Archive for July 19th, 2007

Growth Crisis in Agriculture

July 19, 2007

Yesterday, I had talked about employment issues in India. While just scanning the EPW site, I came across a paper on Indian agriculture By Ramesh Chand et al., which presents a detailed picture on woes of India’s agriculture. (a quick reminder: download it as EPW becomes a paid site from 1 August 2007)

I have posted a few times on agriculture and all have a common theme- Indian agriculture is in a mess. One might ask, why post only depressing stuff on India’ s economy? Well, that is reality of the growth story. No wonder, policy makers are talking about inclusive growth in such a big manner.  Inequality has been rising and this is the flavor of most economic debates even in USA.

Some quick findings from the paper:

1. Growth is agriculture between 1980-81 to 89-90, 1990-91-1996-97, 1996-97 to 2004-05 is 3.1%, 3.6% and 1.7% respectively. The growth in non-agri in contrast has been 6.9%, 7.0% and 7.1% respectively. As employment in agri has not fallen the disparities have increased.

2. Most of the (whatever) growth during 1980-97 in agri & allied sector has come from 2 sectors – fisheries and horticulture. Since 1996-97 the growth has started falling in these 2 sectors. Table 2 shows growth rates in sub-sectors of agriculture has fallen in all sectors. Crops and cereals infact stagnate between 1996-97  to 2004-05. As rural population has increased by more and so has workforce employed in agriculture, we have declining per capital incomes in agriculture.

3. They have done regression analysis of what drives agriculture in India.

GDPA = f(rainfall, terms of trade (ToT) between agriculture and non-agriculture, fertiliser, irrigation, crop intensity, institutional credit, public investment in agriculture).

To counter multicollinearilty, instead of one regression analysis, they have 3 of them. Some findings are:

In model I, rainfall, terms of trade, public sector capital stock and institutional credit were used as explanatory variables. All these variables turned out to be statistically significant with level of significance varying from 0 to 2.1 %.

Rainfall showed the most significant impact on output; 1 % increase in rainfall resulted in 0.21 per cent increase in GDP agriculture.

Improvement in terms of trade for agriculture by 1% led to a 0.42 % increase in output. Similarly, a 1% increase in existing level of capital stock and institutional credit increased agricultural output by 0.61 and 0.14 %, respectively.

4. They have done an analysis of how the various factors that drive agriculture have fared. Post 1996-97, all factors barring credit to agriculture has declined. The authors say:

Thus, the main factors which led to a slowdown in agriculture at national level after 1996-97 are: (a) decline in the area under cultivation, which seems to be a result of expanding urbanisation and industrialisation,
(b) deterioration in the terms of trade for agriculture,
(c) stagnant crop intensity,
(d) poor progress of irrigation and fertiliser,
(e) decline in supply of electricity to agriculture &
(f) slowdown in diversification.

They also point out that risk in performance of agriculture has increased. The standard deviation of growth in GDP from Agriculture has gone up from 4.16 in 1985 -96 to 6.58 in 1996-95.

5. The authors also do a state-wise analysis.

The growth experience of the two periods shows that before 1995-96 the growth rate of agriculture in most of low productivity states was much higher than the national average and after 1995-96 their growth rates not only declined, but also turned out to be much lower than the national average.

To sum up, the story is much the same. The solutions to revive are also the common ones. This paper tells the story using empirical analysis and that is what is the feature of this paper.

Assorted Links

July 19, 2007

1. Fed Chairman Bernanke gave his testimony to the US Congress. WSJ Blog has a series of postings on the same, try and read all the posts(in particular this and this). Excellent work.

2. WSJ Blog points out to an article that says record rise in Dow Jones index is not what is made out to be. Infact the stocks  “have only marginally outperformed cash sitting in a bureau drawer.”

3. How and why to invest in commodities via Finance Professor. It also points out to this paper on Behavior economics in which e-bay bidders end up with winners’ curse.

4. Free Exchange has another good post on Behavior Economics. It talks about the endowment effect.

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