Mid-year review- Economy in 1st HY 2008-09
Decrease in agriculture GDP growth, area sown, production,credit flow. Tardy progress in reaching physical targets- Increase in Agri budget and MSP

HIGHLIGHTS:

1* Decline in GDP growth at 7.8% from 9.3%, substantively lower GDP growth in Agriculture at 2.9% from 4.5%.

2* Decline of 4.7% in Agricultural production and of 2.3% in area sown. Continuous decline in the share of agriculture in the GDP from 20.2 % in 2004-05 to 17.8 % in 2007-08.

3* Increase in the gross capital formation in agriculture, as a proportion of agriculture GDP (at constant 1999-2000 prices) from 11 % in 2003-04 to 13.4 % in 2006-07.

4* Higher MSPs  for Agri crops(except for sugar cane).

5* Agri credit flow only Rs 95,000 crore, one third of target of Rs 2,80,000 crore. Incremental non-food credit (y-o-y) for industry 48%, but only 9% for agriculture.

6*Lesser disbursals under RIDF at 2,666 crore against target of Rs12,795 crore .

Inability of majority of farmers to access long term capital to meet requirements of farm investments towards, adoption of new technology, infrastructure and land improvement stunts the growth potential.

7* Debt Waiver and Debt Relief for farmers:Eligible amount of debt waiver and debt relief comes to Rs. 65,000 crore, covering 3.68 Crore farmers. Implemented

8* NREGA: 2.93 crore households had been provided employment and 109.30 crore person-days were generated.

9* SGSY: Half the amount (Rs936 Crore) released.

10. Rural Roads: Targeted: 18,100 habitations, habitations covered up to September,08, only 3546.

11* Rural Housing: Total budgetary allocation of Rs. 5645 crore, an amount of Rs. 3176 crore released.

12. Drinking Water Supply: provided to 4.16 lakh habitations, against the target of 6.03 lakh habitations.

13* Grameen Vidyutikaran: 3,114 villages have been electrified.

14* Accelerated Irrigation Benefit Programme: Rs. 2835 crore has so far been released against budget of Rs.5,550 crore. The physical progress of Bharat Nirman- Irrigation component in terms of irrigation potential created during 2005-06 was 1.68 million hectare, during 2006-07 it was 1.94 million hectare and during 2007-08, it was 1.38 million hectare.

15* Rainfed Area Development programme: expected: scheme will be approved and operationalised by March, 2009.

16* Micro irrigation: Allocation Rs.500 crore, approves Rs 214 crore.

17* Repair, renovate and restore water bodies: AP, identification of water bodies completed and work on 51 tanks is being taken up in the 1st phase. In other states approvals/sanctions completed, work yet to begin.

18* Target for additional power generation capacity: Out of 77,670 MW, a capacity of 11,554 MW commissioned. 3,619 MW capacity achieved COD during 2008-09 till 30.9.08 against the target of 13,325 MW.

DETAILS:

1*For the H1 2008-09, the growth rate at 7.8 per cent is lower than 9.3 per cent recorded in the H1 2007-08. At the sectoral level, growth in H1 2008-09 is higher in mining and quarrying (4.4), construction (10.5) and in community, social and personal services (8.0), but
substantively lower in agriculture,
1A*As per the Fourth Advance Estimates of agricultural production released by the Directorate of Economics & Statistics, the total foodgrains production in 2007-08 has been estimated at 230.7 million tonnes, 13 million tonnes higher than the 217.3 million tonnes in 2006-07 (final estimate). For three consecutive years, foodgrains production has recorded an average annual increase of over 10 million tonnes. The cumulative South West monsoon season rainfall was marginally lower than the long period average with spatial and regional disparities. During 2008- 09 the area sown under Kharif was 2.3%less than the normal area sown of 1018.83 lakh hectares. In the first advance estimates of kharif production for 2008-09, production of foodgrains, oilseeds, cotton and sugarcane is estimated at 115.3 million, 17.9 million tonnes, 23.9 million bales and 294.7 million tonnes, respectively. While compared to the First Advance Estimates of 2007-08, this represents an increase of 2.8 % in foodgrains production, compared to the Fourth Advance Estimate; it shows a decline of 4.7%. This decline is across most coarse cereals and pulses. Rice output, however, is expected to record modest gains. Output of kharif oilseeds, cotton and sugarcane is also expected to decline. There is, however, encouraging news for Rabi 2008-09. Sown area in most crops has increased with the expectation of a rich harvest in Rabi 2008-09.

2* Agriculture
In recent years, the agriculture sector has shown signs of revival after having grown at about 2.5 per cent during the Ninth and Tenth Five Year Plan periods. The Eleventh Five Year Plan targets the per annum growth rate of agriculture and allied activities at 4.1 per cent with growth in crops targeted at 2.7 per cent, horticulture at 5 per cent, livestock at 6 per cent and fisheries at 6 per cent. The Agricultural GDP growth stood at 4.5 per cent in 2007-08 as against a negative growth in 2004-05. However there was a slowing down in agricultural growth in H1 2008-09 at 2.9 per cent as compared to the growth of 4.5 per cent in the corresponding period of the previous year. There has been a continuous decline in the share of agriculture in the GDP from 20.2 per cent in 2004-05 to 17.8 per cent in 2007-08.

