DOWNTURN IN AGRI SECTOR- AN ASSESSMENT FROM THE ECONOMIC SURVEY-K. Ramasubba Reddy
HIGH LIGHTS :
i. Decline in GDP Growth rate and Share in GDP,
ii. Low Investment in Agri Sector,
iii. FALTERING FARM CREDIT-Nearly 2/3rd of agri loans given at the fag end of the year. Shortfall of Rs 60.000 crore in outstandings of Institutional Credit to Agriculture
iv. Stagnant Crop Production
v. Lesser use of available Irrigation potential
vi. Increasing Economic Costs of wheat and rice distribution
vii. Increasing cost of Food subsidy
viii. Increasing Fertilizer Subsidy
The Economic Survey shows that even though agriculture plays a vital role in feeding the vast populace and proving raw materials for industry besides sustaining employment to a large number of households, its share in GDP has declined from 21.7% in FY04 to 17.8% in FY09. Also, its share in capital formation has been declining over the years. The recent monsoon forecast is not too favourable. The issues highlighted above need to be addressed in the budget in right earnest.
1. Decline in GDP Growth and Share
GDP – share and growth (per cent at 1999-00 prices.)
2003-04:21.7%
2007-06: 17.8%
2998-09: 17.1%
Growth in GDP in agriculture & allied sectors 2007-08: 4.9%
Share in GDP - Agriculture and allied sectors 2008-09: 1.6%
Agricultural imports & exports (per cent at current prices)
Agricultural imports to national imports 3.1%
Agricultural exports to national exports 12.2%
Employment in the agriculture sector as share of total 52%
2. Low Investment in Agri Sector
I. Gross Capital Formation in Agriculture (Rs in Crore at 1999-2000 prices)
Year
GDP
Agl CCF
AGL GDP
AGL CCF as % of GDP
2004-05
2388,768
57.849
482,446
2.4
2005-06
2626,101
66,065
511,013
2.6
2006-07
2871,120
73,285
531,315
2.5
2007-08
3129,717
79,328
557,122
2.5
The Gross Capital Formation (GCF) in agriculture as a proportion to the total GDP has shown a decline from 2.9 per cent in 2001-02 to 2.5% percent in 2007-08. As Gross Fixed Capital Formation is estimated at 35% of total GDP, 18% there of being agri sector’s share in GDP, should be invested in improving agri infra, This works out to more than 6% of the total GDP which means investment in agri infra should be doubled
ii. Agri sector Investment growth rate (at constant 1999-00 prices)
Share of Agl In total CGF (%) AT 1999-2000 PRICES
Year
Public Sector
Private Sector
Total
1999-00
6.0
11.9
10.2
2000-01
5.8
11.3
9.7
2001-02
6.7
13.7
11.7
2002-03
6.5
11.5
10.3
2003-04
7.4
9.2
8.8
2004-05
7.8
7.7
7.7
2005-06
7.9
7.1
7.2
2006-07
8.2
6.6
7.0
The share of agriculture & allied sector in total GCF after showing a marginal increase during 1999-2000 to 2001-02 has been continuously declining. It stood at 10.2 per cent in 1999-2000, increased to 11.7 per cent in 2001-02 and thereafter declined to 7 per cent in 2006-07. The decline was mainly attributed to decline in the private sector despite increase in the share of public sector. This should be at least 18% of the total GDP, being the share of agri sector in the GDP which again means that investment in agri infra like irrigation, power, rural roads, godowns etc, should be doubled.
Year after year, the shortfall in disbursals continues to be around 40%, since inception of the Scheme.Disbursal level should be improved substantially.
3. FALTERING FARM CREDIT
i. Nearly 2/3rd of agri loans given by the fag end of the year
Figures in brackets indicate % growth over Mar 08 figure.
As per above data, the banks are shown to have given agri loans amounting to a huge sum of Rs 41000 crore out of total increase in credit of Rs 63,000 crore, constituting about 2/3rd of total annual disbursals, at the fag end of the year in just one and half months (Mid Feb-March 09). As khariff and rabi seasons were over by then, it is intriguing as to what puposes such huge agri loans were disbursed in just one and half months. Definitely it is not for production purpose as both khatf and rabi lending seasons are over by then. The growth figures of increase in agri lendings to an extent of Rs 41,000 is unlikely, unless indirect advances for huge amounts are given in March and shown as agri advances which does not help in production increase anyway.
AT THE STIPULATED 18% FIGURE OF NET BANK CREDIT,THE AGRI CREDIT SHOULD HAVE BEEN Rs 4 LAKH CRORE BY MARCH 09. AS OF MARCH09, THERE WAS A SHORTFALL OF Rs 60,000 CRORE IN AGRI LENDINGS AND THIS AMOUNT COULD HAVE BEEN LENT TO THOSE FARMERS WHO BORROWED AT VERY HIGH INTEREST FROM MONEY LENDERS THUS RELEVING THOSE FARMERS FROM DEBT TRAP.
ii. Shortfall in Flow of Institutional Credit to Agricultur (Rs in Crore)
The target was Rs 2,80,000 crore and actual credit given was 2,64,000 crore. Co-operatives gave lesser credit than previous year and the credit from RRBs was stagnant.
