StatsGuru: 1 August 2011

Employment in the agriculture sector as a share of total workers was 58.2 per cent in the 2001 census but agriculture’s contribution to GDP has been falling. In 2004-05 agriculture contributed 19 per cent to GDP; by 2010-11, it had fallen to just 14.4 per cent. After stagnating for two years, the sector is back on track with an estimated growth of 6.6 per cent for 2010-11, but other sectors have grown more rapidly in the last five years.

Even so, agriculture, especially foodgrain production, assumes so much importance because food inflation is rising much faster despite increases in production and procurement. Moreover, this sector is a supplier of food, fodder and raw materials for a vast segment of industry. So the growth of Indian agriculture can be considered a necessary condition for “inclusive growth”.

Compared to other countries, India faces a greater challenge, since with only 2.3 per cent share in the world’s total land area it has to ensure food security for a population that accounts for 17.5 per cent of world population. This leads to excessive pressure on land and area under foodgrain cultivation has not increased. Increasing agricultural production with limited natural resources in a sustainable manner for ensuring food and nutritional security and providing income security to farmers are major challenges before the government.

India’s agriculture sector is also facing cost-push inflation. In last two years, food production costs have gone up between 15 and 19.67 per cent. One of the most important reasons for higher food inflation has been the increase in the minimum support price (MSP). But given the overall rise in farmers’ production costs, the government will be forced to raise the MSP further. So, in the best case scenario, food inflation may only moderate.

The government also spends around 35 per cent more beyond the MSP in the form of incidental and distribution costs. And, remember, these incremental costs are direct cost. There may be indirect cost also. So for these obvious reasons, total food subsidy (for all crops) has gone up from Rs 25,746 crore in 2004-05 to Rs 60,600 crore in 2010-11 and the fertiliser subsidy from Rs 15,662 crore to Rs 54,976 crore in 2010-11.(Click here for table & graph)