The Hindu Business Line : Agricultural income fell 7 pc in 2002-03; no fall in consumption

This was the comment of a cotton farmer owning about 35 acres of dry land in Amravati district Vidharbha, Maharashtra, after losing his crop two years in a row.

After spending huge amounts of money on labour, seeds, fertiliser and pesticides, when the crop was brought in he was able to recoup only a fraction of what he had spent.

Asked what he now proposed to do, Mr Vasudeo Bulaji Bhade stated that first of all he would try to reach an understanding with his bank to ensure availability of adequate credit inflows for the next season.

Should this fail, he would think of selling about an acre or so of his land; which in Vidharbha, as in many other parts of the country, is priced well beyond what it would fetch on the basis of its income earning potential alone.

What about consumption, he was asked. Would that take a hit? Mr Bhade replied that the next season's outlay on production was more of a problem than consumption.

As far as the latter was concerned, he could hold on by drawing on savings, pawning family gold, and soliciting remittances from near relatives.

Against this background, this report is intended to assess the possible impact on rural consumption at the all-India level if agricultural GDP in 2005-06 falls as severely as it did in 2002-03; by 7 per cent in real terms.

The accompanying table summarises NSS consumption data for rural India for 1999-2000 and for the calendar year 2003.

The related reports are available online.

As shown in the table, the proportion of those living below a per capita per month consumption level of Rs 380 fell by more than 3 percentage points between1999-2000 and 2003, from 34 to 31 per cent.

Meanwhile, total consumption expenditure for this group increased from Rs 296 to Rs 302.

The percentage of expenditure on food declined 4 percentage points between the two years, from 65.5 to 61.7 per cent.

The picture is much the same for those with per capita per month expenditure above Rs 470; and for the groups in between. No doubt total expenditure for the middle classes is reported to fallen by a few paise (in current prices) between the two years.

But for them, too, there was a significant drop in the percentage of total expenditure that was spent on food, from 63 to 59 per cent. But it is the figure for the lowest expenditure group that is most relevant. They have the fewest resources to fall back on; so a decline in their income is more likely to lead to a decline in consumption.

The evidence suggests that they experienced no such decline, at any rate not at the all-India level, though the picture may well have been more grim in certain parts of the country.

What about the `audience' outside rural India? Figures for seed and pesticide sales are not readily available for 2002-03. But we do have figures on fertiliser consumption.

At the aggregate level this, too, is reported to have fallen by 7 per cent in quantity terms. So this part of Mr Bhade's story does not seem at first to be supported by the evidence.

But a somewhat different picture emerges at the disaggregated level, if we keep our eyes firmly focused on crops that are more `fertiliser intensive'.

The picture that emerges is as follows. Rice production fell by 22 per cent in 2002-03, wheat by 10.5 per cent, groundnut by 38 per cent, and cotton by 12.8 per cent (all in quantity rather than value terms).

Sugarcane production, however, did much better; production fell only by 2.5 per cent.

Nevertheless, the weighted drop in production for all these crops taken together was 17.6 per cent, almost 2.5 times the drop in agricultural income.

Since these crops presumably account for the lion's share of fertiliser consumption, the latter may not have been hit nearly as hard as agricultural income.

To put it another way, some of the profits raked in by fertiliser producers that year, simply went down the drain as unproductive expenditure so far as farmers were concerned.

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