Why Agri GDP is Declining Decade after Decade? Part-A – K. Ramasubba Reddy

1.Faulty planning & policies real reason for rural ruination:
When will the promised New deal for Rural India be realized?
a. During the 60 years of Planning between 1950-51 and 2009-10, the share of agriculture in GDP has fallen by more than two third from 55% to 15%, whereas the share of industry has increased from 15% to 28% and the share of services has nearly doubled from 30% to 57%.
T1.Sectoral GDP Growth since 1950s
Gross Domestic Product—Sector wise at 1993-94 prices
(%))
Year Agriculture  Industry Services GDP
1950-51  (55) (15)  (30) 100
1960-61  (51)  (19)  (30) 100
1970-71  (44) (23)  (33) 100
1980-81 (38) (24)  (38) 100
1990-91  (31)  (26) (43) 100
2000-01 (24) (20)  (56) 100
2004-05
2009-10
 (20)
(15)
(20)
(28)
 (60)
(57)
100
100
 Note: Figures in brackets show the GDP of the three sectors as % of total GDP
T2.  Sectoral Composition of Gross Domestic Product at Factor Cost during 2000s (Percent)  
Sector 2000-01 01-02 02-03 03-04 04-05 05-06 06-07 p 07-08 Q 08-09R
Agri 23.9 20.4 21.4 21.7 20.2 19.5 18.5 17.8 17.0
Ind 20.0 19.3 19.9 19.4 19.6 19.4 19.5 19.2 18.5
Services 56.1 56.7 58.9 58.9 60.2 61.1 62.0 63.0 64.5
CSMS 15 14.7 14.3 14.3 14.2 13.9 13.4 13.1 13.9
GDP@FC 100 100 100 100 100 100 100 100 100
FY 2010 RE: Agl:14.60%, Ind:28.47%, Ser: 56.93%,Tot:100
Source: Central Statistical Organisation
1b. Agricultural growth has been subject to large variation over the decades. The 1970s interregnum is particularly marked by the severe deceleration in agricultural growth, followed by a recovery in the 1980s, and a slowdown thereafter.
T 3. GDP Trends since 1950s (Percent)
  1950s 1960s 1970s 1980s 1990-91 FY 1992-97 FY 1998-2003 FY 2004-07
Real GDP growth 3.6 4.0 2.9 5.6 5.3 5.7 5.2 8.7
AGL 2.7 2.5 1.3 4.4 4.0 3.7 0.9 4.9
Industry 5.8 6.2 4.4 6.4 5.7 7.0 4.1 8.3
Mfg 5.8 5.9 4.3 5.8 4.8 7.5 3.9 9.1
Services 4.2 5.2 4.0 6.3 5.9 6.4 7.8 10.2
1c. Agri GDP growth rate was subject to wide fluctuations, from  -7.2 in 2002-03 to +4.9% in 2007-08 and registered only 0.2% for 2009-10. Industry GDP ruled high for 4 years up to 2007-08, but started decelerating thereafter and recorded lowest rate of 3.9% during 2008-09 , but recovered during FY 10 when manufacturing GDP  was a whopping 10.8%.
T 4. Sectoral Growth Rates of Gross Domestic Product at Factor Cost
(At 1999-00 Prices) (Percent)
Sector 2000-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 Q 08-09 Q
Agri -0.2 6.3 -7.2 10.0 0.0 5.8 4.0 4.9 1.6
Ind 6.4 2.4 6.8 6.0 8.5 8.1 10.7 7.4 3.9
Services 5.7 6.9 7.5 8.8 9.9 11.2 11.3 10.8 9.8
CSMS* 4.7 4.1 3.9 5.4 6.8 7.1 5.7 6.8 13.9
GDP@FC 4.4 5.8 3.8 8.5 7.5 9.5 9.7 9.0 6.7
GDP growth FY2010: Agl;0.2%, Mfg: 10.8%, Trade,Tr,Com etc: 9.3%
Source: Central Statistical Organisation. *CSMS-Community, social and personal services
1d. Agri GDP was 4.9% for FY 08, down to 1.6% for FY 09 and for FY10  near zero at 0.2%.
