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Robust farm growth to help tame inflation

delhi Updated: Feb 10, 2011 00:20 IST
Zia Haq
Zia Haq
Hindustan Times
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Just over a year since it was crippled by a drought, India’s agriculture sector is firing on all cylinders again, a much-needed turnaround that could keep overall growth high and make fighting inflation easier.

The country looks set to reap its second-highest harvest of foodgrains in 2010-11, which includes an estimated 81.47 million tonnes of wheat alone, agriculture minister Sharad Pawar said on Wednesday.

Apart from cereals, record output in pulses and cotton and higher production of oilseeds are expected, pointing to pickups on all aspects of the farm economy.

The country's total grain output is expected to be 232.07 million tonnes in 2010-11. This is lower than the all-time high production of 234.47 million tonnes in 2008-09, but about 6% higher than the 218.11 million tonnes produced a year ago.

The best news for the UPA government could be this: farm growth is currently a robust 6.5%, having crossed the government's impossible-looking target of 4% in November last year.

Agriculture growth is critical for India, Asia's third-biggest economy, for two reasons: two-thirds of all Indians depend on farm income and sluggish farm growth could dampen overall GDP.

In 2009-10, the worst drought in three decades shrunk farm growth to almost zero from 1.6% the year earlier. In 2006-07, it clocked 4%, went up to 4.9% briefly and then began to slide again.

"Our agriculture seems to be finally responding to prices," said NR Bhanumurthy, economist with the state-owned National Institute of Public Finance and Policy (NIPR), referring to the sharp increases in the minimum price set by the farm ministry at which private traders and the government alike buy from farmers.

However, the high output could cause critics of the government to ask why food costs are rising despite the abundance. "There is more to inflation than just short supply or rising demand," said Abhijit Sen, member of the Planning Commission. Sen, however, said robust overall crop output makes fighting inflation less difficult.

Rising food costs — which have soared 17% over the past year — are pinching the pockets of average Indians. High farm growth will not quite alter India's projected overall growth of 8.6% for this year, as agriculture's share in gross domestic product — the sum of all incomes from all sectors — is just 16%.

Still, the net effect will simply mean more money in the hands of two-thirds of the population. This, in turn, will boost rural spending, which will push up manufacturing. Better rural income could not have come at a better time: it will at least cushion those hit hardest by rising prices in the current inflationary scenario, said Rajesh Nagpal, an economist with Commotech.