Agriculture – India Review 2010-11

From ‘REVIEW OF THE ECONOMY 2010-11’, Economic Advisory Council to the Prime Minister, February 2011

IV: SECTORAL: AGRICULTURE, INDUSTRY AND SERVICES

Agriculture
The Second Advance Estimate for 2010-11 shows that aggregate foodgrain output in 2010-11 is likely to be 232.1 million tonnes, which is slightly less than the record harvest of 234.5 million tonnes in 2008-09. The kharif foodgrain production at 117.2 million tonnes will be a million tonnes lower than in 2008-09, while the rabi output may be 1.4 million tonnes lower. The variation is because of lower rice output in both the kharif and rabi seasons.

The forecast on the basis of acreage and assuming normal weather conditions is that this year the wheat harvest at 81.5 million tonnes will be the largest ever. An important development in 2010-11 will be the sharp increase in the production of pulses which is likely to touch a record level of 16.5 million tonnes. Strong improvement will be seen in both kharif (to 6.5 million tonnes) and rabi pulse production, which is an outcome of the combination of farmers positive response to high prices and a well thought out programme of the Central and State Governments to support higher pulse output, especially kharif pulse output, through increasing the availability of certified seeds, DAP fertilizer and other initiatives. While acreage under kharif and rabi pulses have shown improvement it is expected that we will find that the yield of kharif pulses and certain rabi pulses have shown a significant improvement. There is greater potential for improving productivity in pulses. The beneficial impact of higher pulse output may be seen in the sharp drop in wholesale prices of several pulses.

Kharif rice output at 80.2 million tonnes will be 4.75 million tonnes more than that achieved in 2008-09 (see Table 3), while the current estimate for rabi output is slightly lower. This is primarily on account of the fact that there was rainfall deficiency in parts of eastern India particularly in Gangetic West Bengal, Bihar, Jharkhand and some parts of eastern Uttar Pradesh. Rice output in the rabi season is presently placed at 13.85 million tonnes. The reservoir positions in almost every part of the country, particularly southern and central India, showed a significantly better position at the end of January 2011 compared to either last year, or for that matter the average of the last 10 years. It is possible that the rabi rice harvest may eventually turn out to be larger than that projected in the Second Advance Estimate. Coarse cereal output in both kharif and the rabi seasons is expected to be almost as good as in the record years of 2007-08 and the aggregate output for the year is likely to be around 40 million tonnes, about the same as in 2008-09.

The Second Advance Estimate has revised upwards by over 5 per cent the kharif oilseeds output figure to 182 lakh tonnes, making this the largest summer oilseed crop after the record 207 lakh tonne harvest of 2007-08. The rabi is placed at 96.3 lakh tonnes, comparable to levels recorded in previous three years – the decline compared to 2005-06 and 2006-07 coming mostly from lower output of sunflower (with proportionate decline in acreage) and rape & mustard seed. Overall, for the year, oilseeds position is unlikely to exceed 280 lakh tonnes. Given the fact that we are large importers of crude edible oil and also that a linkage has developed over the years between international edible oil prices and that of crude petroleum, we need to strengthen our output levels of oilseeds and thus domestic edible oil production.

The Second Advance Estimate places cotton output at 339 lakh bales which is about the same level as last year’s record crop. Sugarcane output is now projected at a level of 3,367 lakh tonnes which is slightly higher than in the First Advance Estimate.

IX: CONCLUDING COMMENTS

Principal Constraints
The Council is of the view that the pace of formation of incremental domestic demand is autonomously quite strong and policy must be focused on resolving the elements that persistently result in serious supply bottlenecks across the economy from power to farm output to logistics. The operating target and expectation for economic growth in 2011-12 is 9 per cent – for which the demand conditions are deemed to be adequate. The supply side limitations that have the potential to create strains, the consequences of which are primarily inflation and also excessively large trade deficits, should be the primary policy focus. Monetary and fiscal policies must both be geared to induce price stability. To the extent that supply bottlenecks persist to a degree that is greater than expected, overall economic growth may be marginally lower than 9 per cent.

Agriculture
The Second Advance Estimates indicate that in the current year foodgrain production will be 232 million tonnes which is a considerable improvement over last year but still 2.5 million tonnes smaller than the record harvest of 2008-09 and only 0.6 per cent more than that registered in 2007-08. The average rate of GDP growth arising in the farm sector over the last three years is only 1.9 per cent, despite the strong showing in the current year. As against the target of average 4 per cent growth during the Eleventh Plan period, the actual average growth is likely to be slightly less than 3 per cent.

