Bibek Debroy on Indian agriculture

Rural income is increasingly insulated from agricultural income.Kautilya's superintendent of agriculture had the task of controlling sowing, contingent on rainfall. If the FM sought Indra's help in 2010-11 and thanked Indra in 2011-12, he was following a hoary tradition. Vishnu Purana also has a famous prayer by Indra to Lakshmi, invoking prosperity. Since parts of India haven't changed in thousands of years, Indra and Lakshmi tend to hold hands. In the past, monsoon failure triggered famines. It may not be that terrible today. But a bad monsoon adversely affects GDP growth. However, we need to be clear about what we mean by "bad". Average rainfall is irrelevant. What matters is its temporal and geographical spread. More than six decades after Independence, it should be intolerable that we are stuck with low-productivity and subsistence-level agriculture in large geographical chunks. Why did we need MGNREGS?Partly because we haven't got irrigation going, though irrigation is only one component in modernising agriculture.Fifty-six per cent of total cropped area is still rain-fed. This depends directly on rainfall, indirectly on groundwater and its recharge. That 56 per cent is an average and there are variations between food and non-food crops, rain-fed being more important for non-food than for food. Within food, rainfed is more important for pulses, less important for cereals. Within non-food, rain-fed is more important for oilseeds. A bad monsoon is particularly bad news for pulses and edible oils. It can trigger inflation in these, compounded by our conscious or unconscious decision not to use trade policy efficiently to smoothen price volatility. Not that there are too many countries we can import pulses from. There is a separate point about non-existence of satisfactory crop insurance (it exists only if farmers borrow from banks) and delays in triggering policy response (the bureaucratic system is still based on classic famine relief). The Meteorological Department's forecasts aren't that great either.Bibek DebroyImpact on GDP growth is messier. Agriculture's contribution to GDP is around 15 per cent and is declining and there is also this business about a difference between agriculture and agriculture and allied activities. GDP is the value of marketed goods and services, though imputations are made for ownconsumption. But the point is the following. Most contributions to agricultural GDP come from irrigated states, or irrigated regions within states. Irrigation should be increased in Orissa, Bihar, Himachal, Madhya Pradesh, West Bengal, parts of Andhra, parts of West Bengal, parts of Karnataka and eastern parts of Uttar Pradesh. (Rajasthan is more difficult). But because these states and regions don't make significant contributions to agricultural GDP today, the impact of a bad monsoon on GDP growth is less than we might deduce on cropped area alone. Bihar is a case in itself. A good monsoon elsewhere is good for GDP. But in Bihar, it leads to floods and is bad for GDP. To complicate matters, a bad kharif can be compensated by a good rabi. Rates of growth also depend on what happened the preceding year. (That base effect meant low growth in 2011-12 and implies higher growth in 2012-13.) However, a bad monsoon does matter. It reduces farm income. It reduces demand for manufactured products. But off hand, I don't see a bad monsoon reducing GDPgrowth rate by more than 0.5 per cent to 1 per cent.Let us refine that range further. What percentage of Indian population is employed in agriculture? Most responses will be a shade above 50 per cent (sometimes closer to 55 per cent), though that is actually a male figure (it is lower for females). It is also a dated figure, since no satisfactory data has surfaced through NSS (National Sample Survey) after 2004-05. It is also a misleading figure, since 50 per cent is only in response to a question about what the principal occupation is. In lean agricultural months, there has always been a subsidiary occupation outside agriculture. Otherwise, people wouldn't have survived. In national income accounts, CSO (Central Statistical Organisation) has two categories--construction and trade, hotels, transport and communication. An increasing trend in rural India is employment in these and that trend is evident across various rounds of NSS. This hasn't happened uniformly throughout India. But it has happened in several parts. And it also explains why rural incomes and demand have increased. It isn't due to debt relief and MGNREGS alone. Therefore, rural income is somewhat more insulated from agricultural income now. The distinction between land-holders and agricultural labour can be artificial, because it gets blurred. But agricultural labour and smaller land-holders have other sources of income now.For rural labour, there is MGNREGS too. We know MGNREGS doesn't lead to creation of productive assets. It increases demand, without changing supply. Architects of MGNREGS probably drew their inspiration from Keynes and a quote incorrectly ascribed to Keynes, about employing people to dig ditches and then re-employing them to fill those ditches up. Keynes wrote during the Great Depression, when resources had no opportunity costs. Our resources have opportunity costs. There is an indigenous antecedent to Keynes, a 100 years before he was born in 1883. This is the Bara Imambara of 1783, built by Asaf-ud-Daula to provide employment when there was a famine. Legend has it that workers constructed it during the day.And nobles and civil servants (who could do nothing constructive) demolished constructed parts during the night, so that construction could begin afresh next morning. There is a moral about bureaucracy in that story. However, let's leave the MGNREGS debate aside. The point is we wanted to create off-farm employment opportunities and would have done so had genuine rural sector reforms been introduced. They haven't been created in desirable fashion. However, they have happened, consciously through MGNREGS and inadvertently through services like construction, trade, hotels (and restaurants), transport and communication.Had NSS2009-10 data been in public domain, we could have tested these propositions empirically. But Government decided to kill that data and we only have NSS 2004-05. Nevertheless, the trends are clear enough. We don't yet know what southwest monsoon will be like in 2012. But because of reasons mentioned, a bad monsoon is unlikely to shave off GDP growth by 1 per cent. 0.5 per cent is more like it. Had we chugged along at 9 per cent, a 0.5 per cent cut reduces growth to 8.5 per cent. However, inappropriate policies have led to baseline growth dropping to 7 per cent in 2012-13. A 0.5 per cent cut now means 6.5 per cent growth and this also has implications for revenue and fiscal consolidation.The incremental effect of a bad monsoon becomes more. There would have been a different response had industry and services been performing better. In addition, a bad monsoon is also a convenient red herring. Why has growth declined from 9 to 7 per cent? Government won't look inwards. Instead, the fault lies with global crises. In similar fashion, when growth dips in 2012-13, Indra permitting, Government will have something other than policies to blame. Indra is becoming irrelevant. But Government would like him to remain relevant.- Bibek Debroy is professor at the Centre for Policy Research, DelhiPublished By: AtMigration Published On: Dec 30, 2011 00:00 IST--- ENDS ---

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Bibek Debroy on Indian agriculture

In the past, a monsoon failure triggered famines. Now, the worst it can do is shave 0.5 per cent off GDP growth rate.

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