3*The Central plan outlay for agriculture and allied activitieshas increased to Rs. 10,074 crore in 2008-09 from a level of Rs. 8,544 crore in 2007-08 which constitutes an increase of 17.9 per cent. For 2008-09 credit has been targeted at Rs. 2,80,000 crore. The outlay for National Food Security Mission is placed at Rs. 993 crore in 2008-09. The Rashtriya Krishi Vikas Yojana has been allocated Rs. 25,000 crore, during the Eleventh Five Year Plan Period, of which Rs. 3153 crore is allocated for 2008-09. In recent years there has been an increase in the gross capital formation in agriculture, as a proportion of agriculture GDP (at constant 1999-2000 prices). It has improved from 11.1 per cent in 2003-04 to 13.4 per cent in 2006-07.

4*Production
The Directorate of Economics & Statistics in its fourth advance estimates of agricultural production (July 2008) has placed total foodgrains production at 230.7 million tonnes, 13 million tonnes higher than the 217.3 million tonnes in 2006-07 (final estimate). For three consecutive years, foodgrains production has recorded an average annual increase of over 10 million tonnes. While the production of kharif foodgrains is expected to be 10.4 million tonnes (9.4 per cent) higher than the production in 2006-07, rabi production is expected to be higher by 3.0 million tonnes. The production of cereals is expected to be 215.6 million tonnes as against 203.1 million tonnes in 2006-07 (final estimate). The production of pulses is expected to increase by 0.9 million tonnes (6.4 per cent). In case of wheat and rice, the production in 2007-08 at 78.4 million tonnes and 96.4 million tonnes, respectively, is an all time high. Production of oilseeds is also expected to increase from 24.3 million tonnes in 2006-07 to 28.8 million tonnes in 2007-08 (a growth of 18.7 per cent). This is largely due an increase of 92 per cent in the production of
groundnut. The production of cotton has also remained buoyant.
As per the first Advance Estimates of kharif production for 2008-09 released by Department of Agriculture (DAC) the production of foodgrains, oilseeds, cotton and sugarcane is estimated at 115.3 million tonnes, 17.9 million tonnes, 23.9 million bales and 294.7 million tonnes, respectively.
While compared to the First Advance Estimates of 2007-08, this represents an increase of 2.8 per cent in foodgrains production, compared to the Fourth Advance Estimate, it shows a decline of 4.7 %. Decline is across most coarse cereals and pulses. Rice output, however, is expected to record modest gains. Output of kharif oilseeds, cotton and sugarcane is also expected to decline.

A decline in Kharif output of major crops may moderate the GDP growth, both overall and the GDP originating from agriculture. Assuming that 2007-08 revised GDP had factored in the output as per the Fourth Advance Estimate, overall impact of GDP growth may be around 0.3 (30 basis points). Much of this moderation has, however, already been factored in by forecasters.
The impact of decline in output of coarse cereals, pulses, cotton and sugarcane on prices is likely to be moderate. In case of edible oils and coarse cereals, current market prices may not witness any sharp increases because of a moderation in global commodity prices. In
case of rice, though production increase is moderate and lower than the growth of consumption, adequate stocks with FCI may help in containing expectations concerning prices. In 2008-09, global output of foodgrains and oilseeds is expected to increase. Increase in production of foodgrains is expected to be largely due to bumper wheat crop. Favourable weather conditions and better price expectations have resulted in an increase in area under wheat cultivation. Global cotton output, however, expected to get further moderated to 112 million bales

5*Area Coverage Area sown under Kharif crops is reported to be nearly normal at 1014.81 lakh hectares as on 17th October 2008. However it is 2.3 per cent lower than in the corresponding estimates for last year.

6*Minimum Support Price (MSP)
The Government fixed the MSP for the Kharif Crops of 2008-09 season of Fair Average Quality with the aim of giving adequate price incentives to farmers to produce more. The MSP for paddy (Common) was fixed at Rs. 850 per quintal and that of Paddy (Grade A) at Rs.880 per quintal. The MSP of Arhar (Tur) increased by 25.8 per cent over the MSP plus bonus of the previous year. The MSP of Groundnut in shell, Soyabean(yellow) and medium staple cotton, increased by 35.5 per cent,32.4 per cent and 38.9 per cent respectively over the MSP of the previous year. The increase in MSP of many crops may keep the food inflation from falling in the current year.

