Why agriculture needs impetus

Mon, 6 Aug Pre-Open

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Everything seems to be slowing in India over the past two years, GDP growth, infrastructure spending, credit growth, power supply etc. The RBI's aggressive rate hikes and policy paralysis are among the many reasons for the same. But, one thing continues to keep India's growth story alive, despite a number of negatives on the macro front. India's rural consumption, especially in interior towns and villages continues to remain strong. The latest consumption figures from the National Sample Survey Organisation (NSSO) show that rural consumption grew 18% in the two years to 2011-12. Poverty fell by roughly 7% in villages and 1% in towns. The town-country gap in incomes narrowed. But, while this looks rosy, this yet has to be properly quantified.

But, looking at a longer 7 year timeframe, i.e. from FY05 to FY12, the annual compound growth in real consumption in both urban and rural areas is less than 4%. It is to be noted that the NSSO captures less than 50% of the consumption reported in the national accounts. However, India's GDP growth was in excess of 8% over this period, thus there is definitely some disparity. This just proves the growing inequality that is crippling our country. It is not a very encouraging state of affairs if the consumption by the rural poor is growing at half the rate at which the overall output is growing.

Growth in any case benefits the well off more than it does the poor. Either way, an around 4% compound annual growth rate in real consumption is a significant achievement by past Indian standards. Their living conditions are improving, and they have been benefiting from higher cash flows. Plus companies catering to rural demand have seen significant volume growth. But, the only way this section of society can develop further is if agriculture were to grow faster. When the agri sector, the part of the economy that that directly engages the bulk of the poor grows, the impact on poverty is much greater than from overall growth. Sadly, the growth in agriculture over the seven-year period has been 3.7% compound.

The government needs to switch from plainly providing subsidies to actually investing in the farm sector . It needs to provide rural areas with well-maintained roads and power supply. It needs to give farmers more strength versus oppressive controls. All this will help produce more growth for the sector as well as in poverty alleviation. Maybe this will help India once again reach its days of 9%+ GDP growth.