Agriculture in trouble, again

Agriculture in trouble, again

With a global economic downturn likelyto affect the economy, poor agricultural growth is the last thing that India needs at the moment. Yet, that is what the release of the first advance crop estimates for 2008-09 heralds.

Released last week, the estimates point to a significant lowering in production of foodgrains, oilseeds and pulses. Total foodgrain production in the kharif 2008-09 season is expected to be 115.33 million tonnes, down by 4.65% from the 2007-08 fourth estimates. Similarly, oilseed production is likely to decline by 9.5% to 17.95 million tonnes from 19.84 million tonnes during the same period in 2007-08. Pulses present an even grimmer situation: a 27% fall to 4.72 million tonnes from 6.45 million tonnes.

These commodities are the fuel of inflationary fires, something that will make it harder for the Reserve Bank of India to cut interest rates. The three, when grouped together, have a weight of 7.66 in the Wholesale Price Index (WPI) that measures inflation. In the case of oilseeds and pulses, the problem is more acute as they have not seen a production fillip of the kind witnessed in the case of foodgrains. Oilseeds best illustrate the phenomenon. From mid-September 2006 to mid-September 2007, they saw a 27.7% inflation, which moderated to 16.62% by mid-September this year. With a projected decline in 2008-09, the situation will continue to be bad.

This will hit the economy in two ways. On the one hand, it will fuel inflation, and on the other, it is also likely to erode effective demand, especially in rural areas. This is the core of the real side of the economy. When coupled with the turmoil in financial markets and industrial production, decline is inescapable.

Part of the problem is the volatility in agricultural output. Consider rice. It witnessed a –6.1% growth in 2004-05. It went up to 10.5% in 2005-06. Down to 1.7% in 2006-07 and up to 3.21% in 2007-08. A similar situation prevailed for wheat, oilseeds and pulses. The prognosis is not good, but these are initial estimates and the story may change later in the year.

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