Foodgrain production has been in the region of 230–234 million tonnes in the good years after 2006-07, although it is higher than the effective range (210–215) in the first part of the present decade. There is a need to lift the range of foodgrain output to a significantly higher level. Somewhat in parallel, the per capita availability in grams per day has also not gone up in a context where per capita income has been rising quite strongly.

The international prices for grain have been very volatile and much elevated in recent times and therefore higher levels of domestic output is an even more important factor to consider in the context of domestic food security. Therefore, policy has to be on increasing productivity in foodgrain, as also in other food crops. Attention must be focused on building rural infrastructure, developing technologies that are appropriate to the region which have to be disseminated – delivered in an efficient fashion. The institutions that are enjoined with this task have to be activated in a more energetic fashion.

The liberalization of the economy has benefited the farm sector and as a result the terms of trade for agriculture are no longer adverse. Investment in the farm sector has also picked up substantially and capital formation as a percentage of agricultural GDP has more than doubled in the past decade. There seems to be evidence that better quality seeds and superior cultural practices are available, but the delivery system for translating these to the field are lagging.

Three areas need particular attention. The first is certified seeds of appropriate quality and quantity. The second is the management of water which includes both rainwater harvesting and impounding in surface reservoirs or through recharging ground water and better means of utilizing the groundwater through sprinkler and drip irrigation, as opposed to flood irrigation. The third challenge is managing soil fertility, where we have seen a decline in the organic content and natural fertility of soil, widespread prevalence of micro-nutrient deficiency and problems of salinity in certain areas. These are substantial challenges and we must be able to develop a time-bound programme of dealing with these challenges appropriately.

A major hurdle in agricultural development is the inefficiency of the delivery systems. There is a plethora of institutions in research, extension, credit and marketing. However, efficacy of these institutions to deliver goods and services to the country’s vast small and marginal farms section is quite limited. This is a serious cause for concern. Nearly 50 per cent of land is now cultivated in small and marginal holdings. If the institutions and delivery systems by-pass these sections or deliver these at a very high cost, it amounts to discrimination against half of our agriculture. There is need therefore, to attune these various institutions to the emerging agrarian structure, which is progressively identified with the small and marginal farmers.

The farm sector also faces difficulties in accessing finance. This is particularly important since more than half of the cultivated land comprises of small and marginal holdings. A two-fold strategy is indicated for this purpose. One, to encourage farmer’s collaborative efforts as in cooperatives, or more recently in producers companies, and vertical integration of production and marketing by suitable models of contract farming. Two, at the institutional level, the organizational changes to cut down the cost of transactions (e.g. through a flexible and inclusive business correspondent model) and the use of information technology for the same purpose needs to be encouraged. Such initiatives wherever taken seriously have made it possible for banking institutions to reach a large number of producers without increasing transactions cost. In addition both for purposes of ensuring remunerative prices for farmers as well as an anti-inflationary measure, the strengthening of organized retail, as well as use of these outlets for public distribution along with the strengthening of the existing public distribution networks, are measures that need to be tried out seriously.

The issue of procurement and distribution through the public distribution system (PDS) of coarse cereals has been often raised and correctly so in the past. It has been the experience, that where local procurement has supplemented the centralized procurement, the results have been good. Local procurement by State Government agencies provides an incentive for farmers to grow grain. Coarse cereals are a varied commodity and tastes differ across States. There is also a problem in handling coarse grains. If State Governments take greater initiative in local procurement they can readily purchase coarse cereals from farmers of the State and distribute it through their PDS system. This would be desirable both from the angle of providing an assured market for farmers and also in terms of the choice of cereals that are being offered through the PDS system.

REVIEW OF THE ECONOMY
2010-11

February 2011
Economic Advisory Council to the Prime Minister
Hall-E, Vigyan Bhawan, Maulana Azad Road, New Delhi

Dr. C. Rangarajan – Chairman
Mr. Suman K. Bery – Member
Dr. Saumitra Chaudhuri – Member
Dr. M. Govinda Rao – Member
Dr. V.S. Vyas – Member
Dr. K.P. Krishnan – Secretary

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