Status of Agriculture in India: Trends and Prospects

Author(s): Archana S. Mathur, Surajit Das and Subhalakshmi Sircar

Source: Economic and Political Weekly, Vol. 41, No. 52 (Dec. 30, 2006 - Jan. 5, 2007), pp. 5327-
5336
Published by: Economic and Political Weekly
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 Status of Agriculture in India

Trends and Prospects

This paper looks at trends in the growth of agricultural production in India over the last

one and a half decades, identifies factors that affect agricultural growth and analyses

constraints that have affected growth in the sector. On this basis, projections have been made

on the future growth of the sector in the medium term, coterminous with the Eleventh

Five-Year Plan. All-India level and state-wise analyses highlight the role of public investment/

government expenditure on agriculture as being the crucial determinant in stepping up the rate

of growth of agricultural production. Given other factors, a consistent increase in public

investment to 15 per cent per annum should lead to agricultural growth of 4 per cent, which

is concomitant with the projected growth rate in the Eleventh Plan. The other factors that are

importantfor a higher agricultural growth are fertiliser usage and agricultural prices.

ARCHANA S MATHUR, SURAJIT DAS, SUBHALAKSHMI SIRCAR

and subsidy and their effectiveness in the growth of agriculture;

Section VI analyses state-wise government expenditure and its

Introduction

role in agriculture. Section VII focuses on the determinants of

agricultural production in India; Section VIII on projected growth

A griculture, in most developing economies, is the core

in agricultural production followed by Section IX at the level

sector providing a livelihood to a significant proportion

of states. Section X analyses the projected growth rate of agri-

of the population, especially in rural areas. Since this

cultural output at constant prices at the state level. Finally,

sector faces the largest brunt of underemployment, unemploy-

Section XI presents concluding remarks of the study.

ment and poverty, a growing agriculture and allied sector is

expected to contribute vastly to overall growth and poverty

alleviation. Increasing the productive capacity of agriculture II

through higher productivity has been an important goal in deve-

All-India Trends in Agriculture

loping countries. It has been suggested that due to limited scope

for expansion of arable land there is a need to increase yields There has been a decline in the share of the agricultural sector

to their technically highest levels through appropriate investment in the overall gross domestic product (GDP), mainly on account

in basic infrastructure, human development, and research and of the high growth in services sector. In the last decade, the share

extension services [Chavas 2006, Zepeda 2006]. of agriculture in GDP was 29.76 per cent during 1993-94 to

Some of these issues are very relevant for a country like India 1995-96 and this fell to 23.15 per cent during the period 2000-01 to

where agriculture continues to be the core sector of the economy, 2002-03. The compound average per annum growth rate of agri-

on which over 60 per cent of our population is dependent for culture and allied sector was around 4 per cent during the 1980s

their livelihood. There has been a consistent decline in growth as can be seen in Figure 1. During the 1990s, this has come down

of the agriculture sector since 1990 onwards as compared to the to three and a half per cent during the first-half and further to 3

1980s. It was 4 per cent per annum during the 1980s on an average, per cent during the latter half of 1990s. In the last five years this

which came down to 3.2 per cent during the 1990s and 2 per sector has registered only 2 per cent average growth rate at 1993-94

cent in the last five years. Growth in real value of foodgrain (constant) prices. If we see the relation between GDP and

production has been an abysmal -3 per cent during the 1990s agriculture during 1993-94 to 2002-03 it is observed that with 1

and -5 per cent during 1999-2000 to 2002-03, with minor im- unit increase in GDP, agriculture grows by only 0.1 units (bi-

provements estimated during 2003-04. This has serious impli- variate regression coefficient). The GDP elasticity of agriculture

cations on the nutritional status and food security of our country. is only 0.43 during 2000-01 to 2002-03.

The present study examines trends in growth of agricultural pro- As against the above overall trend in the value of agricultural

duction in India over the last one and a half decades; identifies output, it is important to also look at the trend in real value of

factors that affect agricultural growth and analyses constraints foodgrains. Using the WPI-based inflation in foodgrains and

that have affected growth in the sector. The vast inter-regional taking 1993-94 as base year, real values of foodgrain production

variations in growth across the country emanating from have been calculated, as may be seen in Figure 2. It may be

area-specific factors have also been examined. On this basis observed that the value of foodgrain came down consistently

projections have been made on the future growth of this sector in from Rs 88,081 crore in 1990-91 to Rs 51,565 crore in 2002-03.

the medium term, co-terminus with the Eleventh Five-Year Plan. However, provisional estimates show some recovery in 2003-04.

The next section discusses trends in agriculture in the all-India Balakrishnan (2000) had also shown that during the 1980s

context. Section III focuses on the state-wise trends in agriculture. the growth rates of both foodgrain as well as non-food crops were

The following section concentrates on the sources of agricultural 3.54 per cent and 4.84 per cent per annum respectively, which

growth. Section V discusses trends in government investment came down to 1.66 per cent and 2.36 per cent during the 1990s.

Economic and Political Weekly December 30, 2006 5327

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 Figure 1: Compound Average Growth Rate of Agriculture and Figure 2: Trend in Real Value of (93-94 Prices) Foodgrains

Allied Sector in India

(Rs crore)

90000

?'e 4. , 5 ---- 4.077

85000
4 3.857

---3. - 3.567
80000 \/ \

75000

X :"S ' ' ';* * *2.964

70000 F= -2662t+91373

~65000-~ ~ R2 = 0.8517

r2: : : ! 2.026
60000 -

55000 -

1980-81 to 1985-86 to 1990-91 to 1995-96 to 2000-01 to

1984-85 1989-90 1994-95 1999-2000 2004-05

500001990- 1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002-

91 92 93 94 95 96 97 98 99 2000 01 02 03

Source: Central Statistical Organisation (CSO).