The average Agri GDP growth for the three year period work only to 2.2% per annum which is just  a little more than population growth of 1.6%. This means per capita income of agri workforce was virtually stagnant during the first three year of the XI Plan period ending FY 1O.
The aim of achieving inclusive growth by raising agri GDP to 4% during XI plan period is proving to be a mirage now. When will the promised New deal for Rural India be realized?
1e. Despite the shift in sectoral GDP away from agri sector, most of the employment is still in agriculture.
                             Share in GDP        Share in Employment
Agriculture                 17                              58
Industrial                   19                              18
Services                    64                              24
So, the transfer of work force from agriculture to other sectors has been very low.
1f. This means a disquietingly large increase in income disparities during the last 60 years of planning! With regards to the composition of GDP, the percentage shares of various sectors have largely changed. The percentage share of the agriculture in the total GDP has declined sharply, on the contrary the percentage share of services in the GDP is rising faster.
2a. Steep fall in the share of agriculture in GDP
The steep fall in the share of agriculture in GDP is due to the fact that its growth rate at 2.6 per cent per annum was less than half of the growth rates of 6.8 per cent per annum for industry and 4.8 per cent per annum for services during the period 1950-51 to 2004-05.
T5.Rise in rate of growth of India’s GDP Since 1950s
Sector 1950-51 to 2004-05 2005-06 to 2009-10*
Primary 2.6  Agri        2.8
Secondary 6.8 Ind           7.4
Tertiary 4.8 Services 10.2
GDP 4.0                  8.2
GDP/Per capita 1.9                  6.6
Source: CSO-Computed-GDP for 2009-10 AE
2b.India’s increasing per capita income growth, not benefitted Agri workforce
Per capita income:      80s    90s  FY01-10  FY06-10-5years
   Total                         3.4%   3.7%  5.7%       7.0%        
PCI of Agri Sect                                            1.2%                      
Over the last five years, per capita income has grown in India at an average rate of 7%. In the decade to 2009-10, real per capita income climbed an average 5.7% a year.
Per capita income growth was just 0.7% in the seventies. The change really began in the decade beginning 1980-81 when GDP expanded by 5.6% and per capita GDP climbed 3.4% annually. This trend continued into the next decade — per capita income climbed 3.7% annually as the economy expanded by 5.7% per year. 4 Jun 2010,ET Bureau
2c.Stagnant Agri sector workforce income
During the current 5 year period FY 2006-10 average agri GDP growth is estimated to be 2.8%. This is about 1/3rd of Industry GDP growth of 7.4% and about 1/4th of Services GDP growth of 10.2%.
At an average rate of population growth of 2.1% during the period 1950-51 to 2004-05, per capita income of agricultural workforce was virtually stagnant.
 Average increase in Per capita agri income was a megre 0.5% per annum during 1951-2005, compared to whopping increase in per capita industry sector workforce income at 4.7% per annum and that of services sector workforce income at 2.7% per annum.
This has resulted in wide variation between incomes of agri workforce and non- agri workforce.
While increase in per capita agri workforce income during the five year period ending FY 2010 was only about 1.2% per annum, Per capita industry workforce income was 5.6% and that of services workforce 8.6%.
3. Skewed Sectoral Growth Pattern
Though the average annual growth rate of agriculture sector had never been very high, as compared to industrial and services sectors over the decades, agricultural sector has managed to maintain its average growth of about 3.4% for the period 2001-02 to 2007-08, against a growth of 3.1% in 1950-51 to 1960-61.
 After registering a lowest average growth of 1.8% during the period 1971-72 to 1980-81, agriculture and allied activities posted a growth of 3.5% for the period 1981-82 to 1990-91.
