The Indian economy was in a bad place even before the COVID-19 pandemic hit. But the pandemic and the following lockdown has definitely made it worse. But is there a way out of the rut that the economy is in?
The government has dolled out a bunch of benefits last week but will they really help the economy pull out of the slump is what we need to wait and watch. The question remains — can agriculture help in the economic recovery?
What kind of reforms can help?
Agricultural reforms are one of the most promising changes that had been brought forth by the Nirmala Sitharaman led the Ministry of Finance. The decision to amend the Agricultural Produce Marketing Committee Act and the Essential Commodities Act was a big step. There will be no barriers in trade and the farmers will be able to sell their produce wherever they want to — even across borders.
The Rabi or winter crop harvest is good and we have enough rainfall during the ongoing monsoon added with the promising Kharif (monsoon) crops point to a great performance in agriculture. Sitharaman too agreed with these pointers. “We have had a very good Rabi crop. All of what was necessary, have been procured at a reasonable price so that farmers are not left high and dry looking for purchasers. Now the estimate for Kharif crop has also come. We can clearly see agriculture driving the revival”, Sitharaman said during the India Ideas Summit last week.
The agriculture sector which makes up for almost 70% of our economy’s Gross Domestic Product (GDP) even after the industrialisation and liberalisation, shows promise and might be the only sector with any hope at this point. The second tranche of Sitharamn’s economic stimulus had promised to provide credit support, in addition to the existing plans, to small and medium farmers. And this was planned to be executed by the National Bank for Agriculture and Rural Development (NABARD) and the Kisan Credit Card (KCC). There is the scope of private investments as well, said Sitharaman. “Every sector is a private sector… every sphere is open for private investments,” Sitharaman said on Tuesday and added, “We have kept all the options necessary absolutely open… interventions can happen even in the future.”
What will agriculture do to help?
But a high growth rate in agricultural produce does not really mean that the GDP will also grow in tandem or even that the demand will also increase proportionally. The growth rate calculated in real terms considers the value of production at constant prices. To compare on a time series perspective, the constant price method is needed because the daily purchasing power and thus the demand is more Day to day purchasing power, and therefore demand, is more likely to be a function of current or nominal incomes and that’s why we need the count. We need disruptive ideas to help the economy. “The Prime Minister directed that start-ups and agri-entrepreneurs need to be promoted to ensure innovation and use of technology in agriculture and allied sectors. He highlighted the need to leverage information technology to provide information on demand to the farmers,” a statement from the government recently.
The National Account Statistics (NAS) shows us the value of the output of all crops in current and constant prices — from 2011-12 to 2018-19 which can be incorporated as a supplement for farm incomes as a whole. In terms of constant prices, the value of crop output grew the fastest — 5.9%, in 2016-17. But it was not the year of the fastest growth. The highest nominal income growth was witnessed the year the Modi government took charge for the first time — it went as high as 15.3% in 2013-14 — the growth rate of real income growth was though at 4.9%. The year 2012-13 saw the real incomes grow at 0.6% and the nominal incomes at 11.6% — more than the 11.1% nominal income growth of 2016-17 — which is when the real growth was the highest. The real value of the output of cereals and fruits and vegetables grew at almost the same rate — 1.3% and 1.4% last year (2018-19). But, the growth in nominal terms was very different — it stood at 8.4% for cereals and 0.1% for fruits and vegetables. But we might be seeing better days — both agriculturally and economically. “The several things which have been done have now borne fruit that I can confidently tell you that we are able to see green shoots,” said the finance minister recently.
What is the solution?
An unusually good crop output this year might even create an excessive supply in the agricultural markets. The fact the non-farm output and thus the purchasing power will probably contact this year, it will lead to a drastic plunge in food prices. This may lead to a lower than real growth in agriculture. This will have a direct effect on the agriculture sector’s ability to pull the economy out of the rut. We need more policy intervention and proper implementation of the same from the government. Any public sector investment will definitely result in a multiplier effect that will have a positive effect on the economic environment of the country.
Note: Prime Minister Narendra Modi focused on agricultural reforms recently and said: “Our priority areas are reforms in agriculture marketing, management of marketable surplus, access of farmers to institutional credit and freeing agriculture sector of various restrictions.”
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