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Agri H1GDP Growth Down 1.7%- Urgent steps needed to boost Agri income growth
- K.Ramasubba Reddy

1.The farm sector growth rate was down by 40% from 2.9% in H1 08 to 1.7% in H2 09, mainly due to the twin impact of drought and subsequent floods. The growth is estimated at 0.9 per cent in the July-September quarter. About 300 districts, which account for close to half of the country, were hit by drought, followed by floods in Andhra Pradesh, Karnataka and Maharashtra in a gap of three months

Agriculture, however, provides livelihood to over 60 per cent of the country's population.

Though drought hit summer-sown crops, the sector was able to achieve positive growth in the second quarter, as full impact of the estimated sharp fall in Kharif food grains production would only get reflected in the third quarter. The growth in agriculture will be negative in the third quarter and that will pull the growth rate for the quarter down.

According to the first advance estimates by the Agriculture Ministry, rice production is projected to fall by 17.9 per cent to 69 million tonnes during the Kharif 2009-10. The output of coarse cereals, pulses and oilseeds is estimated to fall by 19.7 per cent, 7.5 per cent and 14.8 per cent, respectively.

The Prime Minister's Economic Advisory Council had said the output of the agriculture and allied sectors will decline by two per cent in 2009-10 against growth of 1.6 per cent in the last fiscal. PTI/November 30, 2009

The December quarter will show agriculture declining, because that's when the harvest shortfall will get captured," said Rajeev Malik, economist at Macquarie in Singapore,

2. Mindset of Planners and Policy Makers coming in the way of Inclusive Growth and Sectoral Equity in income distribution

However, Dr C. Rangarajan, Chairman, PMEC said industrial and services growth will be stronger in the second half and will make up for the impact of the weak monsoon on agriculture in the third quarter. BL29110

It is pretty certain now that there is likely to be negative growth to the extent of about minus -2% in agri GDP growth and over 60% of the population are dependant on agri sector.

We are unable to understand how growth in industrial and service sectors during the second half year will make up for the adverse impact of negative growth in agri GDP affecting adversely incomes of majority of the population. Will it improve incomes of 60%, agri dependant population; not directly any way. But it definitely improves the incomes of the 40% of the population earning livelihood from non-agri avocations. How will this ensure inclusive growth and equity to farmers and their dependants?

And to say that industrial and services growth will make up for the dip in agriculture is unfair to majority of the populating eking out their subsistence from agri avocation. I t bespeaks of a mindset inconsiderate of the sufferings of farmers & their families and others dependant on agriculture. Many planners and policy makers have similar mind set and with this kind of attitude inclusive growth is a mirage (Please see NOTES1&32below).

Nothing can make up for fall in farm growth in real terms. Food is first priority. Growth elsewhere cannot provide food for us. How does industry recovery help rural masses? What is urgently needed is planning and making sustained efforts to improve the incomes of agri work force, not averaging GDP growth and exulting about growth in services which gives false picture and covers up the plight of rural masses constituting 60% of the population. Due weight should be given to percentage of population depending on each sector to arrive at real Human GDP Index.

3.GDP growth H1 -7%

GDP growth rate is 7% during the first half the current fiscal, compared to GDP growth rate of 7% during the corresponding period last year. While growth rates of mining and electricity nearly doubled, growth rates of agriculture (-40%), construction (-25%), trade& hotels (-33%) declined sharply. Increase in growth rates of other sectors is around 20%.

Sectoral GDP H1 09-Growth Rates %

Sector	HY 08 %	HY 09 %	% Change in growth rate over HY 08
Agri	2.9	1.7	Minus -40%
Mining	4.2	8.7	Plus 107%
Manufacturing	5.3	6.3	Plus 19%
Electricity, gas and water supply	3.3	6.8	Plus 106%
Construction	9.0	6.8	Minus -25%
Trade, hotels, transport and communication	12.5	8.3	Minus -33%
financing, ins., real est. and Business services	6.6	7.9	Plus 20%
Community, social and personal services	8.5	9.9	Plus 16%
GDP at factor cost	7.8%	7.0%

Source: CSO-Computed

Quarterly GDP growth figures are given below :

4.Govt. Spending is mainly spurring GDP:

With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure.

Private Final Consumption Expenditure

In terms of GDP at market prices, the rates of PFCE at constant (1999-2000) prices during 2008-09 is estimated at 55.5 per cent, as against the corresponding rates of 57.2 per cent, respectively in 2007-08.

Government Final Consumption Expenditure

In terms of GDP at market prices, the rates of GFCE at constant (1999-2000) prices during 2008-09 is estimated at 11.1 (up by 1.3%) per cent as against the corresponding rate of 9.8 per cent in 2007-08 resulting in increase in fiscal deficit with inflationary potential. (Please see Note 3).

Pvt. and Govt. Final Consumption Expenditure

At constant Prices	Mar 08	Sep 08	Sep 09
Pvt. Final Consumption Exp	*57.2%*	*56.7%*	*55.2%*
Govt Final Consumption Exp	*9.8%*	*8.9%*	*9.9%*

Similar trend is visible in H1 09 too, less sharply though. Private final consumption expenditure (PFCE) declined from 56.7% (H1 08) to 55.2% in H1 09 while government consumption expenditure was high at 9.9% in H1 09, up by 1% from 8.9% in H1 08 resulting in increase in fiscal deficit facilitating actualization of inflationary potential.

“We shouldn’t ignore the fact that it (recovery)is still currently being driven substantially by public spending ... a recovery will only be sustained if private sector through consumption, investment and exports starts to stabilise” Subir Gokarn, Dy Governor, RBI, told. TH301109

“The central bank and the chief economic advisor are right. There is too much of purchasing power in the system and a liquidity overhang, and it makes it difficult to fight inflation.” Yoginder Alagh FE 301109

"In fact, some of the strength in the GDP data is due to a sharp increase of over 25 per cent in government spending during this quarter," CII secretary general Chandrajeet Banerjee said.

