Prices, Agriculture and Food Management

Overall Trend in Inflation

The rising trend of inflation, in particular food inflation, during the period 2010-11 to 2013-14, reversed from 2014-15 onwards and the economy has been experiencing sustained moderation in general inflation ever since.

The new monthly CPI (combined), with base 2012=100, is now taken as the measure of headline inflation and is tracked by the Reserve Bank of India (RBI) to anchor its monetary policy.

Impact of Fall in Crude Price on Inflation

Global fluctuation in crude oil prices has significant impact on domestic inflation as India imports 80% of its crude requirement. The decline in crude oil prices had helped India deregulate diesel prices. Deregulation has reduced the subsidy burden, thereby helping reduce fiscal deficit. Post deregulation, decline in diesel prices has resulted in reduction in overall inflation.The fall in crude prices has more impact on WPI fuel and power inflation than CPI fuel & light inflation because petroleum products have negligible weight (6.8%) in CPI fuel & light group.

Trends in Food Inflation

Food inflation remained high during 2010-11 to 2013-14. Supply-side constraints have been causing inflationary spurts from time to time, in particular in pulses, edible oils and vegetables. Due to measures by the government, there has been significant moderation in wholesale and retail food inflation since 2014-15.The decline in food articles inflation during 2015-16 so far was mainly on account of a fall in the prices of cereals, vegetables, fruits, milk, egg, fish and meat. However, a spike in the prices of pulses on account of low domestic production kept food-grain prices high.

Urban and Rural Sector Inflation

The urban and rural segments of the CPI have been widening in recent months. The urban CPI basket has been experiencing lower inflation as compared to the rural consumer expenditure-based basket because global commodity prices meltdown has more benefited urban consumers. The gap is partly due to variation in the weights of items in the two baskets.

State-wise Inflationary Trend

States such as Karnataka, Andhra Pradesh, Telangana and Jammu and Kashmir experienced higher inflation during April-December  2015  as  compared  to  the corresponding  period  of  the  previous  year. The reason is higher food inflation.

What is the reason for widening gap in the inflation based on CPI and WPI?

The WPI series mainly tracks the movement of producer and bulk transaction prices and its weights are based on the value of output in different sectors of the economy. The series is similar to producer price indices compiled in other countries. The CPI basket is based on consumer expenditure estimates and tracks inflation at retail level or the prices consumers pay. The base years of the two series are eight years apart as WPI base revision is long overdue. The weighting of items of the two series varies significantly.

Overview of Agriculture

The share of agriculture in employment was 48.9% of the workforce [National Sample Survey Office (NSSO), 2011-12] while its share in the Gross Domestic Product (GDP) was 17.4% in 2014-15 (First Revised Estimates) at constant (2011-12) prices.

Against the growth target of 4 per cent for agriculture and allied sectors in the Twelfth Five Year Plan, the growth rates in agriculture have been fluctuating at 1.5 per cent in 2012-13, 4.2 per cent in 2013-14, and (-) 0.2 per cent in 2014-15. The reason for shortfall in growth is due to two consecutive drought years in 2013-14 and 2014-15. The other reasons are issues of expansion in irrigation and its efficiency, growth of capital formation in the sector has been declining and there is volatility in the markets, especially of prices, altering and distorting cropping patterns of some crops.

Area, Production and Yield

As per the Second Advance Estimates, food-grains production during 2015-16 is estimated at 253.16 million tonnes. The acreage under several crops declined substantially in 2014-15 compared to 2013-14.  From 2010-11, the percentage changes in average yields of rice, wheat, pulses, oilseeds and cotton are also  showing  declining  trends,  which  is  a cause for concern. China has an average cereal yield of above 5800 kg per ha while India has less than 3000 kg per ha.

Pathways to Productivity in Agriculture

Irrigation

Focus should be ‘more crop per drop’with adoption of appropriate technologies through suitable pricing. States such as Uttar Pradesh, Punjab and Tamil Nadu have more than 50% net irrigated to the total cropped area. Remaining all states have less than 50%. There is a need for expansion of irrigated area to productivity in agriculture.

Mechanisation

With shortage of labour for agricultural operations owing to rural urban migration, shift from agriculture to services and rise in demand for labour in non-farm activities, there is need to use labour for agricultural operations judiciously, which makes a strong case for mechanization of farming. The tools and equipment should be designed to suit the needs of women workers so that there would be better adoption of technologies in agriculture.

Seed Development

It is estimated that the quality of seed accounts for 20 to 25 per cent of productivity. The challenges in development and adoption of quality seeds are development of new seeds especially early ripening and resistant (to pest, moisture variations, etc.) varieties, high cost of seeds for small and marginal farmers, shortage of supply of quality seeds, non-resolution of issues related to adoption of Genetically Modified (GM) crops and inadequate number of players restricting competition.

