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What's The Real Story?

Poll-eve, the government releases data that says GDP grew 7.5 per cent last year. Can we believe it?

What's The Real Story?
outlookindia.com
-0001-11-30T00:00:00+0553
"There are significant areas of weakness.... The most worrisome is the decline in growth of agricultural crop production to 0.9 per cent in 1995-96." P. Chidambaram's budget speech 1996-97. Exactly a year later, even the "provisional" estimates put 1995-96 farm growth at a negative 3.4 per cent.

INDIA'S gross domestic product (GDP) clocked in a high growth of 7.5 per cent in 1996-97. So says the latest National Accounts Statistics released unusually quietly on February 7. These are the 'quick' estimates, or the first-flush data with the government, what we writers call back-of-the-envelope calculations. The only other times India achieved such growth rates were twice in the '80s, and once in the '70s. Last year's Asian-Tiger-like growth was achieved despite many scary forecasts both the government and the premier research organisation NCAER had expected GDP to grow around 6.5 per cent. 1996-97, after all, had been a dull year with the new government coming in only in July!

Pinch of salt? Seek and ye shall not find. That seems to be the motto of the Central Statistical Organisation (CSO). Remember how 1995-96 economic growth estimates went through several highs and lows? Wiser to wait for a year-and-a-half when all quick, provisional and revised estimates give way to the final picture. And the rosy tints make way for stark realities. More often than not.

Does that mean we should take the latest estimates for 1996-97 with a large pinch of levelheadedness? Yes. Because experience says so quick estimates in 1995-96 had put farm growth at 2.4 per cent and GDP at 7 per cent. Actuals were-3.4 and 7.1. And also because we should read between the figures, sift the constant from the changing, and focus our searchlight on where the biggest change has occurred and whether that change is worth uncorking the fizz.

And when we do that, we find it's the agriculture sector, with an overwhelmingly (and rather embarrassingly unprecedented) huge growth of 7.9 per cent, that's almost single-handedly raised the GDP. Here too, the calculator played its trick several times from advance estimate of 2.3 per cent in agriculture to the revised advance estimate of 5.7 per cent to the present quick estimate. In the last three-four years, research organisations aver, the government has been revising its figures up to eight times a year.

Call it the impact of liberalisation on information, or the need to keep overstaffed departments gainfully employed, or just poor statistics management. But we would still like to believe, as Dr B. Bhattacharya, dean, Indian Institute of Foreign Trade says, that "the Indian economy runs independent of its politicians". And that in the current politically and morally lax times, the government merely wanted to gain some mileage, poll-eve, by presenting data which are a shade overoptimistic. Unfortunately, even this data does not quite manage to hide the warning signals.

The weathergods smiled: Is it impossible to predict farm output in India? Government data on agriculture can be questioned on two grounds. The first of them is technical. For one, how reliable is agricultural data? It's mostly decentralised, sample survey data collated from various sources compared to the manufacturing sector statistics which is census-based data. For another, with a very low farm output in 1995-96, 1996-97 figures were automatically put on a higher trajectory. If 1995-96 were an average year, the growth last year would have been exactly halved in real terms. The same reason that of a low or a high base will make 1997-98 farm output, widely expected to be poor, take a sharper dive and cloud GDP prospects, says Dr S. P. Gupta, chief executive, Indian Council for Research in International and Economic Relations. He also questions the rationale behind the very high elasticity for the services sector in the growth estimates. Compared to 1.2 earlier, the services elasticity is 1.75. Which means for every 1 per cent rise in the farm/industrial goods sector, services grow by about 1.75 per cent.

THE second factor is sectoral. Few dispute that the overall agricultural economy is better off thanks to reforms.Says Anushree Sinha, economist, NCAER: "With the basket widening and a diversi-fied base, output was set to grow well last year." Farmers are shifting to more high-yielding varieties of cereals, and from cereals to high value-added products for the export market. Secondly, even intra-sector, farmers are aware of quality, value and R&D. In Punjab and Haryana, they are switching from ordinary rice to basmati varieties. Third, with communication strengthening and rural markets developing, farmers are getting more revenue-oriented. In Punjab, rice fields are converted into fish ponds to cater to the urban consumer.

Even the poor farmers are taking to dairying and plantation activity to compensate for the shortage of food-grain. Fourth, newer regions, like the eastern states of West Bengal and Orissa, are emerging as growth centres, says Dr Dayanatha Jha, director, National Centre for Agricultural Economics and Policy Research (NCAP).

Even assuming that the farm economy was going great guns last fiscal year, there are several disquieting signs. In fact, the overall output rise can be narrowed down to two factors. One, last year saw a record pulses output of 14.9 million tonnes (13.2 mt in 1995-96) as also higher coarse cereals output at 34.1 mt (31.8 mt), taking the total foodgrain output to 198 mt. Two, weather conditions were super good rains followed by a long and hard winter leading to a bountiful rabi crop. Is agriculture then, still heavily dependent on weather?

Farmers call the shots: Sadly, yes. Says Jha: "A variation of 5-10 per cent in farm output is just induced by weather, even in 100 per cent irrigated areas like Punjab. That would scale up or down the growth rate by 2.5-5 per cent." Worse, even the economy is still heavily dependent on agriculture and we're not talking only of the 70 per cent of population which earns a living off the sector.

For proof, look at the earlier high-growth years. In 1975-76, the 9 per cent GDP growth came from 13 per cent farm sector growth, including forestry, fishing and mining. In 1983-84, the figures were 8.2 and 10.4, and in 1988-89, they are 10.6 and 16.3. And even now, agriculture accounts for 25 per cent of GDP, much more than the 19.4 per cent commanded by manufacturing. In other words, 25 paise out of a rupee of GDP still come from agriculture. Also look at the trend growth rates of farm GDP and food-grains production in this page they are exactly matched! That's how GDP and foodgrains output are correlated in this country, all foreign comparisons notwithstanding! That's also how industrial growth is related to farm growth: a good crop year always buoys industrial demand the next.

The hard fact is that even post-reforms, the trend rate of growth of agricultural GDP is only marginally higher than in the '80s from 2.892 per cent to 2.936 during 1990-96, find studies by Dr Ramesh Chand, principal scientist, NCAP. Food output growth has plummeted from 2.7 per cent to only 1.8, despite extension of green revolution and very sharp rises in producer prices of late. Says Chand: "Productivity of rice and wheat is down to only 2 per cent from 4.5 per cent earlier."

Says Jha: "On balance, reforms have had a positive impact on agriculture. But it would have been so much better were it not so half-hearted and ad hoc." For reforms to work, he feels, the prime task should be to liberalise the domestic markets. That can be done by freeing movement of goods inter-state and intrastate, ending government intervention except in PDS, and streamlining procedures. "Must oilseeds continue to be protected? Must there be several stumbling blocks in the way of, say, flowers from Punjab to Antwerp?" he asks.

With diversification and globalisation, GDP's dependence on the farm economy can only go up. But how long can the food economy remain stagnant? As the country adopts western food habits, rising animal fodder demand will put further pressure on the receding grains output. As Gupta asks: "How can we depend upon the fundamentals which themselves depend on which way the wind blows?" A question that will be eloquently answered in 1997-98, with food output again set for a bad year and industry stagnating since last year.

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