Macro-Economic dimensions and Policy framework
Growth and Investment Targets || Domestic Resources for the Plan || Sustainable Current Account Deficit and External Resources || Structure of Growth and the ICOR || Fiscal Balance, Inflation and the Monetary Stance || Issues in Aggregate Demand Management || Sectoral and Investment Pattern || Strategy for agricultural Development || Infrastructure and Basic Industries || The External Sector and International Dimensions || Issues in Finance Intermediation

Strategy for Agricultural Development

2.111 In the Ninth Plan, the objective of reducing the incidence of poverty and removal of unemployment is sought to be attained primarily through accelerated agricultural growth. While to meet consumption demand, growth in output is important, for income growth and poverty reduction it is the growth in value-added which is of crucial importance. The relationship between value of output and gross value added depends on the behaviour of the share of purchased inputs in total input and terms of trade between agricultural and non-agricultural sectors. The share of purchased inputs is expected to increase which would result in lower annual growth rate of Gross Value Added compared to the growth rate of Value of Output. For Gross Value Added to increase at the same rate as Gross Value of Output in agriculture, terms of trade must improve in favour of agriculture. In the Ninth Plan a target of 4.5 percent annual growth rate in Gross Value of Agricultural Output, excluding forestry, has been fixed.

2.112 While fixing the target for the Plan both demand (domestic as well as external) and domestic supply possibilities have to be taken into account. The domestic demand requirement for agricultural products has been worked out on the basis of the elasticity of demand for various commodity groups with respect to per capita consumption expenditure, targetted per capita consumption growth rate and expected population growth rate during the Ninth Plan. The domestic demand has been worked out on the assumption of a) GDP growth rate of 6.5 per cent; b) elasticity of private consumption with respect to GDP of 0.8825 resulting in 5.7 per cent growth rate in private consumption; and c) population growth rate of 1.7 per cent. The per capita consumption expenditure elasticities of various commodities have been worked out utilising the results of the 50^th Round of NSSO Survey on Household Consumer Expenditure (1993-94). The required growth rate in the value of output of different commodity groups is given in Table 2-26. The commodity groups for which domestic consumption growth rates have been worked out on the basis of NSSO consumption expenditure data accounted for 83.01 per cent of total value of output of agriculture and allied activities in 1993-94 (1980-81 prices). Using the share of these commodity groups as weight, the value of output of these commodity groups should grow at 3.84 per cent per annum just to meet domestic consumption requirement. Assuming that the growth rate of other agricultural products and other livestock products will remain the same as was achieved in the eighties and early nineties, the value of output of agriculture and allied activities should grow annually at the rate of 3.52 per cent in order to meet domestic demand requirements. India has also traditionally been exporting commodities like tea, coffee etc. Apart from that, the world market offers significant opportunities to Indian agriculture. Given the export possibilities, Indian agriculture should grow annually at the rate of 4.5 per cent.

 Table 2-26 : Targeted Annual Growth Rate in the Value of 
              Agricultural Output in the Ninth Plan 
                                        (in per cent per annum)
----------------------------------------------------------------
                                       Required       
                             Compound  Growth Rate    Annual 
                             Growth    in IX Plan     Growth Rate
                             Rate      to Meet        in IX Plan
 Item                        1980-94   Domestic Demand
----------------------------------------------------------------
1) Agricultural Crops           2.77      -            3.82
  a) Foodgrain                  2.67      2.73         3.05  
      i) Rice                   3.41      2.19         2.75
     ii) Wheat                  3.44      2.91         3.75
    iii) Coarse Cereals         0.67      2.05         2.20
     iv) Pulses                 1.16      6.31         3.50 
  b) Oilseeds                   5.81      2.28         5.25
  c) Sugarcane                  2.79      3.78         4.00
  d) Fruits  and                    4.15      6.00         7.00
     Vegetables       
  e) Other Agricultural         1.40      -            2.64
     Products, of which :
      i) Cotton                 3.57      -            4.00
     ii) Tea                    2.65      2.24         5.00
    iii) Coffee                 4.51      -            5.00
     iv) Spices                 3.92      0.15         4.25
      v) Rubber                 8.50      -            9.00  
2) Livestock                    4.57      -            6.59 
   a) Milk Group                4.89      6.22         7.04
   b) Meat  and  Poultry            5.66      5.90         7.50  
      Group
   c) Other Livestock           1.50      -            2.00
      Products
3) Fishery                      6.31      4.19         6.50
---------------------------------------------------------------
4) Total                        3.21      -            4.50
---------------------------------------------------------------