The period 1981-82 to 1990-91 represented a structural break, as during this phase, the total GDP of the economy reached a higher growth trajectory of 6.2% from its earlier Hindu growth rate of about 3.5-4.0 %.
From this period onward, significant growth has been witnessed in both services and industrial sectors.
The average annual growth in industrial sector showed a cyclical pattern. After slowing down from 6.3% in 1950s, to 4.0% in 1970s, it gained momentum in 1980’s to 6.2%, but the 1990s witnessed a dip to 5.6%. The current decade saw the highest average annual growth of 8.1%. The services sector showed consistent improvements since 1950s but for a dip during 1970s and the current decade represents really an accelerating trend in services sector growth. (Chart A, Please see Annexure for decade wise sectoral growth trends).
The decadal growth pattern across sectors is reflected in the changing share of different sectors in national GDP. From a peak of 53.3% in 1950-51 to 60-61 the share of agricultural sector came down to
20.5% for the period 2001-02 to 2007-08. Slow down in its share started reflecting during the period 1981-82 to 90-91 when industries and services sectors gained speed. Thereafter, while the manufacturing sector has been posting a higher growth, the share of services sector started rising tremendously and contributed the most to GDP growth rate (Chart 1 and Chart B).
4.Causes for lower share Of Agri Sector in GDP
Some of the major factors contributing to low growth and contribution to GDP by the agriculture sectors are:
i) The agricultural sector has shown a lower performance due to a number of factors such as illiteracy, insufficient finance, insufficient irrigation facilities and power availability and inadequate marketing facilities and under pricing of agricultural products.
ii) The average size of the farms is very small which in turn results in low productivity. The sector has not adopted modern technology and agricultural practices to a larger extent.
iii)Decline in plan allocations  investment and investment credit are contributing factors.
Over-regulation of agriculture has increased costs, price risks and uncertainty. Government intervenes in labour, land, and credit markets, as well as inadequate infrastructure and services also contributed to slowdown in growth of agricultural sector.
(All the above aspects will be discussed in detailed in Part-B&C of the article)
KRSR/060610
Annexure: Sectoral Growth Trend Analysis
Decade-wise analysis reveals that the GDP accelerated remarkably to 5.6 per cent during the 1980s from 2.9 per cent during the 1970s.
The pick-up in GDP growth was supported by all the sectors with a marked acceleration.
T6.Sectoral Growth Trends – Average (Percentage)
  1950s@ 1960s 1970s 1980s 1990s* 2000-01 to 07-08 08 – 09
QE
09 -10
RE
Agriculture, forestry &
fishing
2.7 2.5 1.3 4.4 3.8 2.9 1.6 0.2
Industry 5.7 6.5 3.6 6.1 6.2 7.9 3.9
Mining & Quarrying 4.6 6.2 3.1 8.9 4.9 5.2 1.6 10.6
Manufacturing 5.8 5.9 4.3 5.7 6.5 7.7 3.2 10.8
Electricity, Gas &
Water Supply
10.7 11.4 6.9 8.3 7.0 4.6 3.9 6.5
Construction 5.8 7.2 2.0 5.5 6.0 10.6 5.9 6.5
Services 4.0 4.8 4.4 6.4 7.6 8.8 9.8
Trade, Hotels, Transport and Communication 5.0 5.4 4.8 5.9 8.0 10.7 7.6 9.3
Financing, Insurance, Real Estate & Business Services 3.1 3.2 4.3 8.4 7.7 8.8 10.1 9.7
Community, Social & Personal Services 3.5 5.2 4.1 5.8 6.9 5.6 13.9 5.6
GDP at factor cost 3.6 4.0 2.9 5.6 6.2 7.3 6.7 7.4
*: Excluding the crisis year 1991-92.
@ : Average for the growth during the 1950s is the average of nine years, i.e., from 1951-52 to 1959-60. QE=Quick Estimates @ 2004-05 prices. &: Agri sector share in GDP, RE= Revised Estimates at 2004-05 prices

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