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Decline of Investment in Agri Sector : - - K. Ramasubba Reddy
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After the economic reforms started, the government’s expenditure and investment in the agricultural sector have been drastically reduced. The expenditure of the government in rural development, including agriculture, irrigation, flood control, village industry, energy and transport, declined from an average of 14.5 per cent in 1986-1990 to six per cent in 1995-2000.
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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 |
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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
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ii. Agri sector Investment growth rate (at constant 1999-00 prices)
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Share of Agl In total CGF (%) AT 1999-2000 PRICES
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| 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 |
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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.
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iii. Gross Capital Formation by Industry at Constant Prices (Percentage) |
| Sector |
2000-01 |
01-02 |
02-03 |
03-04 |
04-05 |
05-06 |
06-07 |
07-08 |
| |
|
|
|
|
|
|
|
|
| Agl |
9.7 |
11.7 |
10.3 |
8.8 |
7.7 |
7.4 |
7.2 |
6.7 |
| Ind |
37.0 |
32.4 |
38.3 |
42.2 |
49.2 |
50.4 |
51.5 |
50.1 |
| Servs |
53.3 |
55.9 |
51.5 |
49.1 |
43.1 |
42.3 |
41.4 |
43.2 |
| GDP |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
Source : Central Statistical Organisation. |
| In terms of economic activity, capital formation was highest at 50% in industrial sector. The share of agri sector continuously declined from 9.7% in FY 01 to 6.7% in FY 08.The share in capital formation of agri sector continued to be the lowest among all sectors. |
iv. Gross Capital Formation by Industry at Constant Prices- Growth rate- (Percentage)
|
| Sector |
2000-01 |
01-02 |
02-03 |
03-04 |
04-05 |
05-06 |
06-07 |
07-08 |
| Agl |
2.2 |
2.7 |
2.5 |
2.2 |
2.2 |
2.3 |
2.3 |
2.3 |
| Ind |
8.6 |
7.4 |
9.4 |
10.7 |
14.1 |
15.9 |
16.9 |
17.4 |
| Servs |
12.4 |
12.8 |
12.6 |
12.5 |
12.4 |
13.3 |
13.6 |
15.0 |
| GDP |
23.2 |
22.9 |
24.4 |
25.5 |
28.7 |
31.6 |
32.8 |
34.7 |
Source : Central Statistical Organisation. |
The growth rate of capital formation in agl sector was stagnant around 2% during this decade while the growth rate of industrial sector doubled from 8.6% to 17.4%. This clearly proves continues neglect of investments in agriculture. |
| v. Shortfall in Disbursal under Rural Infra Dev Fund (RIDF-upto2009- Rs in Crore) |
| Total Allocations |
88,386 |
| Disbursements |
53,775 |
| Shortfall |
35,511 |
| % Of shortfall |
40% |
| Allocation for 2008-09 |
14,700 |
Disbursals
Up to Feb 09 |
8,200 |
| % Of shortfall |
44% |
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Year after year, the shortfall in disbursals continues to be around 40%, since inception of the Scheme. Disbursal level should be improved substantially. |
vi. Continuous decline in the plan outlays for Agriculture |
Plan out lays for Agriculture is continuously declining from one plan period to another and has been far below Agri GDP share of 18% in the total GDP As seen from the figures given in the table below.
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| There has been continuous decline in the plan outlays for Agriculture. During 6th Five Year Plan the share was5.8%; the same declined to 4.9% during 9th Plan and further down to 3.9% during the 10th Plan. |
The share of expenditure on Research &Education was very low at 6% of the total development expenditure on Agriculture. The growth of public expenditure has slowed down since 1990s on Research and Extension, in constant terms. In the case of extension services the growth of expenditure was highest in the sixties resulting in acceleration in the agricultural growth. Thereafter the rate slowdown is very sharp. The rate of growth of expenditure on extension services has declined three-fold since 1990s.
The total expenditure on Agriculture fell from 13% in the 90s to 10% in the early part of the current decade. The growth of expenditure on irrigation declined from 14% from the first half of 1990s to 10% in the second half of 1990s and further to 4% in the subsequent period.
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| VI Plan |
Agri
5.8 |
Irrigation |
Total |
VIII Plan*
1992-97 |
5.2 |
7.5 |
12.7 |
IX Plan*
1997-2002 |
4.9 |
6.5 |
11.4 |
X Plan*
2002-07 |
3.9 |
6.8 |
10.6 |
XI Plan**
2007-12 |
3.8 |
|
8.55 |
*At 2001-02 prices **@2006-07 Prices Source: Plan Documents |
| Allocation for Agri in the XI Plan : |
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Thrust Areas: |
Agriculture and Irrigation. Ensuring Food Security, Supporting State-specific agriculture strategy and programmes,
Better seed production, Focused agricultural research, Extension, Development of modern markets.
