Wake up,smell the coffee

Agriculture numbers are bad,but delayed response is worse

In addition to the natural uncertainty around agricultural production,there is the policy uncertainty created by flip-flop stories on agriculture. During the last six months,high-level statements treated agriculture as a major source of growth,running at above 4 per cent and acting as a counter to the deceleration of the economy a source of rural demand counteracting low export and foreign investment. According to a wag,growth estimates vary depending on the rain and sunshine at least between the Sachivalaya and Krishi Bhavan in Delhi,particularly depending on the extent to which certain luminaries look out of the window.

Agricultural growth numbers for the immediate past,while underlying data is still being firmed up,is a slippery game and only charlatans are sure of the second decimals but the underlying tendencies are relatively clear,allowing a few intelligent surmises. First,agricultures growth rate had gone down to 1.8 per cent annually (compounded) for the 90s through till 2002-03,with declining real agricultural investment and input growth. The break upwards in capital formation,in real terms,begins when the UPA comes in,in 2004-05; at around 58 crore rupees in constant prices,it crosses the level it reached in the mid-70s when policy-making,under instructions from Indira Gandhi,was oriented towards self-reliance in food. By 2006-07,capital formation crossed 70000 crore rupees at constant prices,and input indicators had picked up. This was bound to affect agricultural growth. If you take the annual average of growth rates from 2004-05 to 2007-08 for the larger agricultural sector which includes animal husbandry,forestry and fishing the number stacks up to 3.5 per cent per year. (Lower in crop production alone,as dairying,poultry,and inland pisciculture are growing faster.)

These have been years of good weather,and prudence requires that as an Ahmedabadi I estimate the underlying growth rate at around 3 per cent. Will agriculture grow at three per cent this year? Probably not. Three per cent is an average and last years growth,for example,was around four and a half per cent. Growth this year could be lower. Ask me why? Just experience. You didnt believe me when I said that

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economy-level cycles are not a thing of the past; look how right I was. For this larger agriculture sector,the CSOs estimates for the first quarter were three per cent and for the second quarter around 3.75 per cent.

For the whole of this year a growth of slightly above 2.5 per cent has been estimated. Some questions were emerging towards the end of the last year in commodity belts,but Delhi was by then in denial mode. So,although cotton prices were falling and those for spices and horticulture,the usual pressures from farmers groups received the usual brushing aside.

The policy measures taken now are between a quarter to a half-year late and weak. The mindset is to fight inflation,to keep agriculture price down; there are still large-scale restrictions on export. Even the OECD governments,usually critical of others penetrating their agriculture,are critical of India restricting high-quality rice and wheat export. Government has naam ke vaste accepted the need to make Indian agriculture competitive in the global context and to orient pricing policy to it,but has rejected the consequences of that objective: it has clearly stated that it will not integrate policies to assure a degree of medium-term stability for the economic prospects of the farmer.

Given this mindset,the delay in the policy response,and the general uncertainty in the global situation with commodity prices falling,it is difficult to predict the decline in the agriculture growth rate. The average growth in the first two quarters was 2.75 per cent. The third quarter was negative at a little over two per cent. This gives an average growth rate of 1.2 per cent for the first three quarters. It is obvious that the whole year growth rate of 2.6 per cent or slightly lower than that is out of the agenda. How much it will fall below 2 per cent is still an open question. Commodity reports on the Rabi season are mixed. An optimistic variant would be this years growth at slightly above one and three quarter per cent. The lower figure would be slightly lower than one and two thirds per cent.

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The more important issue is the one this newspaper has been highlighting: delayed policy responses emerging from being in denial mode. India is no longer the fastest-growing world economy: Brazil,Indonesia and Thailand

are clocking growth in the range of five and a half and six per cent. In denial mode,we will take another three months before finding out why others are doing better.

The writer,a former Union minister,is chairman,Institute of Rural Management,Anand express@expressindia.com