If we look at the growth of yields per hectare for foodgrain, set at all 12 states' average growth rate of 2.58 per cent, the five

non-foodgrain and total crops as a whole, as in Figure 3, we see major states, viz, Madhya Pradesh, Tamil Nadu, Gujarat, Kamataka

that growth rates have come down during the 1990s and the first- and Maharashtra have not only registered growth rates below

half of the current decade as compared to the 1980s. During the average but also have actually registered negative growth rates

second-half of the 1990s, the growth in foodgrain yield revived in foodgrain during this period.

but, again came down in the recent past. The growth of yield

of non-food crops came down drastically during the second-half

IV

of the 1990s because of which the growth in the overall agri-

Sources of Agricultural Growth

cultural yield fell down. However there has been some improve-

ment in the yield of non-food crops in the recent period with

There have been a large number of studies examining the factors

consequent impact on overall agricultural yields. that have contributed to the growth of agriculture in India. Bhatia

It is evident from Table 1 that the yield of different crops in

(1999) established a strong relationship between rural

our county is below the world average except for wheat and infrastructural development and level of per hectare yield of

sugarcane. There is, therefore, scope to increase the productivity in

foodgrain as also of the value of output from agriculture. Bhattarai

our country with the application of the latest available technology. and Narayanamoorthy (2003) have empirically shown that

C H H Rao (2005a) analysed agricultural growth from the first improvement in irrigation and rural literacy are the two most

decade of the plan period and suggested the continued need for important factors for agricultural growth in India. Mahendra Dev

provision of irrigation facilities, strengthening of extension

(2002) argued that there is a greater need for public investment

services, developing biotechnologically improved seeds along in agriculture, irrigation, credit availability, better marketing of

with adequate supply of institutional credit to raise farm

agricultural products, research and development (R and D) along

productivity and profitability.

with adequate pricing and other incentives for private investment

that would help revive agricultural growth. Similarly Sahu and

Ill Rajasekhar (2005) emphasised the importance of administered

allocation of credit to the priority sector at concessional interest

State-wise Trends in Agriculture

rates for agriculture.

While there has been decline in overall agricultural growth, Dhar and Kallumal (2004) suggested that throughout the 1990s,

as seen above, there are considerable inter-regional variations the share of agriculture in gross capital formation (at constant

across the country. With regard to the period 1993 to 2003, the prices) has remained in single digits, which explains the slack-

state-wise analysis shows wide variations in growth from 28 per ening of its growth momentum during the past decade. Gulati

cent to -19 per cent taking the first three years and last three and Bathla (2001) observed that there has been an increasing

years, viz, 1993-96 and 2000-03. The major 15 states in India role played by private sector investment in agriculture over time

comprising all general category states, excluding Goa and while there is a decline in public sector capital formation in the

including Assam have been considered for the present analysis. sector. Public sector investment along with terms of trade has

Figure 4 shows that the state of West Bengal registered the an inducement effect on private sector capital formation. Desai

maximum growth of 28.28 percent during this period followed by (2002) suggested that government expenditure should be focused

Bihar (with Jharkhand) 28.19 per cent, seen at 1993-94 (constant) on agricultural R and D, education and extension services, rural

prices. Apart from these two states, Kerala and Andhra Pradesh electricity, roads and marketing, irrigation and watershed devel-

have shown growth rates higher than all-India average of 16.95 opment, etc. Reddy and Reddy (2005) emphasised that there is

per cent growth in agriculture. If we consider the 15 states' a need for devolution of powers to water users associations

average then along with four states mentioned above, Punjab, (WUAs) for important functions like assessment, collection of

Madhya Pradesh, Uttar Pradesh and Haryana lie above the average water charges, sanctioning of works, etc.

of 11.28 per cent growth rate. States like Gujarat, Maharashtra,

Table 1: Yield of Some Selected Commodities, 2002

Orissa and Karnataka have registered negative growth rate in

agriculture (at constant 1993-94 prices) during this period.

Commodity (Country) Highest World India

Looking further at state-wise trends on foodgrain production

Rice/paddy (Egypt) 9135 3916 2915

during the same period, it is interesting to note that while West

Wheat (UK) 8043 2720 2770

Bengal again registers high growth rates along with Haryana and
Maize (Italy) 9560 4343 1705

Sugar cane (Egypt) 119893 65802 68049

some others, more importantly a number of fast growing states

Groundnut (China) 2986 1381 794

have overall recorded declining growth rates in foodgrain pro-

duction, as may be seen in Figure 5. With the horizontal axis Source: Economic Survey 2005-06.

5328 Economic and Political Weekly December 30, 2006

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 Figure 3: Yields of Food, Non-Food and Total Crops: 1980-81 to 2004-05

18.00

16.00 -

14.00

G) _______. '.:____

o 12.00

10.00

? 8.00

6.00

o 4.00

______ Period _

Source: Handbook of Statistics 2004-05, RBI.

Figure 4: State-wise Agricultural Growth at 1993-94 Prices during 1993-96 and 2000-03

33.84

28.28 28.19

F-1 - 25.10

22.56 - 19.63

F. 112u r e l L 15.82 14.29 14.06 All 15 States' Average 11.28 per cent

c I i- 11.86 11.28

11.28 -

-2 | m ' r2 129 14 .6 E E E 2.90 .

Source: Central Statistical Organisation (CSO).18.59

0.00

Source ,_~, 03 '- ~ : El 0

Ceta Sic 'o' co- ) E U

m 03 ~ ~ = ~ ' o L , ~ c z 'C3

co < a. n m m < '_

-11.28 a. 0 3 . ' co- a.

-22.56

Source: Central Statistical Organisation (CSO).

C H H Rao (2005b) compared the factors, which gave an down steadily since 1991, although the agricultural deflator has

impetus to growth of agriculture in some east Asian countries an upward trend (Figure 6). This is expected to have had a

that have achieved higher agricultural growth than India. India consequential positive impact on output.

is lagging behind them in terms of irrigation, rural electrification, The above studies emphasise the importance of different

rural roads apart from land reform and redistribution measures factors that have impacted growth of agriculture in India and

as well as human resource development. It is suggested that public other developing counties. In this context; it is interesting to look

policy should focus on development of infrastructure in the at the contribution of government expenditure on agricultural

relatively less developed regions, support agricultural research production in India before attempting to forecast future

and extension and skill formation. agricultural growth.