India's fiscal deficit for April to October was Rs 2.45 lakh crore, or 61
percent of the full-year target. Tax receipts were Rs 2.14 lakh crore and total expenditure was Rs 5.37 lakh crore for the first seven months of 2009/10 fiscal year. In July, the government forecast a fiscal deficit of Rs 4 lakh crore, or 6.8 percent of gross domestic product, for 2009/10. ET 301109

Comments » Govt. Spending is mainly spurring GDP
Posted by K.R.S.Reddy on 2009-11-30

From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down.
With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure. . Private final consumption expenditure (PFCE) declined from 56.7% (H1 08) to 55.2% in H1 09 while government consumption expenditure was high at 9.9% in H1 09, up by 1% from 8.9% in H1 08 resulting in increase in fiscal deficit facilitating actualization of inflationary potential.

NOTES :

NOTE 1 : Drought may restrict growth rate to 5.5%: Plan panel :

Agricultural growth closely follows monsoon. Monsoon deviations have a major impact on agricultural output.. There is a direct relationship between agricultural GDP growth and the deviation of rainfall from normal. A severe drought has the potential to restrict the country's economic growth to 5.5 per cent, the Planning Commission has said. "In the worst case scenario of farm sector GDP declining by 6.0 per cent, overall GDP could be limited to 5.5 per cent." The Planning Commission said growth in the second and third quarter may not be as good as the first quarter.

“I am glad that the worst may be over”: Said Planning Commission Deputy Chairman Montek Singh Ahluwalia “and we expect to see improved performance in the subsequent quarters. The (GDP) numbers are very good, it is consistent with what we are hoping for,” told reporters after the GDP data were released. Asked about the Planning Commission's note on inflation and whether it will rise above the comfort zone of 4-5 per cent by the end of this fiscal, Ahluwalia said, "If drought is managed well and there is good Rabi crop as well as fiscal consolidation, inflation may well be contained within the comfort zone.

Comments :

‘The euphoria of July also saw Montek Singh Ahluwalia declare that the “worst is behind us.” (Though it must be conceded that he said that even in June and, possibly, earlier.) That’s good. I only wish he had told us when the worst was upon us. It would have been nice to know. Otherwise, it gets hard to appreciate improvement. A huge fall in farm incomes is in the offing. If the government wants to act on a war footing, it could start with a serious expansion of the NREGS (about the only lifejacket people in districts like Anantapur in Andhra Pradesh have at this point, for instance)’.P.Sainath

Agriculture’s contribution to GDP is only around 18%- Chawla -F.S :

Finance Secretary Ashok Chawla while conceding that the poor rainfall would affect agricultural output, he allayed concern that it would impact growth, as agriculture’s contribution to GDP is only around 18%. Chawla said the manufacturing and service sectors would take up any slack.

COMMENTS :

There are reports in financial newspapers that the ongoing drought affecting nearly 200 districts in the country may not have much effect on GDP, since the farmers in the drought-affected areas contribute hardly 3 per cent to GDP. It is sad that such a measure of the impact of drought on the lives and livelihoods of millions of rural families is even considered. It is this mindset that is responsible for our country being the home of the largest number of poor and malnourished people in the world. P. Sainath’s article in The Hindu. Agriculture is not just a food producing machine but the backbone of the livelihood of 60 per cent of Indians. The extensive drought spotlights a situation of mass rural deprivation and a mindset that is insensitive to it. “In a country where 60 per cent of people depend on agriculture for their livelihood, it is better to become an agricultural force based on food security rather than a nuclear force.” Prof.M.S Swaminathan

NOTE 2 :

From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down. These stimulus measures raised internal demand as the Government injected Rs 1.86-lakh crore into the system since October 2008 through three stimulus package.

On quarterly basis, higher consumption expenditure from the government in the form of pay arrears given to its employees contributed to a high GDP growth of 7.9 per cent in July-September, while gross capital formation slowed to a seven-year low of 1.6 per cent. Private sector consumption also showed a 5.6 per cent increase.

Consumption expenditure and capital formation are two components of expenditure on GDP. Public consumption increased by 27 per cent in the second quarter of 2009-10 from 10.2 per cent in the April-June quarter and private consumption also went by 5.6 per cent from a low growth of 1.6 per cent in April-June this year. CII also accorded the growth in GDP to the sharp increase of over 25 per cent in government consumption spending during the second quarter.

This phenomenon of swelling govt. consumption for the past one year without leading to creation of productive assets or products or services has led to inflammatory swelling of GDP powered by monetary growth, with consumer price inflation in double digits and food inflation at 15%. India Inc. is clamoring, as usual, for continuation of fiscal and monetary stimulus measures and cheap interest rate regime which benefits them, but at the cost of the vast consumers and public in general. RBI is duty bound to act now to reduce the liquidity overhand with a view to reigning in the raging inflation.

Note 3 :

Even though agriculture share in GDP is18 per cent and policymakers are dismissive of its impact on GDP prospects due weightage should be given to the fact that two-thirds of India’s population is dependent on its fortunes and they have never fared well precisely because of official neglect over the years. With 65% of the population dependant on the rural sector, a slowdown here has ramifications, not only in terms of rural demand but, more important, human distress. Especially when juxtaposed with the rise in price of food articles (8.5%).

The key to long-term sustained growth must lie in a revival in agriculture and manufacturing. While the first depends on reforms to rain-proof Indian agriculture, the second is linked to revival of the global economy.