2.113 However, while fixing the target for the Plan, apart from demand, domestic supply possibilities have also to be taken into account. In many commodities e.g. foodgrains, oilseed, sugarcane etc. the growth rate in production deteriorated in the early nineties compared to the eighties. However, there are certain commodities, e.g. fruits and vegetables, meat products etc., in which the production growth rate improved. In order to achieve 4.5 per cent rate of growth in the Ninth Plan the strategy should be to achieve the growth rates of the eighties in the commodities in which the growth rate deteriorated and to further improve the growth rates of the commodities which became more dynamic in the early nineties. Keeping in mind the domestic production possibilities, the domestic demand requirement and export possibilities, the commodity-wise break-up of the agricultural growth rates have been worked out, as given in Table 2-26. The associated production, consumption and surplus levels are given in Table 2-27.

      Table 2-27 :  Targeted Production, Domestic Consumption and 
    Exportable Surplus of Agricultural Commodities in the Ninth Plan
                                                    (million tonnes)
---------------------------------------------------------------------
                          Base       Target     Projected   Projected
                          Production Production  Consumption Surplus
 Item                     1996-97#   2001-02      2001-02    2001-02
---------------------------------------------------------------------
1) Agricultural Crops
         
  a) Foodgrain             199.32      234.00       227.16      6.84
     i) Rice                81.31       99.00        94.29      4.71
    ii) Wheat               69.27       83.00        78.37      4.63
   iii) Coarse Cereals      34.28       35.50        35.00      0.50
    iv) Pulses              14.36       16.50        19.50     -3.00
  b) Oilseeds               24.96       30.00        25.75      4.25
  c) Sugarcane             277.25      336.00       332.50      3.50
  d) Fruits  and               141.00      179.00       170.99      8.01
     Vegetables       
  e) Other Agricultural   
     Products of Which
     i) Cotton*             14.25       15.70        15.50      0.20
    ii) Tea@               785.00     1000.00       877.00    123.00
   iii) Coffee@            220.00      300.00        80.00    220.00
    iv) Spices               2.73        3.36         2.75      0.61
     v) Rubber               0.54        0.83         0.79      0.04
2) Livestock             
   a) Milk Group            68.60       96.49        92.75      3.74
3) Fishery                   5.35        7.04         6.56      0.48
--------------------------------------------------------------------
Notes :  1) Projected consumption of for foodgrains includes         
            seed, feed and wastage.
         2)  * million bales.
         3)  @ million kg.
         4)  +/- implies export/import.
         5)  # - Assumed base. 

2.114 The target of 3.9 per cent rate of growth in Gross Value Added in agriculture in the Ninth Plan is much higher than the targetted growth rate of 3.1 per cent in the Eighth Plan. Correspondingly, achievement of this growth rate will require a much higher level of investment. The investment in the Eighth Plan for agriculture and allied activities, excluding forestry and logging, is likely to be Rs. 153586 crore at 1996-97 prices. During the Ninth Plan, the investment requirement is projected to be at Rs. 268,300 crore at 1996-97 prices, which is nearly 75 per cent higher than in the Eighth Plan.

2.115 Private investment accounts for a major share of investment in agriculture. Public investment in agriculture is one of the most important determinants of private investment. However, a significant shortfall in public sector investment in agriculture has been observed in the Eighth Plan. To achieve 4.5 per cent growth in the Ninth Plan such shortfall cannot be allowed. This would also necessitate a change in the composition of investment from long-gestation to short-gestation projects. Thus, the optimal use of the existing resources (particularly irrigation potential created) would require primary focus. Regional composition of growth would be of prime importance. Apart from public investment, credit is one of the most important determinants of private investment. The availability of credit at reasonable interest rate would be crucial.