Some empirical studies examining agricultural growth by

Velazco (2006) for Peru; Odhiambo and Nzuma (2004) for

V

Kenya and Lezin and WEI Long-bao (2005) in the context of

Government Investment and Subsidy

China have explained important determinants that contribute to

factor productivity growth in agriculture. It has been suggested From the above analysis, it is evident that government expen-

that labour, capital, land, technological improvements are the

diture in agriculture, rural development and related areas is very

major positive contributors for agricultural growth in China. For important for agricultural growth in India. Government expen-

Peru, public investment, favourable expected prices, weather

diture primarily in the form of public investment and subsidy

conditions are prerequisites for private investment and agri- for inputs has been varying as per priorities identified by suc-

cultural growth. For Kenya, it is the government expenditure in cessive plans. Various recent studies have shown that stagnation

the form of expenditure on research and extension, etc, that is

in government expenditure is one of the reasons for agricultural

the key factor behind growth in total factor productivity slow-down in India.

growth (TFPG).
The major components of government expenditure include

An important factor suggested in these studies which has an

capital formation in and for agriculture, apart from agricultural

impact on demand for agricultural commodities is the prices for

subsidies. If we look at the period 1993-94 to 2002-03, it is obser-

agricultural goods. If we look at the overall trend of agricultural

ved that at the all-India level, if government expenditure is

deflator, as a proxy of demand for agricultural commodities, it

increased by 1 unit, then value of agricultural output increased by

may be observed that the growth in agricultural prices has come

104 units (at 1993-94 prices). The government expenditure

Economic and Political Weekly December 30, 2006 5329

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 Figure 5: State-wise Growth of Foodgrains at 1993-94 Prices during 1993-96 to 2000-03

18.38

38 16.89 16.87

15.00- 11.57

6.49

5.00. r n n 3.90 -9.42 -11.31 -24.50 -25.00 -43.97

.D -5.00 - co

-15.00 -

-35.00

-45.00 -

Note: Value of foodgrain deflated by respective state agricultural deflators.

Source: Central Statistical Organisation (CSO).

Figure 6: Trends in Agricultural Prices since 1990-91

2.00 - 20

1.50 15

1.00 y =*a-0.8296x
1 00 10 +14.371 10

0.50 5

0.00 0

) 0) 0) 0) 0) C) 0) C) 0) d 9 ?? G

6 . _ c80 co Ln r- =o CD o 04 o 0-)

) o0) 0C 0) 0 0C) 0 0) m- 0 c cm)

0) 0C 0) 0) ) 0) 0) 0 C 0) 0 0 0

|- - -A Agricultural deflator Growth in agricultural prices Linear (growth in agricultural prices)

Source: Calculated from Central Statistical Organisation (CSO) database.

elasticity of agriculture is almost unitary (0.98) during 2001-03. government GFCF has declined steadily over time as compared

It has been suggested that there has been decline in growth of to private GFCF (Table 3). The proportion of public investment

government expenditure in agriculture and that has to total investment in agriculture at constant prices was 32.3 per

contributed to decline in growth of the sector. During this period cent during 1993-94, which has come down to 23.6 per cent

there has been limited infrastructure investment while certain during 2003-04. During 1999-2000 to 2002-03 both total and

subsidies, though not all, have declined. It is important to look private investment in agriculture were stagnant. Public invest-

at some of these trends.

ment in agriculture at constant prices has come down since

It may be seen from Table 2 that fertiliser subsidy in nominal 1994-95, a trend that continued till 2000-01 although this

terms has come down after 2000-01 by 20.18 per cent. Similarly, improved somewhat in subsequent years.

the electricity subsidy came down by 21.28 per cent in 2002-03. If we compare the gross capital formation in agriculture and

It is even lower than the nominal electricity subsidy of allied sector as a proportion of agricultural GDP with that of the

1996-97. Irrigation subsidy came down in 2001-02 from 2000-01 whole economy, we see from Table 4 that it is 24.4 per cent on

level, however it has increased again during 2002-03. Other an average during the last four years whereas for agriculture the

subsidies were highest during 1996-97 and this has almost halved average GFCF is 7.3 per cent only. Public sector contribution

in the last three years as compared to 1999-2000 level. Total in agricultural investment as a proportion to agricultural GDP

subsidy had also come down during 2002-03.

is only 1.9 per cent as compared to 5.4 per cent by private sector.

Rao and Gulati (2005) showed that public sector capital forma- Figure 7 depicts the trend in public, private and total GFCF in

tion in agriculture as a proportion of total capital formation in agriculture at constant prices.

agriculture declined in the recent past as compared to the 1980s. While examining government expenditure for agriculture, it

The authors emphasise the need to reverse this trend and increase is important to look at the expenditure on agriculture and allied

public investment in agriculture so as to be able to increase the sector along with power irrigation and flood control, rural

growth in the sector. In 2003-04, this constitutes only 23.56 per

development and fertiliser subsidy. Expenditure on agriculture

cent of total agricultural investment at constant prices.

and allied services include crop husbandry, soil and water

The detailed trend of gross fixed capital formation (GFCF) in

conservation, animal husbandry, dairy development, food

the agricultural sector in India shows that the proportion of

storage and warehousing (excluding food subsidy), rural

5330 Economic and Political Weekly December 30, 2006

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 Figure 7: Gross Fixed Capital Formation for Agriculture at
(22.6 per cent in 2001-02, 24.8 per cent in 2002-03 and 26.3 per

Constant Prices

cent in 2003-04) of GDP.

