibility issue .• Institutes like ICAR are pioneering low cost biotech products .

Rising input costs

• Gulati and Saini (2013) examined the trend of rising farm wages for ploughing, sowing, transplanting, weeding, and harvesting • From 1995-96 to 2011-2012 ,nominal farm wages increased @ 9.68% p.a. and real wages @ 3.5% p.a.• However ,from 2007-08 to 2011-12 ,nominal wages increased @17.5% p.a. and real wages increased @ 6.9% p.a.• This also results in increased minimum wages and cost push inflation .

Source: Gulati, Ashok, and Shweta Saini. Taming Food Inflation in India. No. 4. Discussion paper, 2013.

Trends of Indian Farm Wage Index: Base 2004-05= 100

Transmission of Global food inflation and Agri -Trade

• Share of agriculture in India's foreign trade increased from 5% of GDP (1990-91) to 18% of GDP (2011-12) .•Coupled with exchange rate depreciation ,it results in increased import costs for raw material ,which is again results in cost push inflation .• Uncertainty in agri-trade policies result in lost market opportunities .• AoA with WTO limits ,tariffs ,subsidies ,and import and export restrictions .

Soil Fertility Rate in India

Source: Soil Nutrient Balance sheets in India: Importance, Status, issues and concerns, 2007

Fertilizers are taking nutrients from the soil more than they are adding Productivity of fertilizers has plunged from 150 Kg of food grains per Kg of NPK in

1970 to 5 Kg of food grains per Kg of NPK in 2005 Consumption of Urea has increased over other fertilzers resulting in soil deterioration

due to subsidy on Urea

Green Revolution: India’s path to self-sufficiency

Green Revolution

Double cropping existing farmland

High yield seeds

Use of pesticides and fertilizers

Expansion of farming areas

The green revolution started around 1965 in India, especially in states of Punjab and Haryana

India became self-sufficient in food grains od grain production more than doubled to million tonnes in FY86 from 72.4

million tonnes in FY66 Dependence on monsoon decrease

FY66 FY71 FY76 FY81 FY860

40

80

120

160

Food grain production (mil-lion tonnes)

Food grain production (million tonnes)

Source: Handbook of Indian Statistics, Aranca Research

Extending Green Revolution The Bringing Green Revolution in India (BREI) started in 2011, with special focus on

production of rice and wheat The government used a clustered-based approach, private sector participation and strategic

interventions relating to crop production, water harvesting and recycling Rice production in Eastern states increased by about 20 percent to 487.6 lakh tonnes in FY12

from 403.2 lakh tonnes in FY10 As population increases, need for innovative schemes like contract farming needed

Companies provide R & D and agricultural

implements to farms

Regular and timely payments to farmers and

credit facilities

Reduces the price risk fluctuations and saves land investments for

companies

Lesser logistics cost for both, farmers and

companies

Stable and steady supply of quality farm output for

companies

Contract farming in India

Bringing green revolution to eastern India

Promotion of High yield varieties

Involvement of private sector

Ground and rain water utilization.

Cluster based approach

Source: Ministry of Agriculture, Aranca Research

Food Inflation and Growth

Consumer Inflation in India has returned to double digit of 10.09% compared with 9.84% a

month earlier

In response RBI has increased its policy lending rate by a quarter percentage each in Sep and Oct

Affected investment sentiments and growth

stalls

Surplus Food Production Wasted

•India produces around 250 million tonne of food grain in a year, against its annual consumption at 220 million to 225 million tonne, that means surplus

•Still more than 250 million people go to bed hungry each day

•61.3 million tonnes of coal storage requirement in the country against the present capacity of around 29 million tonnes

•Due to lack of adequate storage infrastructure, fruits, grains and vegetables worth Rs 44,000 crore goes waste every year

•FDI in retail expected to help in developing back-end cold storage infrastructure

National Food Security Bill• Currently spending Rs 67,310 crore on

food subsidies• National Food Security Bill will

increase this by Rs 30,000 crore, which is 4% of the corporate taxes

• The added expenditure will mean a subsidy of only Rs 3.25 per person per day

• At nearly Rs 1.31 lakh crore a year, it will raise spending on food aid by nearly a third or 31%

• India’s annual food subsidy burden could rise to an estimated 1-1.2% of GDP from 0.8% currently

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