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Friday, Feb 20, 2004

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Sow farm reforms now

BUOYED BY OVER 9 per cent growth in agriculture, the economy this year is set to grow by an impressive 8 per cent, equal to the annual GDP growth rate envisaged in the Tenth Plan. Importantly, this year's fortuitous combination of expanded farm output and producer-friendly prices has imparted a new vigour to the farm sector on which depends the livelihood of two-thirds of the population. Production of foodgrains and oilseeds has recordednew highs while other major crops, except sugarcane, have rebounded, according tothe Agriculture Ministry's latest figures.

The euphoria in the marketplace is sending strong signals of an economic resurgence. However, a word of caution: It is nave to get carried away by the boom in various markets, as there is nothing to suggest that it will last. A look at the sectoral contribution of agriculture, industry and services to GDP growth over the last several years shows that the economy has invariably grown when agriculture has performed well. Without doubt, the `feel good factor' is the result of excellent monsoon leading to a rebound in farm output and a price rally in major commodities globally rubbing off on the Indian market. Higher rural incomes are supporting consumption demand. However, in just over three months from now, the South-West monsoon will be upon the country. There is no knowing how it will behave. The economy is far from drought-proof, as was demonstrated in 2002-03. Unlike in recent years, foodgrains stocks with the government are not high at this point of time.

The importance of agriculture in the economic, social and political fabric of the country needs no special emphasis. Sustained growth in agriculture is the key to maintaining decent overall economic growth. Total factor productivity in agriculture has declined over the last two decades due to the drop in productivity gains from the earlier adoption of high-yielding varieties, lower public investments and increasing natural resource degradation in many of the irrigated regions. Government policy has relied on subsidising key inputs to accelerate production growth and ensure food security. No doubt, this policy delivered benefits, but has outlived its utility. Rapidly rising subsidies are unsustainable and even crowding out productivity-enhancing public investments in rural infrastructure, irrigation, and adoption of modern technology. In a recent report, the World Bank suggested that better agricultural performance will require rebalancing government expenditure.

Development of a non-farm sector will also be essential to providing rural employment opportunities and supporting agriculture growth. Of particular importance for poverty reduction and rural incomes are policies to increase agricultural productivity. The Central and State governments will have to get proactive in reducing the fiscal deficit, shifting the expenditure to more productive areas and removing structural impediments to higher private investment and productivity. Amid the cacophony of election rhetoric, people would be pleased to see a broad political consensus on agriculture reforms.

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