2.116 A positive agricultural price policy, which included subsidies on inputs and a minimum support price for output, has been an integral part of our agricultural development strategy. The minimum support price was expected to provide an incentive to the farmers to adopt high-risk new technology and to cover possible hazards of high input costs. It was also expected to be an effective instrument of changing the cropping pattern in desired direction. However, in recent years, the fixation of minimum support price has become quite controversial. The controversy essentially revolves around whether the minimum support price of a crop should be fixed in accordance with import-parity price or the actual cost of production. A high minimum support price does provide an incentive to farmers. But at the same time, it may adversely affect agricultural export which is going to play a crucial role in the Ninth Plan. A viable minimum support price policy has to be evolved during the Ninth Plan which will provide adequate incentive to the farmers and at the same time keep Indian agricultural commodities competitive in the world market.

2.117 The issue of input subsidies has become very controversial. Rising input subsidies is said to be crowding out public investment in agriculture. While a rising input subsidy is not sustainable, it should also be kept in mind that any drastic reduction in input subsidy is likely to have adverse short-term impact on agricultural production. Apart from that, the achievement of 4.5 per cent growth rate in agriculture crucially depends on maintaining favourable terms of trade for agriculture. Any drastic increase in the cost of purchased inputs may adversely affect terms of trade. Not only that, the impact of withdrawal of subsidy will vary across categories of farmers and across regions. It is a well known fact that the cropping intensity and input use in small operational holdings are higher compared to large operational holdings. Thus, a cut in input subsidy is likely to affect small and marginal farmers more adversely than the large farmers. Similarly, the distribution of small and marginal farmers vary across States. The share of small and marginal farmers is very high in the eastern region. Therefore, the withdrawal of subsidy may affect the eastern region more than the other regions. Increased input cost may also reduce gross value addition in agriculture. Because of the above mentioned reasons, a clear-cut input subsidy policy should be evolved for the Ninth Plan. Here again, the small farmer nature of the high potential areas in the eastern region needs to be kept in mind. Rapid productivity increases can be achieved only when sufficient inputs are applied and these would have to be provided in an affordable manner. In this regard, it must be mentioned that the eastern region is likely to contribute more than 50 per cent of the total incremental foodgrain production in the Ninth Plan. Consideration may be given to linking the subsidised supply of agricultural inputs to JRY/EAS type of scheme.

2.118 Availability of land has emerged as one of the most important constraints on agricultural growth. The potential of further expansion of net sown area (NSA) is practically nil, and given the environmental commitments articulated in the Approach Paper, it may even decline. The supply of land can be augmented only through increased cropping intensity. Depending on the likely availability of area, the contribution of yield to enhanced agricultural output is likely to vary and with this, the input requirement is also likely to vary. The projected area, yield and associated input requirements commensurate with 4.5 per cent growth in value of agricultural output are given in Table 2-28.

 Table 2-28 : Area Yield and Input Use in Agriculture
               for the Ninth Plan
-----------------------------------------------------------
 Item                             1996-97         2001-02    
-----------------------------------------------------------
1) Net Sown Area                   142.00          142.00
   (million hectares)
2) Gross Sown Area                 190.50          203.00
   (million hectares)
3) Area Under Foodgrains           124.51          126.00
   (million hectares)
4) Area Under Non-Foodgrains        65.99           77.00
   (million hectares)
5) Cropping-Intensity (%)          134.20          143.00
6) Annual Growth in Value of 
   Output of Crops* (%) :
    a) All Crops                     2.77            3.82
    b) Foodgrains                    2.67            3.05
    c) Non-Foodgrains                2.88            4.44
7) Annual Growth in Area* (%) :
    a) Gross Sown Area               0.54            1.28     
    b) Area Under Foodgrains        -0.23            0.24     
    c) Area Under Non-Foodgrains     2.37            3.13 
8) Yield Level (1996-97 prices)     15326           17688    
   (Rs./hectare)
9) Annual Growth in Yield* (%) :
    a) Total Agricultural Crops      2.24            2.91
    b) Foodgrains                    2.98            2.60
    c) Non-Foodgrains                0.37            2.72
10) Fertiliser Consumption          14.31           20.00
    (million tonnes)
11) Fertiliser Intensity            75.12           98.52
    (kg./hectare)
12) Gross Irrigated Area$           76.25           91.50
    (million hectares)
13) Percentage of Gross Area        40.00           45.07 
    Under Irrigation (%)
------------------------------------------------------------

