Column : The elusive 4% agricultural growth

Dec 19 2012, 00:45 IST
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SummaryAccess to global markets is critical, and is what explains Gujaratís amazing 10% per annum growth in the last decade.

Since the economic reforms started, India has been targeting 4% growth in agriculture GDP to ensure that the reform and growth process is inclusive. But so far, except during the initial years of 1992-96, when agri-GDP did grow by 4.8% per annum, the overall target of 4% in agri-growth has remained elusive. For the full decade of 1990s, i.e., from 1991-92 to 2000-01, the average annual rate of growth of agri-GDP was only 2.8%, and during the decade of 2000s, i.e., from 2001-02 to 2011-12, it was 3.2%. Thus, the story of agri-growth, over the two-decade period, is hovering around 3%. Does this mean that India is not capable of achieving 4% growth in agriculture? Or is it that its strategy needs some rethinking and tweaking?

Normally, to decipher growth of any sector, one looks at it as the outcome of investments and capital output ratios. This is typically a supply-side strategy, which implicitly assumes that there is ample demand for whatever is produced. The Planning Commission has been assuming that the capital output ratio in agriculture hovers around 4:1. Graph 1 shows that the investments (gross capital formation) in agriculture, both by public and private sectors, had been hovering between 8-13% during the 1980s and 1990s. Given a capital output ratio of 4:1, it was natural that the agri-GDP grew by around 3%. But thereafter investments in agriculture have seen significant improvement crossing 20% of agri-GDP by 2009-10. This should have logically given 4-5% rate of growth in agri-GDP. But this has not happened even in the Eleventh Plan, which could get only 3.3% growth in agri-GDP.

However, at the state level, the picture is very mixed. Looking at the average annual rate of growth in agriculture and allied sector, along with its coefficient of variation (CV) which captures its volatility, it is interesting to see that in the decade of 2001-02 to 2011-12, the top five states that could get agri-GDP growing at more than 6% per annum were Gujarat (9.6%, its latest data is for 2010-11), Rajasthan (9.2%), Chhattisgarh (8.8%), Madhya Pradesh (7.5%) and Jharkhand (6.9%). None of these top performing agri-states were in the first five in the decade of 1991-92 to 2000-01. On the other hand, large states like West Bengal, Uttar Pradesh, and even Punjab and Kerala registered growth rates of less than 3% in agri-GDP during the decade of 2001-02 to 2011-12. That raises an

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