The Hindu Business Line : Farm sector holds growth key

As the Budget rightly says, `"Unless agriculture grows at four per cent, whatever combination and permutation we may try, we cannot attain 10 per cent growth... "

A day after presenting the Union Budget, the Finance Minister, Mr P. Chidambaram, told industry chambers of commerce that unless agriculture improved its performance, the chances of hitting the 10 per GDP growth rate would be minimal.

To quote him: "We talk of a ten per cent growth rate. Unless agriculture grows at four per cent, whatever combination and permutation we may try, we cannot attain 10 per cent growth".

Now this is a definitive point of view, and coming from the Finance Minister it simply cannot be ignored. So what has the Budget to say on this subject?

The first mention of the 10 per cent growth rate comes in the fifth paragraph, which runs as follows: "The assault on poverty and unemployment continues. I believe that growth is the best antidote to poverty. The GDP growth target for the Tenth Plan was set at eight per cent.

Thanks to three years of 7.5 per cent plus growth, it is possible that the overall growth rate will be seven per cent. In recent speeches, the Prime Minister has raised the bar to 10 per cent, and the Government is determined to take the country to that high growth path. Growth will be our mount; equity will be our companion; and social justice will be our destination."

FARM PERFORMANCE

Clearly, the result of the Government's determination will depend on the performance of agriculture, on which the Budget has devoted 14 paragraphs (44 to 58). The following are some details.

As regards the accelerated irrigation programme, the 2005-2006 outlay was Rs 4,500 crore, the Central grant component being Rs 1,680 crore.

Altogether 25 projects are expected to be completed by the end of the current financial year (2005-06). For the coming year, the UPA Government has proposed a 58.3 per cent increase in outlay (to Rs 7,121 crore), the grant element being raised by 39.9 per cent (to Rs 2,350 crore).

Assuming that implementation has been 100 per cent (which may not be the case), it must be said that the Budget's efforts to provide enhanced resources to step up irrigation facilities have not been unimpressive.

Perhaps the same can be said of the credit provision arrangements proposed. As the Budget speech makes clear, in 2004-2005 farm credit rose to Rs 125,309 crore ("well above the target") "and is again expected to cross the target of Rs 141,500 crore set for the current year".

For 2006-2007, the Finance Minister has proposed an increase in the credit level to Rs 175,000 crore (a 23.7 per cent increase), the hope being that the target of farm credit being doubled in three years will not only be fulfilled but even exceeded.

HIGHER OUTLAY, OUTPUT

There is little doubt that, provided the targeted beneficiaries are chosen sensibly, the provision of extra financial resources will inevitably translate into higher production.

The Government has also done well to propose a new initiative for helping tenant-farmers — who, according to the Budget speech, "are not adequately served" — in the specific shape of banks being asked "to open a separate window for self-help groups or joint liability groups of tenant farmers and ensure that a certain proportion of the total credit is extended to them".

The focus on micro-credit and increased assistance to farmer self-help groups is also a step in the right direction because, as experience has shown — in Bangladesh and elsewhere — such action, if monitored closely, cannot but result in a flowering of rural efficiency and productivity which, in Indian circumstances, could travel a long way in aiding the attainment of an overall double-digit growth rate.

But in terms of the farm growth rate, is this enough to stage a quantum jump in the figure which would make the attainment of a 10 per cent GDP growth rate attainable?

To take the Tenth Plan, the annual target was for a four per cent growth in agriculture. Over the four years of the Plan (which began in 2002-2003), performance has been such that there is simply no way that the overall annual average of the farm growth rate over the five-year period will touch 10 per cent or even get close to it.

Indeed, during 2005-2006, the CSO estimates (February 7) put the agriculture growth rate at 2.3 per cent (based on the new series, that is, 1999-2000 prices) which, of course, has to be seen against the fact that the 2004-2005 corresponding figure was just 0.7 per cent.

BRIGHT PROSPECTS, BUT...

As regards the outlook for agriculture, the Economic Survey for 2005-2006 says that the prospects for the year look "reasonably bright due to near normal monsoon" but also draws attention to the fact that in order to exploit the "high potential" for growth in "emerging areas" such as horticulture, floriculture, organic farming, genetic engineering and food processing, among others, the "development of rural infrastructure, rural extension services and agro-based and food-processing industries is essential".

For this substantial investment is required which, as far as the farm sector is concerned, has not been forthcoming till now. Not surprisingly, gross capital formation in the farm sector, which accounts for roughly a fifth of the economy's GDP, has been unimpressive, the implication of this being that a four per cent agriculture growth rate cannot be attained on a "sustained" basis in the foreseeable future.

If this is so, what is one to make of the 10 per cent GDP growth vision that the Prime Minister has projected for the India of the future? As things stand now, it is unattainable which, however, does not mean that it cannot be attained in the years to come.

The challenge before the economy's policy-makers is to make it happen in the shortest possible time, which could then really put the country on to a sustained 10 per cent-plus growth path.

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