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No party on the farm

There is enough in the second-quarter government growth estimates to cheer but policy makers cannot escape the rising skew against agriculture and its implications for economic inclusion.

india Updated: Nov 30, 2009 22:32 IST

There is enough in the second-quarter government growth estimates to cheer but policy makers cannot escape the rising skew against agriculture and its implications for economic inclusion. GDP grew by 7.9 per cent in the quarter on the back of 7.7 per cent a year ago, giving us a foretaste of even better numbers in the ensuing quarters when the low base of last year’s financial crisis should inflate current performance. Overall consumption and investment demand are back to levels seen before the meltdown, and government spending remains a strong fallback. Imports are a worry though; they have fallen twice as fast as exports during the quarter. Although this shores up the immediate report card, significant declines in non-oil imports signal a weak investment appetite in a technology- and capital-starved economy like India’s.

The cloud (or lack of it) is yet to show up as the effects of the drought will work their way into national income accounts only in the second half of the year. Expectations are kharif output will decline by between 7.5 per cent and 19.7 per cent for principal crops like rice, cereals, pulses and oilseeds. The Central Statistical Organisation arrives at flat agriculture growth for the quarter in question on the assumption that 82 per cent of farm output will post growth rates in the region of 3-4 per cent. As things stand, India’s farm produce would have to shrink by 5 percentage points to pull down GDP growth by a point. This degree of agricultural contraction is extremely unlikely given our wide experience with monsoon failure.

The gradual decoupling of India’s growth from natural forces is a mixed blessing. Agriculture’s share of the national income has shrunk by 1.5 percentage points over the past three years to a shade under 17 per cent. Regaining 9 per cent economic growth can only bolster this trend when farm output grows in the best of times at half that rate. Unless labour absorption in the rest of the economy shows a remarkable upsurge, an increasing proportion of Indians will be kept out of the loop. The short-term solution to keep them from falling off the cliff is government-intermediated resource redistribution. But this is not self-sustaining. Alongside a rules-based system for income transfers, the government needs to work on raising the absorptive capacities in industry and services.

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