30000-

25000

VI

20000-

0 .- Interstate Variation in Agriculture and

( 15000 - ,..-

Government Expenditure

1 10000-

5000- -
In order to examine the inter-regional variations in agricultural

0 - , tn ,o r- c 0 ' ' - ' ')

growth, the relation of government expenditure in 15 major states

0) 0) 0) 0) 0) 0 0 0 0 0 0 '

cn t L) c(D N c 0 0 - CM
was examined with the trend of gross state domestic product
0) 0) 0a 0) 0 ) 0) 0 o o o

0) 0) 0 0) 0) ) 0c o o o

cmJ N 0
(GSDP), value of agriculture and foodgrain during 1993-94 to

Year

the latest available in 2002-03. The state-wise growth rates of

- GFCF - - Public ---- Private

both overall agriculture and foodgrain are seen by taking the

Source: Agricultural Statistics at a Glance, 2005.

three years average of first three years (1993-94 to 1995-96) to

Figure 8: Trend of Government Expenditure at 1993-94 the average of last three years (2000-01 to 2002-03) and then

Prices for Agriculture

estimating the change. The real government expenditure on

80000

70000

Table 2: Structure of Agricultural Subsidy in India

O 60000
(at Current Prices)

50000.... (Rs crore)

40000 . .................- - --

Year Fertiliser Electricity Irrigation Others Total Subsidy

-- 30000

i 20000
1993-94 4562 24.00 5872 1235 14069

10000 1994-95 5769 2338 6772 1246 16125

1995-96 6735 1977 7931 1034 17677

? 0CM C) o U)tn <o . 0) 0 ? NC ') W W

1996-97 7578 8356 4937 3819 26050

o _C Co V C) D C , N 0 N o UW

1997-98 9918 4937 10318 983 26156

0) ) 0) OC 0 ) a) 0) ) , 0 o o 9 9

i) oNoN
1998-99 11596 3819 11827 1182 28424

1999-00 13244 4276 11487 1937 30944

Year

2000-01 13800 6056 13756 835 34447

.- - Total (Revenue+Capital) Expenditure- Expenditure less Rural Devt & Pwr

2001-02 12595 9342 13309 978 36224

-- Expenditure less Rural Devt

2002-03 11015 7354 15401 1259 35029

Source: Indian Public Finance Statistics - various issues, Ministry of Source: Agricultural Statistics at a Glance, 2005, Ministry of Agriculture.

Finance, Gol.

Table 3: Gross Fixed Capital Formation in Agriculture and

development, etc. Figure 8 shows that while the total government

Allied Sector

(Rs crore)
expenditure for agriculture and allied services, rural develop-

ment, irrigation, etc, in real terms has been quite steady up to

Year GFCF Government GFCF Private GFCF

2001-02, there has been a decline in 2004-05 after an increase

Current Constant Current Constant Current Constant

in the previous year. However, if the expenditure on rural

1993-94 15249 15249 4918 4918 10331 10331

development and power, irrigation and flood control is dis-

1994-95 18383 16785 6002 5369 12381 11416

counted, there is not much change in expenditure by the gov-

1995-96 21367 17689 6762 5322 14605 12367

1996-97 24415 18326 7296 5150 17119 13176

ernment on agricultural activities.

1997-98 26008 18294 6921 4503 19087 13791

In order to examine the relative effects of government and

1998-99 26714 17470 7583 4444 19131 13026

private capital formation in agriculture and compare the

1999-00 32308 20024 8662 4756 23646 15268

different forms of agricultural subsidies, respective elasticities

2000-01 32798 19809 8170 4435 24628 15374

2001-02 35486 20360 10348 5488 25138 14872

were calculated with the help of bivariate regressions of log

2002-03 37972 21500 9476 4760 28496 16740

value of agricultural output at current prices on log of different

2003-04* 43907 24186 11739 5699 32168 18487

investments and subsidies at current prices for the period 1993-94

to 2002-03. The results have been summarised in Table 5. Note: 2003-04 based on quick estimates.

Source: Agricultural Statistics at a Glance, 2005, Ministry of Agriculture.

It may be observed from Table 5 that expenditure on gross

fixed capital formation (GFCF) is comparatively more effective

Table 4: GFCF in Agriculture as Compared to Overall GFCF

in enhancing the value of agricultural production. In addition,

(Per cent)

investment has a longer term and sustained impact on agri-

cultural growth rate. On the other hand the otimpact of subsidies Year Overall GFCF/GDP GFCF/GDP in Agriculture

at Current Prices at Current Prices

is restricted to the short-run. The output elasticity of total GFCF

Public Private Total Public Private Total*

in agriculture is 0.86 whereas that of total subsidy is 0.75. Within

total GFCF, government investment with elasticity 1.12 is more 1993-94 8 13.4 21.4 2.03 4.27 6.30

1998-99 6.5 15.1 21.6 1.71 4.32 6.04

effective than private investment with elasticity 0.77. As far as

2000-01 6.9 16.7 23.6 1.74 5.26 7.00

the major agricultural subsidies are concerned, among others,

2001-02 6.9 16.8 23.7 2.03 4.92 6.95

fertiliser, irrigation and electricity subsidies are effective with

2002-03 6.2 18.5 24.7 1.87 5.61 7.48

elasticities of 0.65, 0.55 and 0.36 respectively. It is interesting

2003-04* 6.5 18.9 25.4 2.04 5.59 7.63

to note that the total GFCF in agriculture, including public

Note: * Total calculated by adding public and private investments.

and private investment, has been only 7 per cent of its output,

Sources: Economic Survey 2005-06 and Agricultural Statistics at a Glance

whereas the overall GFCF in India is around 25 per cent 2005.

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agriculture has been calculated taking the price deflator for by all 15 states' elasticity, the resultant index shows the relative

agriculture sector. position of individual states that varies from 0.12 in Punjab to

Table 6 shows that the size of the agriculture sector as a 1.83 for Rajasthan and 1.3 for Kerala.

percentage of GSDP (both at constant prices) in the recent The government expenditure elasticities of agriculture vary

period during 2000-03 ranges from 13.8 per cent for Gujarat to from -0.67 for Kamataka to 0.68 for Bihar during the same time

38.7 per cent for Punjab, with an average of 22 per cent of period. The other state with negative elasticity is Orissa at -0.21.