Fertilizers

The indiscriminate use of fertilizers has not proportionally improved the yield of crops, but has resulted in the depletion of soil fertility and salination of soil in many areas. There is need to rationalize fertilizer subsidy in an input, crop and region neutral format and minimize diversions. Linking the soil health card to provide profile of the soil and fertilizer on the basis of the same profile utilizing fertilizer, even if not subsidized can improve the yield of crops. The deficiency of micronutrients like boron, zinc, copper and iron in Indian soils can be overcome if there is expansion of the use of organic fertilizer.

Pesticides

In India, the farmer’s crop yield losses range from 15 to 25 per cent owing to the presence of weeds, pests, diseases and rodents. India uses a low amount of 0.5 kg per ha pesticide. However, the use of pesticides without following proper guidelines, use of sub-standard pesticides and lack of awareness about pesticide use are key concerns in India.

Credit

According to NSSO, 70th round data, as much as 40 per cent of the funds of farmers still come from informal sources. Local money lenders account for almost 26 per cent share of total agricultural credit. In respect of high interest rates, DBT may be considered to replace subvention of interest rates.

The ratio of agricultural credit to agricultural GDP has increased from 10 per cent in 1999-2000 to around 38 per cent by 2012-13. However, the share of long-term credit in agriculture or investment credit has declined from 55 per cent in 2006-07 to 39 per cent in 2011-12. The decline in the share of long-term credit in agriculture needs to be arrested and reversed. Accordingly, the Government of India has allocated R 15,000 crore to the Long Term Rural Credit Fund (LTRCF) set up in the National Bank for Agriculture and Rural Development (NABARD) for 2015-16 as compared to R 5000 crore in 2014-15.

Investment in Agriculture and Allied Sectors

As per the revised estimates, the percentage share of GCF in agriculture and allied sector in the GVA (GDP) from agriculture has also shown a decline from 18.3 per cent in 2011-12 to 15.8 per cent in 2014-15. As the ratio of GCF to GDP from agriculture reflects the investment rate in agriculture, the declining trend needs to be arrested and reversed since growth in agriculture sector is an imperative, given the significance of the sector in employment, income and inclusive growth. The increase in investment rate in agriculture has to come from both the public and private sectors.

Horticulture in India

The percentage share of horticulture output in agriculture is more than 33 per cent. Over the last decade, the area under horticulture grew by about 2.7 per cent per annum and annual production increased by 7.0 per cent. India witnessed sharper increase in acreage in horticulture crops compared to food grains over the last five years.

The Mission for Integrated Development of Horticulture (MIDH), was launched during the Twelfth Plan with effect from 2014-15, for the holistic development of the horticulture sector covering fruits, vegetables, mushrooms, spices, flowers, aromatic plants, coconut, cashew, cocoa and bamboo.

The key concerns that the horticulture sector faces in India are post-harvest wastages and losses. The wastage occurs at all levels of the value chain-at the levels of farmer, transporter, wholesaler and retailer. The answer lies in minimizing the wastage at all stages, to enable farmers to get remunerative prices, and can be done by improving practices and facilities at each stage including the transportation stage.

Allied Sectors

India ranks first in milk production, accounting for 18.5 per cent of world production, achieving an annual output of 146.3 million tonnes during 2014-15. The per capita availability of milk in India has increased from 176 grams per day in 1990-91 to 322 grams per day by 2014-15. Both egg and fish production has also registered an increasing trend over the years.

Fisheries constitute about 1 per cent of the GDP of the country and 5.08 per cent of agriculture GDP. There is increasing significance of poultry and livestock products in the context of diversifying farm and non-farm activities in the agriculture sector to increase livelihood security.

Food Management

Though India’s agricultural production has also increased over the past few decades, hunger and starvation still persist among the poorer sections of the population. India has the second highest number of undernourished people at 194.6 million persons (FAO, State of Food Insecurity in the World, 2015), which warrants immediate attention. Moreover, with 27 per cent of the population below the poverty line, along with provision of food subsidy, stability in agricultural commodity prices is essential for making the poorer sections food secure. India has one of the largest number of food schemes in the World to ensure food security.

National Agriculture Market

The scheme for setting up of a National Agriculture Market (NAM) through an Agri-Tech Infrastructure Fund (ATIF) was approved by the Cabinet Committee on Economic Affairs (CCEA) on 1 July 2015 with a budget of R 200 crore, to be implemented during 2015-16 to 2017-18.  [no_toc]