FM sees 4 per cent farm growth as output key | india | Hindustan Times
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FM sees 4 per cent farm growth as output key

The Govt aims to boost growth in coming years to 10%, saying stronger growth is the key to helping 260 mn Indians living in poverty.

india Updated: Mar 01, 2006 17:54 IST
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India's Finance Minister said on Wednesday that raising agricultural growth to about 4 per cent annually was key to achieving the double-digit economic expansion needed to alleviate poverty.

But boosting economic momentum would also raise the prospects of more interest rate increases to head off the threat of inflation, analysts said.

The UPA government aims to boost growth in coming years to 10 per cent from an estimated 8.1 per cent this fiscal year, saying stronger growth is the key to helping 260 million Indians living in poverty.

Finance Minister Palaniappan Chidambaram pledged in the budget on Tuesday to boost spending on health, education and rural infrastructure, describing growth as "the best antidote to poverty."

But he said on Wednesday that achieving a higher economic growth rate would rely on boosting farm output.

"Agriculture is limping. We will not be able to achieve 10 per cent unless agriculture grows at 4 per cent," the minister told industrialists in New Delhi.

Farm sector output is erratic because farmers are so reliant on monsoon rains. Agriculture expanded just 0.7 per cent in 2004/2005 after strong 10 per cent growth in 2003/2004 and a 6.9 per cent contraction in 2002/03.

In the latest figures, for October-December 2005, the sector grew 3.4 per cent from a year earlier, under-performing a broader economic expansion of 7.6 per cent.

"In India, there are still people who are hungry and it is absolutely necessary that we are a united inclusive society. I am betting on high growth and helping agriculture," the minister said.

Agriculture's contribution to gross domestic product has fallen for years as manufacturing and services have grown. It now contributes around a fifth of economic activity.

But with nearly 60 per cent of India's billion-plus population living off the land, the farming community is a key driver of domestic consumption.

Higher rates

Still, faster economic growth would translate into the need for tighter monetary conditions, analysts said.

The central bank raised key short-term rates by a quarter point to 5.5 per cent in January, the fourth rise in 18 months.

"Given the continued higher growth trajectory, the risks remain that interest rates need to be adjusted further up," said Siddharth Mathur, strategist at JPMorgan in Mumbai.

This view seemed to be supported by Rakesh Mohan, a central bank deputy governor, who suggested in a television broadcast on Wednesday that the authority remained hawkish.

Speaking after the budget Tuesday, he said a sustained rise in crude oil prices would have to be passed on to the domestic economy.

"As far as interest rates are concerned ... (they) have to be seen in the context that the economy has been picking up very robustly in the last 18 months, two years, with very healthy credit growth overall," he told Times Now/Reuters television.

Economic growth will average 8 percent over three years if the government's projection of 8.1 per cent for 2005/06 is included.

Chidambaram's budget projected total spending in 2006/07 of Rs 5.6 trillion ($126 billion), with social spending up about 20 per cent.

The budget included a 20 per cent boost in spending on a rural jobs guarantee scheme and better terms for loans to farmers.

The finance minister said on Wednesday rural-sector spending would be funded by increased revenue collection, and that the government would not stray from its "fiscal correction path".

The budget aims to narrow the federal fiscal deficit to 3.8 per cent of GDP in the next fiscal year -- which would be the smallest since reforms began in 1991 -- from an expected deficit of 4.1 percent for this fiscal year ending March 31.