7A*Agricultural Credit
Agricultural credit flow as at the end of the month of September 2008 stood at approximately 34 per cent of the target for 2008-09.
Rural Infrastructure Development Fund>
RIDF has been established with NABARD, contributions to which are made by public and private sector banks having shortfall in their lending to the priority sector and/or agriculture lending target. This fund is to be utilized to lend to State Governments to build rural infrastructure in the areas of roads, minor irrigation, soil conservation, drainage, forests, plantation etc. For the year 2007-08 total sanctions under RIDF XIII stood at 12,795 crore (allocation Rs. 12,000) while the disbursement is Rs. 2,666.04 crore. NABARD has anctioned RIDF projects involving loan of Rs. 76,730.90 crore to various State Governments under various tranches of RIDF-I to XIV against which cumulative disbursement stood at Rs.46,659 crore as on 31 May, 2008. Allocation of Rs 14,000 crore has been made for the year 2008-09 under RIDF-XIV. In addition to this, allocations of Rs 4000 crore each has also been approved for the years 2006-07, 2007-08 and 2008-09 for funding rural roads under the Bharat Nirman project.

There is need to further increase the quantum of flow of financial resources to the agricultural sector. Inability of majority of farmers to access long term capital to meet requirements of farm investments towards, adoption of new technology, infrastructure and land improvement stunts the growth potential in agriculture. This requires focused attention on the creditworthiness of farmers and their low asset base. Credit extended by Scheduled Commercial Banks

7B*Non-food credit by scheduled commercial banks (SCBs)
expanded by 27.5 per cent on y-o-y basis as on November 7, 2008, higher than 24.0 per cent a year ago. However, for the same period real credit growth decelerated significantly from 20 per cent in November 2007 to 17 per cent in November 2008. The higher expansion in credit growth relative to the expansion in deposit growth was reflected in the credit-deposit ratio on y-o-y of SCBs at 74.92 per cent as on November 7, 2008 compared to 70.82 per cent recorded a year ago.
As per RBI’s disaggregated sectoral data available up to September 26, 2008 about 48 per cent of incremental non-food credit (y-o-y) was absorbed by industry as compared with 41 per cent in the corresponding period of the previous year. The agricultural sector absorbed around 9 per cent of the incremental non-food bank credit expansion as compared with 13 per cent in the corresponding period of the previous year. Personal loans accounted for nearly 15 per cent of incremental non-food credit; within personal loans, the share of incremental housing loans was at 38 per cent. The outstanding credit under credit card witnessed a sharp increase. Growth in
loans to commercial real estate remained high at 45.9 per cent.

8*National Rural Employment Guarantee Act (NREGA)
1.122 In 2007-08, 3.39 crore households were provided employment and 143.5 crore persondays were generated in 330 districts. In 2008-2009 (up to September), 2.93 crore households had been provided employment and 109.30 crore person-days were generated. The enhanced wage earnings have led to a strengthening of the livelihood resource base of the rural poor in India. In 2007-2008, more than 68 per cent of funds utilized were in the form of wages paid to the labourers.
In 2008-2009, 71per cent of the funds have been utilized in the form of wages. Self targeting in nature, the programme had high works participation of marginalized groups like SC/ST (57 per cent), women (43 per cent) in 2007-2008. In 2008-2009(up to September), the participation was SC/ST (54 per cent) and women (49 per cent). In 2007-08, 17.88 lakh works have been undertaken, of which 49 per cent were for water conservation. In 2008-2009(up to September), 19.14 lakh works had been undertaken, of which 44 per cent were for water conservation.
The Central Government has been encouraging the State Governments to make wage payment through bank and post office accounts of wage seekers. Thus far, 4.22 crore(upto
September, 2008) NREGA bank and post office accounts have been opened to disburse wages. The NREGA workers are also being encouraged to obtain insurance under Jan Shri Bima Yojana.

9*Swarnjayanti Gram Swarozgar Yojana(SGSY)
During 2008-09 (up to August), Rs. 938.14 crore (46 per cent) was released against the total central allocation of Rs.2000.00 crore. During the period, 1.10 lakh SHGs have been formed and a total of 4.56 lakh Swarozgaris have been assisted with a total investment of Rs. 1145.15 crore. Against total number of swarozgaris assisted, 2.11 lakh SCs/STs and 2.78 lakh women swarozgaris have been assisted which constitute 46.29 per cent and 60.96 per cent respectively.

10* Pradhan Mantri Gram Sadak Yojana (PMGSY)
Since inception, projects for construction of more than 3.32 lakh km roads to benefit 84,435 habitations have been cleared with an estimated cost of Rs. 82,008.27 crore. A sum of Rs. 38,594 crore has been released to the States and about Rs. 36,017 crore has been spent up to August, 2008. So far, up to August, 2008, construction of 1.77 lakh km has been completed and all weather connectivity has been provided to over 50,000 habitations. Work is in full swing in respect of 1.56 lakh km. In Rajasthan, 34,253 km. road length has been completed followed by 21,072 km. in Uttar Pradesh and 20,205 km. in Madhya Pradesh.