2.119 The projections are based on the following assumptions for the base year (1996-97):-

1. Net sown area (NSA) is taken to be 142 million hectares which is assumed to remain at the same level during the Ninth Plan.
2. Cropping intensity (CI) is assumed to be 134.2 per cent.
3. Value of yield is taken to be Rs.15326 per hectare at 1996-97 prices.
4. Gross cropped area (GSA) is assumed to be 190.50 million hectares.
5. Fertiliser consumption is taken to be 14.31 million tonnes.

2.120 The GSA is expected to increase at the annual rate of 1.28 per cent as against the trend growth of 0.54 per cent (Table 2-28). The GSA is projected to reach 203.0 million hectares and cropping intensity to 143.0 per cent by the end of terminal year (Table 2-28). Such an increase in cropping intensity will require an increase in the area under irrigation. The gross irrigated area (GIA) is projected to be 91.50 million hectares in 2001-02 as compared to 76.25 million hectares in 1996-97. This implies that 15.25 million hectares of additional area has to be brought under irrigation. In this regard, it must be mentioned that the additional irrigation potential created during the Eighth Plan is expected to be of the order of 10-11 million hectares. The value of yield is projected to increase from Rs. 15326 in 1996-97 to Rs.17688 (at 1996-97 prices) in 2001-02. The fertiliser consumption is projected to rise from 14.31 million tonnes in 1996-97 to 20 million tonnes in 2001-02. The fertiliser consumption is expected to increase from 75.12 kg per hectare in 1996-97 to 98.52 kg per hectare in 2001-02.

2.121 Cropping intensity crucially depends on the availability as well as the quality of irrigation facilities. This will not only require further augmentation of irrigation facility but also optimal use of existing facilities. In recent years, a large gap has been observed between the irrigation potential created and actual utilisation. Apart from this, irrigation intensity (ratio of Gross Irrigated Area to Net Irrigated Area) is very low in India. As per land-use statistics, irrigation intensity in 1993-94 was only 1.33. In 1993-94, the net irrigated area stood at 51.45 million hectares. However, only 16.92 million hectares were being irrigated more than once.

2.122 At present, the area under forest is much below the desired level. In 1993-94, as per land-use statistics, the total area under forestry was 68.42 million hectares which constituted 20.81 per cent of the total reported area. The Approach Paper has set a target of bringing one-third of geographical area under forest cover by the end of the perspective period (2011-12). This will require the area under forest to go up from 68.42 million hectares in 1993-94 to 109.58 million hectares, requiring additional 41.16 million hectares of afforestation. Apart from that, because of increasing housing demand, urbanisation and industrialisation, the area under non-agricultural use is likely to increase. In 1993-94, 22.03 million hectares were under non-agricultural uses. Between 1980-81 and 1993-94, the area under non-agricultural uses increased at the annual rate of 0.88 per cent. Assuming the same trend to continue, the area under nonagricultural use is likely to be 25.79 hectares by the end of the perspective period. Thus, forestry and non-agricultural use would require additional 44.92 million hectares over the perspective period. At present, nearly 72.31 million hectares of land are lying uncultivated or fallow, of which 14.84 million hectares are under pasture and tree crops. Thus, nearly 57.47 million hectares of land are available, sufficient to meet the additional requirement of area for forestry and non-agricultural use at the macro-level provided forestry and non-agricultural use are undertaken on such land. However, at the micro level nonagricultural use is spreading in presently cultivated area. This is likely to reduce the cultivated area, unless cultivation is spread to uncultivated and fallow land. However, the yield level in such areas is likely to be significantly lower.