GSDP for major 15 states. Using the relationship between This seems to suggest that the GSDP growth does not necessarily

agricultural growth and GSDP and government spending, an have equally positive effect on agriculture for all states mainly

index of performance of different states is arrived at. It may be because of non-agriculture (particularly service sector)-led growth

seen that although the agriculture to government expenditure in these states.

ratio for all major 15 states is 22.3 at constant prices, it varies

widely across states with 46.11 for Punjab to 10.93 for

VII

Madhya Pradesh. States, endowed with more government expen-

Determinants of Agricultural Production

diture, have shown better performance in agricultural growth

in general. It may be seen that several factors have been identified

Further, in order to see the effectiveness of government to increase agricultural production. Apart from government

expenditure on agriculture, time series values of GSDP from expenditure, agricultural growth is determined by many other

agriculture have been regressed with respect to government variables in India. In order to analyse the factors that have an

expenditure (both at current prices) and it is found that the slope impact on its growth a number of plausible relationships

varies from 3.57 for Madhya Pradesh to 51.98 for Rajasthan and were examined. The factors which are selected are based on

the elasticity varies from a 0.09 for Punjab to 1.42 for Rajasthan. the studies discussed above. We first look at the correlation

This indicates that the effectiveness of government expenditure between selected variables during 1990-91 to 2003-04. The

varies widely from state to state. If these elasticities are divided simple pair-wise correlation results are listed below along with

their level of significance for the period 1993-94 to 2003-04.

Table 5: Effectiveness of GFCF and Different Subsidies

Here, the variables examined are agricultural deflator (Agrdef),

in Agriculture

total government expenditure including plan and non-plan

centre and state taken together (GovtExpd), population, public

Explanatory Variable Elasticity R2 t F

and total investment (Publnv, Totlnv), credit, electricity and

GFCF 0.86 0.96 13.88 192.69

fertiliser usage, tractors, pump sets, rainfall and gross irrigated

Public investment 1.12 0.90 8.37 70.05

area (GirgA).
Private investment 0.77 0.96 13.50 182.12

Total subsidy 0.75 0.98 18.18 330.46 It may be observed that there is no significant correlation

Fertiliser subsidy 0.65 0.93 10.21 104.28

between public investment and rainfall. Similarly, there is no

Irrigation subsidy 0.55 0.69 4.23 17.92

significant relationship of public investment with fertiliser or

Electricity subsidy 0.36 0.61 3.52 12.42

prices. Also, rainfall is uncorrelated with fertiliser and prices etc.

Note: Dependent variable is log-value of agriculture at current prices. All the

In fact, almost all variables are uncorrelated with rainfall and

explanatory variables are also in current prices. All the elasticities are

public investment (the shaded zone in Table 7). This would

significant at 1 per cent level.

broadly suggest that public investment has followed its own

Source: Calculated from database of Agricultural Statistics at a Glance, 2005.

pattern and is not concomitant with years of good or bad rainfall

conditions in the country. Similarly, fertiliser usage would be

Table 6: Agricultural Growth and Government Expenditure

expected to increase during years of higher rainfall but it does

SI State 2000-01 to Slopes (1993-94 Elasticity

not hold in a vast country with varying conditions of drought

2002-03 to 2002-03) (dAGR/ (dAGR/

or floods in different regions. Similarly, changes in agricultural

AGR/ AGR/GE dAGR/ dAGR/ dGE) dGSDP)

prices are evened out and not related to rainfall conditions or

GSDP dGE dGSDP (GE/ (GSDP/

(Per Cent) AGR) AGR)

years of higher or lower public investment.

If we examine the bivariate relationship of value of agricultural

1 Andhra

production with the above factors, it is seen that the partial

Pradesh 23.38 42.03 37.72 11.88 0.9 0.51

2 Assam 29.64 21.56 14.59 7.16 0.68 0.24

elasticity of gross irrigated area is as high as 1.52, followed by

3 Bihar* 29.25 33.07 15.82 20.03 0.48 0.68

fertiliser usage (0.72), number of pumpsets (0.62) and usage

4 Gujarat 13.78 18.2 5.86 1.19 0.32 0.09

of electricity (0.50) for agricultural purpose. The agricultural

5 Haryana 30.44 20.51 7.43 9.31 0.36 0.31

credit elasticity is 0.15 per cent; that of government expenditure

6 Kerala 14.66 15.72 11.62 -9.84 0.74 -0.67

7 Karnataka 23.97 20.79 19.3 13.01 0.93 0.54

is 0.28, public investment is 0.29 and private investment is 0.24.

8 Maharashtra 14.02 12.11 8.89 6 0.73 0.43

It may be mentioned here that barely 40 per cent of gross

9 Madhya

sown area is irrigated in India and even though its increase

Pradesh* 18.85 10.93 3.57 3.39 0.33 0.18

contributes significantly to agricultural growth, rainfall

10 Orissa 22.89 18.53 12.14 -4.82 0.66 -0.21

11 Punjab 38.72 46.11 4.34 20.09 0.09 0.52 continues to be a crucial factor in determining agricultural

12 Rajasthan 23.91 36.5 51.98 11.75 1.42 0.49

output. Amongst the inputs, fertiliser and the pumpsets are

13 Tamil Nadu 14.83 14.42 5.82 1.59 0.4 0.11

more important while credit and other input subsidies have met

14 Uttar

with constraints despite being given substantial emphasis over

Pradesh* 32.09 27.9 13.64 16.46 0.49 0.51

15 West Bengal 22.08 40.3 38.01 12.26 0.94 0.56 the years.

16 All 15 states 22.04 22.3 17.35 7.17 0.78 0.33

A number of studies for various countries have used different

flexible forms of Cobb-Douglas production functions for agri-

Note: * States are old states after combining their new sub-parts.

culture. The most widely used among these forms is the

Sources: Computed from CSO data and Agricultural Statistics at a Glance -

2005.
transcendental logarithmic production function [Odhiambo

5332 Economic and Political Weekly December 30, 2006

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All use subject to JSTOR Terms and Conditions
(2004), Velazco (2006), Lezin and Long-bao (2005) etc]. The Hence from Figure 9, the estimated agricultural output as

following general trans-log equation was estimated in order to the function of agricultural deflator (P), public investment (I ),

establish the effect of various factors on growth in agricultural rainfall (R) and fertiliser usage (F) is given by:

production.

y = e.41 p0.95. 0.25.R0.08.F0.23

Ln(Y) = a + 2pi Ln(Xi) + lt

The results indicate that at all-India level the value of agri-

where, Y is agricultural output, Xis are different inputs with Pi

cultural output at 1993-94 prices is (significantly) positively

the respective coefficients, ao is the intercept and g is the error term.