Note: In the budget speech on the 6TH Jul 09, the FM mentioned that agri credit flow in 2008-09 was Rs 2,87,000 crore and target for agriculture credit flow is set at Rs.3,25,000 crore for the year 2009-10. The figures given in the economic survey and those in the budget speech are not matching leaving us to guess as to which figures are correct. If credit flow was Rs 2,87,000 crore as mentioned in the budget speech, then the increase in credit flow during 2008-09 was Rs 33,000 crore (13% increase over previous year) and the targeted increase in credit flow during 2009-10 is Rs 38,000 crore which works out to 13%. Credit flow during 2008-09 as well as the target set for 2009-10 are less than mandated lending of 18% to agri sector, Same is the position in 2007-08 too. Credit flow to agri upto Sep 08 was only Rs 95,000 crore, which means that a huge sum of Rs 1,92,000 crore (2/3rd of the total disbursals) was disbursed in the second half of the year by which time Khariff lending season was over. Rabi acreage being less than khariff acreage, one is left to wonder as to what purposes such huge sums were given when it was not possible to account the credit flow for rabi crops. The growth figures of increase in agri lendings to an extent of Rs 1,92,000 is unlikely, unless indirect advances for huge amounts were given in the second half of the year and shown as agri advances which does not help in production increase anyway.
The Y-O-Y growth was drastically reduced to 9% from 30% during the fiscal 2007.
{Percentages in brackets indicate % share in incremental credit}
Credit to agri sector vis-à-vis agri GDP was only 39% compared to credit to industry share of 75% vis-à-vis industry GDP.
4. Stagnant Crop Production
Agricultural growth is characterized by sharp fluctuations and remains vulnerable to the vagaries of nature. For three consecutive years (2005-06 to 2007-08), foodgrains production recorded an average annual increase of over 10 million tonnes. The total foodgrains production in 2007-08 was estimated at 230.78 million tonnes as against 217.3 million tonnes in 2006-07 and 208.60 million tonnes in 2005-06. As per the third advance estimates, production of foodgrains in 2008-09 is estimated to be 229.85 million tones. This is lower than the target of 233 million tonnes set out or the year as also the final estimates of 230 million tonnes for 2007-08
Oilseeds:
Total production of the nine oilseeds is estimated at 281 lakh tonnes, which is about 5.5 per cent lower than the production in 2007-08 and about 11.4 per cent lower than the targeted production for 2008-09. As compared to the previous year, there is a decline of 12.3 per cent in kharif oilseed production while in the rabi oilseed production, there is an increase of about 10 per cent.
Sugarcane: The production of sugarcane during 2008-09 is estimated at 2,900 lakh tonnes which is lower than the productionof 3,500 lakh tonnes during 2007-08. This represents a decline of 17 per cent over previous year and of 15per cent vis-a-vis the target for 2008-09.
Cotton: The production of cotton, estimated at230 lakh bales, is short of the final estimates of 260 akh bales in 2007-08 by 10 per cent and as compared to the target by 10.5 per cent.
5. Lesser use of Irrigation potential created
The total irrigation potential in the country has increased from 81million hectares in 1991- 92 to 102 million hectares up to the end of the Tenth Five Year Plan (2006-07). Of the total potential created, however only 87million hectares is actually utilized. Under AIBP, State Governments were provided Rs. 28,000 crore as Central Loan Assistance (CLA)/grant for major and medium projects up to December 31, 2008. So far 91 major and medium irrigation schemes have been completed. In 2008-09, Rs. 2,800 crore has been released for AIBP for major and medium irrigationschemes up to December 2008.
6. Increasing Economic Costs of wheat and rice distibution
Economic costs of wheat and rice for 2007-08 have been provisionally fixed at Rs. 1,353 and Rs. 1,563 per quintal respectively. The economic cost of wheat and rice in 2008-09 is estimated to be Rs. 1,392 and Rs. 1,789 per quintal respectively. The difference between the economic cost of foodgrains and the issue price is reimbursed to FCI.
The incidence of taxation and levies on wheat and rice continues to be high in the major procurement states like Punjab, Haryana and Andhra Pradesh. They have been imposing state taxes and levies of over 10 per cent ad valorem on the procurement of foodgrains, thereby inflating the economic costs, which have a direct bearing on market prices. Huge expenditure is also incurred by the FCI, and reflected in economic costs, on payment of Dami/Arthia charges as per statutory notifications issued by some states notably, Punjab, Haryana, Uttar Pradesh and Rajasthan.
7. Increasing cost of Food subsidy
Provision of minimum nutritional support to the poor through subsidized foodgrains and ensuring price stability in different states are the twin objectives of the food security system. In fulfilling its obligation towards distributive justice, the Government incurs food subsidies. The difference between economic cost of foodgrains and the issue price is reimbursed to FCI. Food subsidy provided to FCI and states/ UTs undertaking DCP operations showed an annual increase of above 30 per cent during each of the three years namely, 2000-01, 2001-02 and 2002-03.The same trend is discernible since 2007-08.
8. Increasing Fertilizer Subsidy
The international prices of fertilizers increased manifold and the domestic cost of production of fertilizers has also increased during last couple of years. In spite of this, the prices of fertilizers have not been increased and have been kept at the same level of 2002 for major fertilizers. In addition, due to implementation of nutrient-based subsidy pricing, prices of various complex fertilizers were reduced by 18 per cent on an average. Increased burden of cost is borne by the Government in the form of increased subsidy/concessions paid to the manufacturers of various fertilizers. Total subsidy bill, which was Rs. 11,800 crore during 2003-04, increased to Rs. 99,400 crore during 2008-09.KRSR-Rev Ver/060709
