The Hindu Business Line : Farm production may not meet demand

The Approach Paper to the 11th Plan (2007-2012) estimates that demand for agricultural output will grow at about 4.1 per cent per year, if gross domestic product (GDP) grows at 9 per cent. However, 4.1 per cent growth is unlikely. Agricultural growth has fallen from 3.2 per cent over the 80s and 90s to 1 per cent between 2001 and 2004.

The Approach Paper has worked out what things would look like if agriculture were to grow at 2 per cent per annum, twice its present rate.

The conclusion is that overall growth would then run into a demand constraint, unless exports grew at 19.6, 23 and 25.9 per cent to support GDP growth of 7, 8, or 9 per cent, respectively.

It is doubtful if low agricultural growth will seriously constrain growth of GDP. It has not happened so far, and there is no reason to suppose that it will.

On the other hand, given the `intrinsic' dynamism of exports, the Approach Paper's `projections' may not be much off the mark.

Imports, too, are projected to rise under the 2 per cent scenario, at 11.8, 13.9 and 15.3 per cent, respectively, if GDP grows at 7, 8 or 9 per cent, and oil prices remain stable.

But, with an import elasticity of 1.5 per cent, this is because of a `naturally' rising demand for imports rather than the increasing need postulated for exports.

Two conclusions emerge. First, imports and exports will continue to provide by far the most promising business opportunities for entrepreneurs, big and small.

Second, the implications of demand for agricultural produce outstripping supply need to be more fully explored.

So has the effect on affordability of rising prices of foodgrain, which, excluding sugarcane, account for about 60 per cent of the agricultural GDP.