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The sting in the GDP numbers

The sting in the GDP numbers
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First Published: Mon, Feb 08 2010. 09 08 PM IST
Updated: Mon, Feb 08 2010. 09 08 PM IST
There is much to celebrate in the estimates for national income for 2009-10. After all, India has bucked recessionary headwinds. One just has to look at the sclerotic global economy to see that at 7.2%, the estimated gross domestic product (GDP) growth is pretty good.
That’s where the happy tale ends.
If you’re looking for a sting, just glance the estimate for the agriculture, forestry and fishing sector. At a negative 0.2% (over 2008-09), this number exposes a different reality. Production of foodgrains and oilseeds is expected to decline by 8% and 5%, respectively, over the previous year. Cotton production is expected to rise by 0.2%, while sugar cane output is forecasted to decline by 11.8% in 2009-10. In a growth rebound situation, these figures only spell one thing: inflation.
The government certainly deserves blame for mismanaging the situation. It is also fine to say that it should allow greater private sector participation in agriculture, both in production and distribution. To be sure, the government can permit free import of commodities such as sugar, wheat and rice for a longer duration. But that is not a lasting solution. The problem lies elsewhere: the collapse of public investment in agriculture.
Since the mid-1990s, investment in agriculture (as a percentage of GDP) has hovered around 1.3-1.9% (rising to a maximum of 2.2% in 2001-02). That is too low an investment level to cope with the demand pressures of the 21st century. Unless this rises significantly, we will continue to witness unacceptable fluctuations in agricultural output.
Here is where the government (but not the political parties) deserves some support. Even if it wants to increase public investment in agriculture, where are the resources for that purpose? A vast amount of money is chewed up by subsidies. For example in 2009-10, it is estimated that fertilizer and food subsidies alone will amount to Rs75,470 crore (roughly 1.28% of estimated GDP for 2009-10). Unless this money is freed up, investment in this sector cannot go up.
Naysayers will immediately say that is impossible: Political realities will ensure that no reduction is possible on this front. But that presents a choice, too. Either learn to live with wild fluctuations in output, and the consequent price increases, or reduce and cap subsidies.
Are subsidies killing Indian agriculture? Tell us at views@livemint.com
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First Published: Mon, Feb 08 2010. 09 08 PM IST