2.123 As discussed above, yield growth is likely to be the primary contributor to enhance production in the Ninth Plan. Apart from irrigation facilities, adequate availability of fertiliser, HYVs and pesticides is of crucial importance. In this regard, it must be mentioned that in the Eighth Plan there has been only a small increase in fertiliser consumption. Fertiliser consumption, which was 12.73 million tonnes in 1991-92, increased to 14.31 million tonnes in 1996-97. Moreover, in recent years, the imbalance in nutrient use has aggravated. The N:P:K ratio, which was 6:2.4:1 in 1990-91, worsened to 9.9:2.9:1 in 1996-97. The recommended ratio is 4:2:1. Such a lop-sided use of nutrients is likely to adversely affect long-term productivity of land. Not only that, coverage of HYV has to be increased substantially across regions and crops. The challenge is to introduce HYVs in the crops in which HYV is presently not available and to replace the old generation of HYVs with new the generation HYVs in the crops in which HYVs are already there. New HYVs should also be made more region-specific. In recent years, the pace of introduction of new HYVs has slackened, which needs to be reversed. This will require a significant increase in expenditure on agricultural research and extension services.

2.124 India is marked by a significant regional disparity. The strategy of agricultural development has to be tailored to the requirements of different regions. Agricultural development of the eastern region, consisting of eastern Uttar Pradesh, eastern Madhya Pradesh, Bihar, Orissa, West Bengal and Assam would require special emphasis, partly because of the presence of large untapped potential, partly because this region accounts for a major proportion of the poor people in India and partly because this region is expected to contribute more than 50 percent of the total incremental foodgrain production in the Ninth Plan. Agriculture in the eastern region is characterised by certain unique features :

1. Agriculture economy of the eastern region is dominated by small and marginal farmers. In all the States more than half of the area is operated by small and marginal farmers as compared to the all-India average of one-third.
2. Though the reported area under tenancy is comparatively low, the quality of tenancy, except in West Bengal where significant land reforms have been undertaken, is low. In all the States except Assam, the incidence of sharecropping is very high.
3. The region has abundant surface and ground water. However, a significant part of the region is flood prone. All the states suffer from major drainage problems.
4. The region is also characterised by low agricultural productivity and input use.
5. The entire region is characterised by weak agricultural institutions - e.g. marketing, credit, input delivery, etc. This is particularly true for credit. Of the total short-term agricultural loans disbursed by PACs in 1992-93, the collective share of Assam, Bihar, Orissa and West Bengal was less than 5 per cent. The same is true for the credit provided by RRBs. These States accounted for just 10.5 per cent of the total credit disbursed by RRBs in 1994-95.

2.125 In the eastern region, which is dominated by small and marginal farmers, input subsidy is likely to play a major role in stimulating greater input use, and hence, higher production and productivity. Given the high incidence of share-cropping, land reforms assume great importance. In this regard, West Bengal can be a role model where land reforms had led to a significant improvement in production and productivity. Given that a large part of the region is flood-prone, significant investment has to be made on improving the drainage system. Apart from that, given the deficient agricultural infrastructure, particularly rural credit system, a significant improvement in infrastructural facilities needs to be made.

2.126 For rural economy as a whole, apart from agricultural development, growth of rural non-farm employment is equally important. The share of rural non-farm employment is very low in the eastern region. The development of rural non-farm employment not only reduces seasonal unemployment but also the incidence of underemployment. There is a symbiotic relationship between agricultural and rural non-farm sectors through backward and forward linkages. While agricultural growth itself is likely to stimulate rural non-farm employment, the other important factors encouraging rural non-farm employment are rural infrastructure and government expenditure, particularly, on employment generation programmes. There is a need to step up such expenditures in the eastern region.