dependent on the public investment in agriculture, fertiliser

Based on the above analysis, the following Cobb-Douglas

consumption and agricultural deflator. The model is a good fit

production function for the value of agricultural output at constant

with 0.98 adjusted R2 and a stationary residual. The value of

prices in India has been framed:

F-statistic is very high and value of root mean squired estimator

Y = oc.P. IgY.RS.FX is fairly low at 0.02. The intercept term would stand for the

or, technological change. The coefficient of rainfall is positive but

Ln(Y) = a + pLn(P) + yLn(Ig) + 8Ln(R) + XLn(F) insignificant.

where, Y is value of agricultural output at current prices, P is The most crucial factors affecting agricultural performance in

agricultural price, Ig is government investment in agriculture, R our country appear to be public investment and support for

is rainfall, F is consumption of fertiliser and a is constant fertiliser usage. The importance of irrigation as a substitute for

representing the technological change, P, y, 6 and X are the dependence on the exogenous natural rainfall is obvious. Further,

respective elasticities. public investment in agriculture including irrigation, marketing,

Agricultural deflator represents the average price for the crops food processing and storage has a significant impact on agricul-

and works as an indicator of profitability over average input tural production in India for this period. Fertiliser consumption

prices. Therefore, it is expected that with an increase in agri- or its usage also plays a very crucial role. The agricultural output

cultural deflator the value of real output will increase and vice depends positively on agricultural prices which reflect the

versa. Similarly, if the public investment in agriculture rises, it dominant role of supply vis-a-vis demand factors

will have twofold effect on growth. Apart from its direct impact Here agricultural deflator is estimated from the current

on growth, it "crowds in" private investment and causes real and constant agriculture GDP. Public investment comprises

output to grow further. Rainfall is expected to have a positive

and significant effect on output because most agricultural land

Figure 9: Dependent Variable - (Log) Value of Agricultural Output

(at current prices)

in India remains unirrigated and irrigation is also directly or

indirectly dependent on rainfall. Aggregate fertiliser consump-

Independent Variable Parameter Estimated t-Ratio SE

tion represents both the biotechnological aspects of increasing

Coefficients

yields and constitutes a large proportion of agricultural subsidies.

Agricultural deflator 0.95 10.40* 0.09

So this is also supposed to have a positive impact on aggregate

Public investment 7.41 0.25 3.77* 0.07

agricultural output.

Rainfall 0.08 1.22 0.06

On this basis, multivariate regressions for value of agricultural

Fertiliser usage 0.23 3.32* 0.07

production and foodgrains were examined taking different

Notes: F = 3782.23, R2 = 0.99, AdjR2 = 0.99, RMSE = 0.02

independent variables. The best fit model for value of agricultural

The residual is stationary, MacKinnon approximate P-value forZ(t)=0.00.

output, taking the period as 1990-91 to 2003-04, was taken and

*= significant at 5 per cent.

the results are as shown in Figure 9.

Table 7: Correlation Matrix of Explanatory Variables

Agrdef GovtExpd Population cPublnv cTotlnv Credit Electricity Fertiliser Rainfall Tractors Pumpets GlrgA

Agrdef 1.00

GovtExpd 0.97 1.00

0.00

Population 0.99 0.97 1.00

0.00 0.00

cPublnv 0.20 0.22 0.24 1.00

0.50 0.45 0.42

cTotlnv 0.89 0.91 0.91 0.43 1.00

0.00 0.00 0.00 0.13

Credit 0.91 0.93 0.94 0.34 0.96 1.00

0.00 0.00 0.00 0.24 0.00

Electricity 0.83 0.76 0.77 0.10 0.58 0.56, 1.00

0.00 0.00 0.00 0.74. 0.03 0.04

Fertiliser 0.92 0.93 0.91 0.07 0.78 0.79 0.79 1.00

0.00 0.00 0.00 0.82 0.00 0.00 0.00

Rainfall 0.25 0.26 : 0.19 0.32 0.12 : 0.07 0.60 0.26 1.00

0.39 0.38 0.51 ;-0.27 :: '0.67 . 0.81 0.02.. 0.37

Tractors 0.98 0.96 0.99 0.02 0.94 0.97 0.74 0.89 -0.03 1.00

0.00 0.00 0.00 0.94 0.00 0.00 0.00 0.00 0.92

Pumpets 0.93 0.88 0.94 -0.02 0.88 0.95 0.65 0.81 -0.12 0.96 1.00

0.00 0.00 0.00 0.96 0.00 0.00 0.02 0.00 0.71 0.00

GlrgA 0.99 0.95 0.97 0.06 0.87 0.88 0.88 0.90 0.23 0.95 0.91 1.00

0.00 0.00 0.00 .0.86 0.00 0.00 0.00 0.00 0.46 0.00 0.00

Notes: (i) Figures in italics are the levels of significance P(t). (ii) Shaded areas signify the uncorrelated (insignificant) zones.

Economic and Political Weekly December 30, 2006 5333

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government expenditure in irrigation and water management per cent. The foodgrain price deflator which has been lower is

and provision for other facilities like processing, storage, etc. taken separately, and taking the same three-year average, is

Fertiliser usage is total fertiliser consumed in thousand assumed to grow at 1.3 per cent.

tonnes and rainfall is actual figure during each of these years in (ii) Public investment (I ) has been assumed to grow consistently

millimetres. taking two scenarios for annual growth rates of 10 and 15 per

Further, a simple analysis taking a three-year moving average cent respectively. The CAGR for public investment in nominal

to examine the effect of fluctuation in public investment, rainfall terms during 1990-91 to 2003-04 is 9.45 per cent though fluc-

and fertiliser usage apart from their trends on non-trend variability tuating over the years.

