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ECONOMY: MONSOON
The Price Factor
Forecasting foibles
apart, the monsoon's relevance to the economy has been diminishing for
other reasons as well. The changing structure of economy is one cause.
The share of agriculture in the country's gross domestic product (GDP)
has come down from 56 per cent in 1950-51 to 25.5 per cent in 1999-2000.
That's one reason why swings in weather do not jolt the economy as much
now. Until 1980, a drought always ensured a fall in the GDP. The drought
years of 1965-66, 1972-73 and 1979-80 forced a fall in the GDP. But in
1987, one of the worst drought years in the 20th century, the economy
grew by a modest 4.3 per cent. More importantly, inflation did not rise
beyond 7 per cent. So, a bad monsoon does not axiomatically mean a bad
year for the economy.
Then, monsoon is no more the only uncertainty
impacting agriculture. At least two other factors have a greater impact
on farmers' fortunes-government support price (the price at which the
government commits to buy foodgrains from farmers) and global prices of
agricultural commodities. Says Goyal: "The monsoon-centric approach
to agriculture must be reappraised. There are other potent forces impacting
farmers."
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Over 100 per cent hike in the support prices
of wheat and rice in the last 10 years has played a key role in watering
down the benefits of a good rainfall to the farmers, agriculture and the
economy. Artificially high support prices of foodgrains weaned farmers
away from non-foodgrain crops (oilseeds, pulses, cotton) causing an excess
of foodgrains and shortage of non-foodgrains. Explains Arun Bharat Ram,
former president, CII and managing director, SRF: "Instead of focusing
only on how much we produce, we should emphasise on the value and the
kind of crop we produce. Record foodgrain output in the past few years
has only added to the idle government stocks and has done nothing for
the economy. If we shift the cropping pattern to cash crops and horticulture,
which is what the country needs, farmers will be more prosperous and monsoons
will be far more beneficial for agriculture and the economy."
Even if the monsoon turns out to be very good
in 2001, many Indian farmers may not be able to reap any advantage. The
fatal combination of falling output and stagnant agricultural prices has
impaired farmers' willingness and capability to invest this year. Remarks
Abhijit Sen, professor at the Jawaharlal Nehru University and chairman
of a High Power Committee on Food Management: "The farmer's ability
and incentive to invest in agriculture is severely curtailed this year."
No wonder the industry isn't yet sanguine about
the prospects of any major upsurge in rural demand. Says Ram: "Generally,
prospects of a good monsoon do improve consumer demand both in urban and
rural areas, but even this psychological impact of monsoon is waning in
the light of the past two years' experience."
So the only good news about the forecast of
a good monsoon is that it is not bad for the economy. Since agricultural
production has been falling for the past two years, even a monsoon as
normal as last year's should see an upward swing in production in 2001-2.
But the country will not reap real and lasting gains from good monsoons
till pricing distortions are removed, rural infrastructure is strengthened
and a serious planning done on global agricultural prices. Till then,
the best of monsoons may only result in a drizzle of additional demand.
The monsoon-centric
approach to agriculture must be reappraised.
-Ashima Goyal, Professor, IGIDR
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