2.127 Apart from the eastern region, the peninsular India, including Rajasthan, requires special focus. The major constraint for agricultural development of this region is water scarcity and soil degradation. Because of water scarcity, this region is also characterised by low cropping intensity and predominance of low value cereals and millets. The agricultural development of this region would involve augmentation of water resources and spreading of water conservation practices. In this regard, restoration of tanks by deepening and embanking and increasing the number of dug-cum-bore wells will play an important role. Development of HYVs for coarse cereals should receive priority. There is also a need to diversify within agriculture itself. In this, animal husbandry can play an important role. Provision of fodder, strengthening of milk sheds and milk grid will play a crucial role.

2.128 Animal husbandry, dairy and fishery are expected to be major contributors to the achievement of 4.5 per cent rate of growth in the value of agricultural output in the Ninth Plan. For animal husbandry and dairying, the focus should be on disease control, improvement in genetic resources, extension services and strengthening of marketing and credit infrastructure. Adequate availability of quality fodder and feed will be crucial. For fishery, the focus should be on integrated development of marine and inland fishery, conservation and upgradation of aquatic resources and adequate availability of quality fish seeds and feed.

2.129 Such a high rate of growth in agricultural commodities would also require a massive expansion and upgradation of agricultural marketing infrastructure, e.g. storage capacity, efficient transportation and distribution system, market intelligence, etc. Over the years, the development of marketing infrastructure has not kept pace with the growth in agricultural production, both in quantitative and qualitative terms. The composition of agricultural production and consumption has changed, creating new demands on the marketing infrastructure. Bulk of the transport of agricultural products particularly intra-State, is through road transport. Although the density of roads in India is relatively high, the quality of roads is low. Nearly half the roads are unsurfaced. The proportion of unsurfaced roads in rural area is much higher. Also, the existing surfaced roads are not properly maintained, leading to delays and escalation of transportation cost. At present, the storage capacity with various government agencies is estimated to be 44.82 million tonnes which is considered adequate at the macro level. However, at the micro level, particularly in hilly and remote areas, shortage of storage capacity exists which needs to be removed. The existing cold storage capacity is 8.65 million tonnes, of which nearly 89 per cent is utilised for storage of potato. Fruits and vegetables, meat and meat products and milk and dairy products account for 5.6 per cent, 0.92 per cent and 0.65 per cent respectively of the cold storage capacity. However, given the emphasis on these products in the Ninth Plan, the cold storage capacity needs to be significantly increased. Currently, there are 6836 wholesale and regulated markets in India. Their number, as well as expertise, need to be increased. All these would require a very large investment in the concerned nonagricultural sectors. Without commensurate increase in such investment, it would be impossible to achieve 4.5 per cent rate of growth. The infrastructural requirement and investment for agricultural development will crucially depend on the regional composition of agricultural production.

2.130 As the achievement of 4.5 per cent rate of growth would involve a large jump in agricultural exports, the marketing infrastructure for exports, particularly the cold storage chain, the railways, port and communication facilities, facilities for packaging, grading and certification of agricultural commodities and development of future markets would require special attention. In the absence of an adequate supporting infrastructure, India may not be able to export the targetted quantity even if the world demand and domestic production allow it to do so. As India has normally been a net importer of agricultural products, no specialised infrastructure for exports of agricultural commodities now exists. However, during the Ninth Plan, India is expected to emerge as a net exporter of agricultural products. Thus, creation of specialised infrastructure would require focussed attention. First, the port facilities are quite inadequate. At present, only the Kandla port can handle bulk exports of rice and wheat and the normal berthing time is around 30 days. Exports of fruits and vegetables require other specialised facilities like temperature controlled warehouses, mega x-ray machines at both the sea and air ports. Also, the air freight capacity needs significant augmentation. Apart from these, the facilities for grading, sorting and packaging are essential for exports. However, such facilities are practically non-existent. Significant investment has to be made on these facilities.