One small detail buried in India’s full-year gross domestic product (GDP) estimates for 2018-19, released by the Central Statistics Office (CSO) on Monday, summarises the country’s entire agrarian crisis: the farm growth rate, after being adjusted for inflation is the same as the farm growth not adjusted for inflation. Both stand at 3.8%.
This explains why farmers are protesting: their incomes haven’t grown at all, while their overall expenses have. For the record, CSO’s growth forecast for 2018-19 showed overall GDP growing at 7.2%, compared to an earlier estimate of 7.4% by the Reserve Bank of India.
The inflation-adjusted and inflation-unadjusted farm growth rates being equal corroborate the income crisis faced by farmers, who found prices of key agricultural commodities plummeting after they produced a bumper harvest.
“This simply means [income growth in] agriculture is flat because you could say inflation in farm produce is zero. Not only that, it also means that while input prices have increased [on items such as fertilizer, pesticides] because overall inflation shows an increase, output prices [revenues of farmers] have not increased. So, farmers’ real incomes are actually down,” said Himanshu, who uses only one name and is an agricultural economist who teaches at the Jawaharlal Nehru University.
Why is it that “farm growth adjusted for inflation” and “farm growth unadjusted for inflation” shouldn’t be the same? More importantly, what do these terms mean?
{{/usCountry}}Why is it that “farm growth adjusted for inflation” and “farm growth unadjusted for inflation” shouldn’t be the same? More importantly, what do these terms mean?
{{/usCountry}}GDP is the most widely used measure of a country’s output and national income. The farm growth cited above is expressed as “gross value added” or GVA, which in a rough-and-ready sense means GDP minus taxes, and therefore, a more accurate measure of output.
GVA takes into account economic components such as agriculture, manufacturing, mining, energy consumption and a basket of services, such as spending on hotel stays or haircuts.
One way of expressing the GVA is “nominal”, meaning it is calculated at the current year’s market prices. From the same GVA, inflation is deducted and pegged to a price level that is constant (at 2011-12 prices). This is inflation-adjusted or real GVA.
Such an adjustment is necessary because inflation erodes the value of your money and unless the price level is kept constant, it would be like evaluating GDP growth based on two different values of money.
Both the nominal and real GVA being the same means inflation is missing from food prices, therefore leading to a situation where farmers (or sellers of farm produce) haven’t been able to raise their incomes from food sold, while consumers (or buyers of food) are saving on their portion of income spent on food items. This is why farmers are protesting in tens of thousands. The silver lining is that farm GDP for 2018-19 is estimated to grow by 3.8% compared to 3.4% in 2017-18.