(V) of value of agricultural production at constant prices, showed (iii) Usage of fertiliser (F) has been projected on the basis of

the following: linear trend of the log series for the period 1990-91 to 2000-

01 and its equation is F = 0.04.t + 9.3316 (with R2 = 0.87), where

V(Agrcnst)=446.0+ 12.6 V(PubInv)+ 86.1 V(Rainfall)- 12.1V(Fertiliser) + p

t is the time period. The years 2001-02 to 2003-04 have not been

(0.51) (5.09) (3.97) (-4.60)

considered for the calculation of the trend equation because of

F(3, 8) = 27.4 R2= 0.91 Adj R2 = 0.88

abnormal decrease of fertiliser consumption during this period

and expectation of a turnaround of this trend in the recent period.

This indicates that for each unit deviation in public investment

(iv) Level of rainfall has been kept constant at the simple average

leads to 13 units variation in value of agriculture and similarly

of 1990-91 to 2003-04 at 1145 mm.

for other variables. With variations in rainfall being exogenous,

(v) Projected population figures are based on the estimates of

fluctuations in fertiliser have a major adverse impact on

the registrar general of India.

agricultural growth.

(vi) Electricity in agriculture is assumed to follow the fitted

A similar exercise for value of foodgrain production in India

equation E = 10.819 + 0.0787t (with R2 = 0.95) for the period

during 1990-91 and 2002-03 shows the results of the chosen

1990-91 to 1998-99. This particular period has been chosen

model as in Figure 10.

since after 1998-99 there has been with change in accounting

Here rainfall is actual rainfall as seen before, and electricity

methodology taking electricity for agriculture as a residual and

is usage of electricity in agriculture in mkw. Population is as

reflecting an apparent downward shift of usage of electricity in

per estimates by registrar general of India.

agriculture.

From the above, the estimated real foodgrain (FG) as a function

Table 8 summarises the projection results for value of agri-

of rainfall (R), population (P) and electricity (E) is:

culture production, foodgrain and non-foodgrain during the

FG = e-l 22.R0.59.pOp0-66.E0.35

Eleventh Plan. The information for 2003-04 is also indicated

This analysis shows that government expenditure in agricul- as that is the year for which latest data is available. The pro-

ture, public and private investment, fertiliser usage and electricity jected value for non-foodgrain at current prices is derived as a

consumption for agriculture are the main factors determining residual of value of agriculture at current prices less the value

value of agriculture and foodgrain. Exogenous variables like of foodgrain at current prices and then deflated by the agricultural

rainfall and population also significant. The price deflator has deflator to obtain the projected values of non-foodgrain at

a positive impact on value of agricultural production. It may be constant prices.

mentioned that public and private investment as well as From Table 8, it may be said that as per present trends, the

agricultural credit have negative coefficient on the value of projected value of foodgrain (at constant 1993-94 prices) would

foodgrain production that seems to indicate that investment and have an annual average growth rate (CAGR) of 2.38 per cent

credit flows are increasingly directed towards non-foodgrain during the Eleventh Plan period. The overall agricultural growth

production.

Figure 10: Dependent Variable: Value of Foodgrain Output

It is suggested that there is need to increase government

at Current Prices

expenditure in the agriculture sector, with particular emphasis

Independent Variable Parameter Estimated t-Ratio SE

on investment in rural infrastructure comprising irrigation, pro-

Coefficients

cessing, storage and marketing, apart from improved and timely

supplies of inputs and credit. Investment on agricultural research

Rainfall 0.59 2.41* 0.25

and extension services are also essential. Declining provision of Population -1.22 0.66 1.56** 0.42

Electricity 0.35 1.68** 0.21

inputs and other subsidies also needs to be addressed.

Notes: F = 26.68, R2 = 0.89, AdjR2 = 0.86, RMSE = 0.06

MacKinnon approximate P-value for the residual Z(t)=0.0078.

VIII

= significant at 5 per cent. ** = significant at 15 per cent.

Projected Growth in Agricultural Production

Figure 11: Dependent Variable: (Log) Value of Agricultural

On the basis of above analysis, projections for Eleventh Five-

Output (at Current Prices)

Year Plan period have been made for values of agriculture

Independent Variable (Log) Parameter Estimated z-Ratio SE

production along with that for foodgrain at the all-India level

Coefficients

using the equations as obtained, viz,

Agricultural deflator 7.13 0.75* 11.54* 0.06

Y = e7'41.po095.Ig 025.R0.08.F0 23 and

Government expenditure on

agriculture 0.12* 3.64* 0.03

FG = e-l'22.Ro.59.poP0.66.E0.35 respectively.

Rainfall 0.17* 4.21 0.40

In order to do the projections a number of assumptions have

Population 0.21* 2.35 0.09

been made on the future trend of each of the determining

Fertiliser usage 0.24* 5.81 0.04

variables. These include:

R2: overall = 0.81, R2: between = 0.84, R2: within = 0.29, Wald chi2(5) = 154.43

(i) The agricultural prices are assumed to grow by the average

Notes: Random-effects GLS panel regression.

growth rate of last three years' (2001-02 to 2003-04) by 4.47

= significant at 1 per cent.

5334 Economic and Political Weekly December 30, 2006

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would be 3.04 per cent per annum in scenario I and 4.19 per ranging from around 79 per cent in Maharashtra to -5 per cent

cent per annum in scenario II if public investment is raised by in Kerala, government expenditure on agriculture (GE) is

15 per cent. The value of non-foodgrain production will grow assumed to grow at an average rate of 10 per cent and 15 per

at a faster rate of 3.22 per cent per annum in scenario I and 4.37 cent respectively for the projected years.1

per cent per annum in scenario II. It may be mentioned that (ii) Level of rainfall (R) has been kept constant at the simple

average growth of value of foodgrain and non-foodgrain would average of 1993-94 to 2002-03 in each state.

not add up to that of agriculture since the share of non-foodgrain (iii) Usage of fertiliser (F) and population (Pop) in each state

to foodgrain is more than 4:1. The price deflators are also different has been projected on the basis of trend of the log series for the

for foodgrain and non-foodgrain as mentioned above. It is period 1993-94 to 2002-03.

important to note that in order to raise the overall agricultural (iv) Projections for agricultural deflator are based on time trends

growth to around 4 per cent annual average, it would be necessary in each state.

to raise public investment consistently by around 15 per cent It is evident from Table 9 that the total government expenditure

respectively. on agriculture will lead to a rise in agricultural output depending

on the level of increase. Moreover, the assumption of a 10 or

15 per cent rise in government expenditure is quite reasonable

IX

as can be seen from the table that the average of CAGR in

State-wise Agricultural Growth

government expenditure for all 15 states taken together is 20 per

Determining Factors

cent for the period of 2002-03 to 2004-05.

