The Hindu Business Line : 55 years of growth and instability

After 55 years of Independence, where is India on the economic horizon? Agriculture is still the dominant component of the economy and the largest employer, though its relative share in the national product is shrinking. Despite its importance, there are few measures to counter drought or flood situations and boost agricultural productivity. P. R. Brahmananda says that agriculture is the most important economic activity and its neglect will indirectly affect the urban economy.

INDIA has just completed 55 years of Independence. At midnight on August 14 and at the start of August 15, 1947, Jawaharlal Nehru made his famous `Tryst with destiny' speech.

The oration was full of the dreams and hopes for the future. Almost every Indian at that point of time was awake.

The question that would bother most Indians now is what broad progress has been made. A vital component of progress is economic progress. Here we broadly study the growth of economic activity in terms of a composite index for the entire period and the growth of real national product over the same period.

The growth of real national product is an important measure of economic progress, though not a complete measure.

Economists worldwide are fond of constructing indices of economic or business activity. These indices are a reflection of the efforts and sacrifices as reflected in the economic transactions to bring about economic progress.

The crucial assumption behind the index of economic activity is that all the components are structurally linked. When there is a structural relation, it is not proper to separate the growth of each component as reflecting overall growth by itself.

Graph 1 indicates the growth of indices of real economic activity and of real NDP from 1947-48 to 2001-02. Over 55 years, the geometric mean of the indices of activities in agriculture, industry, mining, the Railways, gross investment and government expenditure all in real terms has been expanding at a regression growth rate of 4.72 per cent per annum, whereas the real national product has been expanding at a regression derived growth rate of 3.93 per cent per annum.

Between 1947-48 and 1956-57, the index of economic activity increased per annum at a rate of 3.25 per cent, whereas real national product increased per annum at 2.94 per cent.

In the nine-year interval between 1992-93 and 2001-02, the index of economic activity expanded at 6.35 per cent per annum, whereas the index of real national product grew at 6.07 per cent per annum.

The indices of material activities and of real national product are coming closer. This may be interpreted as one measure of modernisation in material development. Probably, if there are no substantial diminishing returns, the two indices may even closer.

The yearly percentage rates of change of the indexes of economic activity and real national product from 1947-48 to 2001-02 are presented in Graph 2. It reveals that there is some broad upward trend, though not so high as to be clearly noticeable over this secular period.

But, what is striking is the extent of fluctuations in both indices. This is a picture of growth of production with instability.

The reasonable hypothesis about which we hope to throw more is that the fluctuations in the growth rate of agricultural production continue to cause overall fluctuations in a similar manner in the growth rate of real national product.

More than five decades on, agriculture is still the dominant factor in the Indian economy though its relative share in the national product is shrinking.

This means that unless the trend in growth rate of agricultural production is raised and made less unstable, there will continue to be fluctuations in the growth rate of real national product. In fact, agriculture is still the most important economic activity.

Though agriculture currently contributes to 27-28 per cent of the national product, directly and indirectly, it supports employment of more than 2½ times of its contribution to national product. In 1947-48, its contribution to the national product was about 50 per cent and employed more than 70 per cent of the labour force and population. There has not been much change in the latter. But, the relative contribution to national product from agriculture has almost been halved. Ignoring the structural relation between agriculture and national product, and going only by the relative contributions to national product, our efforts will be distorted and we will be doing injustice to the majority of population.

The growth of the corporate sector and its elite, directly and indirectly, is responsible for the deficiency of attention to agriculture and related activities from the point of view of production growth.

China's high growth rate is due to the fact that their national policies have been rectified to give agriculture more attention than earlier.

There is, however, an imbalance in the Constitution. Agriculture is a State subject. But the lion's share of resources and attention from the Centre accrues to the powerful corporate and related sectors, the latter in the tertiary areas.

Even after 50 years, with almost all States facing drought prospects once in three-four years, there are no measures permanently in place to reduce the incidence of droughts on crops.

The States are taking their cue from the Centre, which is more concerned with the well-being of the corporate sector.

They have few financial resources to develop agriculture and tackle periodic droughts and floods. Broadly, the relative shortage of water is gradually becoming an absolute shortage.

This means that our natural environment and is unable to cope with the demands for water.

Graph 2 also indicates that the worst years of economic activity have coincided with the worst years of agricultural production.

The best years in the former are also associated with the best years in crop and related productions.

Negative growth rates were witnessed in real national product in four years (1957-58, 1965-66, 1972-73 and 1979-80) and a negligible growth rate in real national product in six years (1950-51, 1966-67, 1971-72, 1974-75, 1976-77 and 1991-92).

Thus, in ten of 55 years, there has been a negative or nil growth rate in real national product and a deeper examination will reveal that in almost all the cases the malady was due to climatic upset in agriculture.

If we abstract from the trend in national product, these 10 years would probably be depressionary years in overall production and real national product.

However, these depressions were not due to demand failures but due to supply failures, which can mostly be attributed to climatic failures.

If more attention were paid to agriculture and its development, with a reduction in instability confronting the rural population directly, the economy would surely have grown at a rate closer to a trend growth rate of 6 per cent rather than the actual rate of 3.9 per cent.

The major economic failure of the nation has been its neglect of and indifference to the well-being of the rural population, and through them the urban population.

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