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| Rural Development : |
Land Universalization and improvement in programme delivery of NREGP, Integrated Resources and Panchayati Raj Watershed management including management of underground water level.
The Eleventh Plan strategy of inclusive growth rests upon substantial increase in public sector outlay. |
The Eleventh Plan allocation at 2006–07 price is projected at Rs 54801 crore as against a Tenth Plan outlay of Rs 20513 crore at 2001–02 price. The total projected
Gross Budgetary Support (GBS) for the Eleventh Plan for Department of Agriculture and Cooperation is Rs 36549 crore (2006–07 price) and Rs 41337 crore (current price), for DAHDF is Rs 7121 crore (2006–07 price) and Rs 8054 crore (current price) and for Department of Agriculture Research and Education is Rs 11131 crore (2006–07 price) and Rs 12588 crore (current price). |
| Agri& Irrigation Sectors Allocation @ 2006-07 prices Rs in Crore |
| X Plan |
50,639 (6.22%) |
| XI Plan |
1,21,556 (8.55%) |
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NOTE 1: |
The share of agriculture in the total GCF (at 1999-2000 prices) fell from 7.7 per cent in 2004-05 to 7.2 per cent in 2005-06 and further to 7 per cent in 2006-07. The private sector’s share in the GCF has dropped from 7.7 per cent in 2004-05 to 7.1 per cent in 2005-06 and to 6.6 per cent in 2006-07. The private sector’s share in 1999-2000 was as high as 11.9 per cent.
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It is a clear indication that farmers — the main contributors to private investment in agriculture — have failed to acquire capacity to invest more despite the growth the farm-sector GDP. |
The reasons for this are several and quite varied. Although the prices of agri-commodities have remained high in the wholesale and retail markets during the larger part of this phase, the farmer gets less than half the retail price. This has adversely affected the profitability of agriculture. It was found in the 59th round of the National Sample Survey Organisation (NSSO) that 40 per cent of the farmers wished to quit farming. While 27 per cent considered it unprofitable, 8 per cent deemed it too risky. |
The Minimum Support Prices (MSP) are available only to the producers of a few crops, notably wheat, rice and, to some extent, cotton. And these are available only in a few states, where the official agencies operate in agricultural markets. Elsewhere, the farmers usually have to dispose of their produce at below the MSP. Even the Economic Survey has conceded that there is a ‘need to narrow the gap between producer prices and consumer prices through proper marketing support’. |
Easy access to cheap credit, which is critical for boosting private investment in agriculture, is not available to the bulk of the farm community. The report of the committee on financial inclusion (January 2008) has revealed that more than 73 per cent of farmer households have no access to any formal sources of credit. |
Moreover, in the absence of risk-hedging mechanisms, such as crop insurance, options trading and the like, farmers have little incentive to step up investment in an innately hazardous venture like agriculture. The NSSO survey had shown that only 4 per cent of farmer households had ever insured their crops; about 57 per cent did not even know that crops could be insured.
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Induction of new technology is essential for agriculture to be economically-viable and investment-worthy. However, for want of information, farmers cannot access new technology. The NSSO survey showed that only 30 per cent of farmers adopted some new practice during the survey year. When it came to technical information, only 6 per cent of the farmers relied on the extension agencies and even less (3 per cent) on government agencies. For the others, the main source of information on technology was the input-suppliers who had their own vested trade interests. Surinder Sud-BS-140709 |
| NOTE2 : |
| Decline in Government Investment in the Agricultural Sector |
When the economic reforms started, the annual rate of growth of irrigated land was 2.62 per cent; later it got reduced to 0.5 per cent in the post-reform period. The consequences were many. The rate of capital formation in agriculture came down, and the agricultural growth rate was also reduced. This has affected the purchasing power of the rural people and subsequently their standard of living. |
In recent years, the capital formation in agriculture as a ratio of agricultural GDP has been going down at a high rate. On the other hand, the capital-output ratio in broad agriculture has been going up from about 1.73 in1950-51, rose to 2.13 by 1966-67. It further went up to more than 2.5 and upwards by the mid-1980s. Currently, the capital output ratio is about 2.4: 1. |
If we assume that this ratio will rise to 2.5 in the coming years, for a growth rate of 4 per cent in broad agriculture, we need a capital formation proportion to GDP in agriculture of at least about 10 per cent. This proportion was about 4.7 per cent in 1950-51 and moved up to 11 per cent by 1978-79. But, thereafter it has been declining and currently it would be about 6.7 per cent. We need to step up the ratio about 50 per cent if we want a growth rate of 4 per cent in broad agriculture. Currently, our estimate is that only 6-7 per cent of overall investment goes in for agriculture, that is, only 2 per cent of aggregate GDP is being devoted for agricultural capital formation. |
| KRSR/301109 |
