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What needs to be done to boost agricultural growth? Kausik Basu, CEA

Excerpts from: Q&A: Kaushik Basu, Chief Economic Advisor

*What needs to be done to boost agricultural growth, especially since food inflation is a concern and the country needs to provide for a large population?
Agriculture as a percentage of the gross national income has gone down to 14.6 per cent and will probably continue to go down further. That is the global story. As countries become richer, the agriculture sector becomes smaller in relative terms. Nevertheless, 4 per cent annual growth in agriculture is something we can realistically aspire to. Our aim has to be productivity. Indian agriculture is way less productive than that in many other countries. For that, we need infrastructure and investment — regular power supply, irrigation and decent fertilisers.

Guarantee these things and the government does not have to do very much. There is enough creativity and entrepreneurship among our farmers that they can take it up from there. There is no need for the government to be meddlesome at each stage.

*Inflation is one of the major challenges facing the country. Industry is worried about interest rates going up. Do you think this could harm investment in the long run?

Inflation occurred for six months, from May to November last year, and the high food inflation number that we see today is capturing purely the base effect. Over the last several months, average food price inflation has tapered off.

What is true is that non-food inflation has picked up since the end of last year. Core inflation, which is the inflation without food and fuel, was very low till October-November. It was just above zero then and is just below 6 per cent now. The government must not overreact to this, however, and take draconian measures which will lower investment and raise unemployment.

*System of food coupons and direct subsidy as a way of plugging leakages has not been tried out effectively so far. Do you think it will work?
I am sure it will work. It can do wonders for our social welfare system. There will be huge budgetary savings, with which we can cut down the fiscal deficit further and also send some of this money back to the poor for health and education. The food security Bill, which is being talked about, is eminently sensible. But, it is imperative that, along with it, we reform the delivery mechanism. Throwing money on the programme and enshrining rights on paper are not enough. Coupons or, equivalently, the smart card system is the way to go.

*You have also said that if people sell coupons, it should not be a concern. But, this defeats the purpose of subsidy...
There is indeed some risk that people will sell off their coupons and buy something other than food. The typical bureaucratic reaction to this is to try to post a policeman outside each home and prevent this. There are two reasons I disagree with this. First, if we try to monitor the behaviour of each household, we will end up setting up another layer of bureaucracy, with all the attendant problems of corruption. Second, the worst outcome, namely, that the poor household ends up getting a benefit but not in the form of food, is not such a disaster. And, we can put in small disincentives against this. For instance, wherever possible, the coupons should be handed over to the woman head of the household. There are studies from Kerala and Karnataka which show that the spending pattern of the household depends on who gets the money in hand and is superior if the money goes to the woman.

*There might be instances that such coupons or school vouchers are sold and money used for, say, buying liquor. How do you address these social issues?
When you give a higher salary to poor people, some may end up spending it on liquor. But, you do not give them a lower salary for that reason. Teach them better habits, but do not try to monitor.

Jyoti Mukul & Vrishti Beniwal / B S: June 07, 2010
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Mcro irrigation scheme-Out lay Rs.8,000 crore to benefit 2.85 Mn Ha.

The government today upgraded its micro irrigation scheme to a national mission with an outlay of Rs 8,032.90 crore, to save scarce irrigation water. The mission will bring 2.85 million hectare of area under micro irrigation, ensuring saving of irrigation water, fertiliser and electricity. It will help increase in crop productivity as the major government schemes get convergence to create water harvesting structures.PTI 100610

Growth rate reduced to 8% in mid-term appraisal of XI Plan

The Cabinet has approved the mid-term appraisal (MTA) of the Eleventh Five-Year Plan (2007-12), which scaled down the average growth target of the economy to 8.1 per cent from 9 per cent. The commission had projected that the economy would expand by 8.5 per cent in the current fiscal and rise to 9 per cent in 2011-12. The document had said: “The economy would be well positioned for transition to a growth rate higher than 9 per cent in the XII Plan period.” BL 100610

Rapid Strides by Banking Sector, but NPAs on the increase

The banking industry has grown at a compounded annual growth rate (CAGR) of 20% over the last decade. It has grown by a factor of five times. Total deposits have grown by 4.8 times, assets by 6.6 times, interest income by 9.5 times and net worth by 4.5 times. Employee strength has grown by only 5%! This is an incredible transformation of an industry with no parallel in the country.

During 2000-09 , our gross domestic product (GDP) nearly trebled from Rs 19,25,000 crore to Rs 54,75,000 crore, return on assets (RoA), which varies between 0.25% and 1.5% worldwide , has risen from 0.87% in 2000 to 1.0% in 2009, in the country.

The ratio of total deposits-to-GDP, which stood at 44% in 2000, has now climbed to 74%. However, the credit-to-GDP ratio presents an opposite picture, and India, at 55%, lags many countries whose banks lend more than the size of their economies. We also have to catch up with the world’s best-run banks in the area of cost management — at anywhere between 37% and 66%, our cost-income ratio is no match for international benchmarks of 30-35 %.
We expect the banking industry to continue its growth, even if it grows at a CAGR of 16% over the next decade, total deposits are expected to grow by about 5.2 times, assets by 6.2 times, interest income by 7.3 times and net worth by 5 times. Considering the continuous investments in improving efficiency and productivity, the staff strength could grow by 25%. ET 240510

However, Banks need to take steps to contain NPAs
NPAs increasing

Outstanding gross NPAs of listed banks grew by over Rs 14,500 crore in 2009-10 to cross Rs 76,000 crore. In per cent terms, gross NPAs inched up to 2.3 per cent from 2.2 per cent at the end of March for the sector. In absolute terms, SBI’s NPA was to the tune of Rs 26,662 crore and the bank made a provisioning of Rs 15,792 crore (59%).

Gross NPAs of the banking sector are likely to touch 5 per cent in 2011 from 2.3 per cent in 2008. In absolute terms, NPAs are estimated to triple by the year 2011 and would increase from Rs 55,000 crore to Rs 1.9 lakh crore.

The gross NPAs of public sector banks which stood at Rs 5,6473 crore in March 2002 came down to Rs 38,968 crore in March 2007 and again increased to Rs 45,156 crore in March 2009. BL 070610