During 1993-2003, states like West Bengal, Bihar and Kamataka

In order to see the effects of different factors on state-wise

registered a very high rate of growth in agriculture as seen in

agricultural performance for major 15 states (all general category

Section III, whereas Gujarat, Madhya Pradesh, Orissa and

states including Assam and excluding Goa) for the period 1993-

Kerala had negative growth rates. From Table 9, it is evident

94 to 2002-03, a generalised least square (GLS) random effect

that with an increased government expenditure of about 10 and

panel data regression has been used. The Hausman specification

test suggests that the random variable model rather than the fixed

effect one is appropriate and differences in coefficients are

Table 8: Projected Values of Agriculture, Foodgrain and

significantly systematic. Based on different studies, as discussed Non-Foodgrain at Constant (1993-94) Prices

(Rupees crore)
in the Section IV, the determining variables taken are agricultural

deflator, rainfall, population, fertiliser usage and total govern-

Year Agriculture Non-foodgrain

ment expenditure on agriculture (including expenditure on ag- Scenario I Scenario II Foodgrain Scenario I Scenario II

riculture and allied activities, rural development, special area

2003-04* 283311 283311 61814 230292 230292

programme and irrigation and flood control) as factors affecting

2006-07 314657 721059 69136 245521 651923

the agricultural performance of the different states. Comparable 2007-08 324371 751626 70818 253553 680808

2008-09 334310 783315 72522 261788 710793

state-wise information on public investment is not available;

2009-10 344472 816144 74249 270223 741895

hence total government expenditure by states on agriculture is

2010-11 354851 850129 76000 278851 774129

taken. All the variables are taken in log and the selected result

2011-12 365439 885279 77762 287677 807517

has been shown in Figure 11.

CAGR** 3.04 4.19 2.38 3.22 4.37

The generalised panel data model for these 15 states over the

Notes: (1) * 2003-04 figures are actual figures.

10-year period suggests that the agricultural output at current

(2) ** Scenarios I and II: CAGR with 10 per cent and 15 per cent

prices is significantly positively dependent on total government

increase in total public investment respectively.

expenditure on agriculture, fertiliser usage, rainfall and popu- (3) Calculated for Eleventh Plan Period. 2006-07 is taken to be the

base year.

lation. The coefficient of agricultural deflator is positive and

(4) Agriculture and non-food values at current prices are deflated by

significant showing that the supply of agricultural output depends

agricultural deflator and food values are deflated by food whole sale

positively on its price. An increased total government expenditure

price deflators.

on agriculture leads to a substantial rise in agricultural output.

Table 9: Projected Agricultural Growth for Select States

Similarly, a rise in fertiliser usage and rainfall (although it is

(at constant 1993-94 prices)

exogenous) also has a positive impact on agricultural output.

Further, it is observed that states with higher population growth States Scenario I Scenario II

rate are greater contributors to agricultural output.

Andhra Pradesh 2.96 2.47

Assam 6.11 5.60

Bihar 4.42 3.93

x

Gujarat 3.96 3.47

State-wise Agricultural Growth Projections

Haryana 3.60 3.11

Kerala 1.84 1.36

Based on the above panel results (Figure 11), projections for

Karnataka 3.80 3.31

growth in agricultural output at current prices (Y) have been made Maharashtra 3.55 3.06

Madhya Pradesh 3.86 3.37

for the selected 15 states for the Eleventh Plan period. A number

Orissa 3.68 3.19

of assumptions have been made on the future trend of each of

Punjab 2.56 2.07

the determining variables for the projections. The generalised

Rajasthan 4.30 3.81

equation, as obtained from above, used is:

Tamil Nadu 2.75 2.26

Uttar Pradesh 3.56 3.07

Y = e7.13.p0.75. PopO.21.GE0.12.RO.17.F0.24

West Bengal 3.35 2.86

All 15 States 3.60 3.11

The assumptions for the projections are as follows:

(i) Since total government expenditure has been growing at an

Note: Scenarios I and II: CAGR with15 per cent and 10 per cent respectively

average annual growth of 20 per cent in the selected 15 states, increase in total government expenditure on agriculture.

Economic and Political Weekly December 30, 2006 5335

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 15 per cent respectively, the states with high growth rates will recent initiatives for increasing public investment in the

sector and the upward trend in this direction is required

perform better; the states with negative growth rates will be able

to achieve significantly higher growth rates. to continue. 0f5

There is need to direct the enhanced government expenditure

Email: archana.mathur@nic.in
on irrigation and water management, processing, storage and

marketing apart from the provision of credit and other inputs.

It is also essential to focus on a wider extension system so that Note

the farmers can reap the benefits of new and improved develop-

[The authors are extremely grateful to Pronab Sen, principal adviser (Perspective
ments in R and D as suitable to the particular soil and agro-

Planning Division), Planning Commission for his very useful suggestions

climatic conditions.

given over several rounds of discussions and constant encouragement in

bringing out this paper. Assistance in compilation and analysis of data by

XI

Shyamla and Jyoti is also acknowledged.]

Conclusions

1 Andhra Pradesh (43 per cent), Assam (14 per cent), Bihar (7 per cent),

Gujarat (10 per cent), Haryana (7 per cent), Kerala (-5 per cent), Karataka

There has been a decline in the growth of the agriculture sector

(13 per cent), Maharashtra (79 per cent), Madhya Pradesh (25 per cent),

during the 1990s till the recent past. This is accompanied with

Orissa (16 per cent), Punjab (10 per cent), Rajasthan (35 per cent), Tamil

recent decline in yields per hectare for a number of food crops.

Nadu (21 per cent), Uttar Pradesh (8 per cent), West Bengal (14 per cent).

There are vast inter-state differences in growth rate of agriculture

and even more so for foodgrains.

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