Agriculture, falling from grace?

Indian economy is making a structural shift from agriculture to the services and manufacturing sectors. Both the prime minister and the finance minister have categorically said that for the economy to grow faster, the focus must shift from agriculture. At the policy level, the government has already changed gears as recent policy statements indicate. Ironically, the government has hyped the budget as pro-farmers and an attempt to ‘share the benefits of economic growth’ among farmers.

The long-term solution to the problem (poverty and agrarian distress) has to be to take people away from agriculture, to manufacturing, to services and other non-agricultural pursuits. The emphasis should be on creating an environment in which industry can create lot more jobs before that becomes a priority concern, Prime Minister Manmohan Singh told the Parliament in his post-budget address.

India’s economy has been growing at an impressive average of 8.6 per cent in the last three years, according to the budget. However, the government admitted that the growth has not helped in solving the agrarian crisis. Agriculture is declining in reverse proportion to the gross domestic product (GDP) growth. During 2006-7, the economy grew at 9.2 per cent, while agriculture and allied sectors grew at only 2.7 per cent. The poor performance of the sector holds good for the entire 10th plan period as it shows agriculture growing at an average of 2.3 per cent per annum. The PM told Parliament that there were limits to improving agricultural productivity.

Going by the government’s thinking, the structural shift in the economy will involve relocating farmers (around 11 crore households and 60 per cent of population dependent on agriculture) to the manufacturing and services sectors. This argument is based on two trends: agriculture is not generating employment due to low productivity, while other sectors are growing at high rates. The question then is whether the other sectors will be able to absorb such a massive relocation.

Besides, agriculture is not only about employment but also about local food security. The Centre thinks only in terms of employment. For food security, the emerging policy is to depend on import of food grain to manage the shortfall.

The non-agricultural shift seems out of sync with India’s reality. The fabled public sector contributes only 5.8 per cent jobs in the organised sector, and is going to shed four million employees by the end of the year. The private organised sector has an employment base of 2.58 per cent of the total. In the second half of the 1990s, this sector grew fast (nearly 12.3 per cent/year) and produced high quality jobs compared to other sectors. But for the rural unemployed, it practically didn’t contribute anything. On the other hand, due to its low base and spread, even if it grows at 30 per cent, its contribution would just go up from 2.58 per cent to 3.5 per cent.

For the full text of the Union budget (2007-8) and the
Economic Survey 2006-7, visit the link below
http://www.indiabudget.nic.in/