At the end of the fiscal 2006- 07 we find a staggering GDP growth rate of 9.2%, yet a measly 2.3% growth in agrarian sector and upsurge in the inflation rate(6.72%) sweated the economy. Being agrarian growth rate trailing far behind the 4% of 10th plan, in budget 2007- 08, agriculture topped the agenda. This paper attempted to find the reasons for stumpy agricultural growth rate and how the glitches have been addressed in the budget proposal. And it is found that ample measures have been taken to invigorate the agricultural sector with a bit of salt of criticism.
Introduction: -
Before analyzing the position of agriculture in the general budget 2007- 08, we must look into the conceptualization of the agrarian sector in the process of economic development in India. If we take a serious look into the trajectory of Indian economic development we find that it has been an attempt to accommodate both agriculture and industry. This was because the route to development in India was defined as the transition from pre- capitalist traditional agriculture to capitalist induced industrialization. But socio- political history of India has been one of negotiation & compromise and following that the modernizers accommodated both the sectors but always viewed agriculture as a “server” to the industry as industry has been dependent on agriculture for -
i) supply of workforce and
ii) Supply of food to the industry.
Whenever such linkage was threatened special care for the agriculture was taken e.g. in 1960’s Green Revolution. This is why the development model that India has been following is termed as a variant of the Lewis’ Dual Economy model(1954). India did not take the classical route to industrialization. Neither had it taken the Soviet model. Rather it has followed totally a different model to pave its way toward economic development.
Some statistical figures of 2006- 07
GDP growth rate= 9.2%
Rate of inflation= Averaging between 5.2%- 5.4%(growth rate on a long term basis have been 6%)Rate of unemployment(2004- 05, being the last figure)= 3.06%
Growth in per capita income= 7.4%
Rate of savings= 32.4%
Rate of investment= 33.8%
Foreign exchange reserve=$18, 000 crore
Employment growth rate= 2.48%
Figures are indicative of a flamboyant economy with a mild inflationary effect. But the agricultural growth rate has been disheartening with 2.3% which is afar from the targeted 4% in the 10th plan and 3.3% lesser than the fiscal 2005- 06 growth figure. As a consequence the contribution of agriculture to GDP is reduced to 19% as compared to the other sectors. In the pie- chart we can see that service sector and the industrial sectors are eating away the share of agriculture. But the interesting fact is that when oil price, in the international market was soaring, the inflation rate in our country remained with in limit but enigmatically when oil price started to ebb, the inflation propelled to 6.72%. What is the reason? The Economic Survey released on Tues day says that the reason was Supply side effect. But how? Due to low growth rate the production was lesser than demand. So, paucity of food grain supply paved the way to inflation. Apart from this, few food grain stockers stocked lentils and artificially created a scarcity in the market. This again gave birth to the “expectation” in the minds of the consumer that prices will go up further and fuelled inflation.
Reasons for measly growth in agricultural sector
The reasons for such stumpy growth in agrarian sector can be attributed to the following-
Lack of irrigation system and low irrigation coverage area.
SEZ building in many states at the cost of agricultural land(some of whom were multi-crop in nature)
Decrease in fertility due to excessive use of chemicals.
Shift of workforce to industry
More attention to the IT/ ITES e.g. BPO, KPO, LPO sectors, infrastructure etc.
Lack of transparency in agricultural credit/ fertilizer subsidy disbursal mechanism.
Surge in self- employment programmes which enabled the small peasants to move on to SMEs thereby increasing the production of sectors like Food processing, Packaging, dry food, spices powder production and packing, soft toys, handicrafts etc.
These altogether have led to the dearth of supply of food grains, which is a threat to the agriculture- industry linkage, what I have already defined earlier.
So far, in budget 2007- 08, agriculture and inflation propelled by the same were the twin challenges to be dealt with by Chidambaram, the Finance Minister. So agriculture, in budget for fiscal 2007- 08 topped the agenda and FM made some proposals for ensuring spurt in agricultural production and thereby controlling inflation and ensuring industry expansion, by warding off the linkage threat.
We know that several measures have been taken to take the agrarian sector to a better off position from the current abstemious one. Several allotments have been made but we are not interested in the figures rather the rationale of making such allotments and to what extent they are good enough to handle the glitch. There are many good aspects but the budget is silent about the storage system of the produce. This is of importance because if agricultural production expectedly soars, how will they be stored. Experience says that even during buoyancy in agriculture, farmers did not get reasonable prices and some committed suicide also; and the monster was over production.
No provision as to support price is there in the budget.
Reduction in the ad valorem duty on oil could have reduced the production cost but nothing as to that has been incorporated in the budget.
Conclusion: -
It can be concluded from the above arguments that FM endeavored to guarantee the protection of agriculture- industry linkage and industry expansion through resource allocation in different forms and under different names. He also tried to control inflation through budget allocations in agricultural sector. Arrangements have been made to-
Increase production and productivity of pulses,
Develop irrigation system(solving water problem)
Ensure trained agricultural labor force for efficient utilization of technology in this domain.
increase credit amount to farmers
Development of rural infrastructure etc. which are nodal in the growth of agricultural production.
So in entirety it’s a golden package for the agrarian sector. But how fine they are going to fetch result is a matter to observe. This is because allocation does not or cannot ensure how much and in what way the funds are going to reach the beneficiary. But, if, at all, by any means, we are hit by optimism bias, this budget is going to be proved as a 2nd Green Revolution.