Editorial 1: MP model in Agriculture
Context:
- Currently, India’s economy is $3.5 trillion. As per IMF forecast If the current growth trend continues, the country is likely to be a $5.4 trillion economy by 2027.
- The Covid-19 pandemic and the Russia-Ukraine conflict have thrown the global economy into a spin and India’s ambitious target of becoming a $5 trillion economy by 2025 could be somewhat delayed, but it is definitely not out of reach.
India’ Economic progress after the independence:
- India seems to be on the right path and is doing pretty well — especially when compared to its progress in the first six decades after 1947.
- As per IMF, it took India almost 59 years since Independence to become a $0.95 trillion economy in 2006. But then it became a $2.3 trillion economy by 2016 it added $1.35 trillion in 10 years.
- And in 2022, it became a $3.5 trillion economy by adding $1.2 trillion in just six years.
- If India stays this course, the country could rise to a $25 to $30 trillion economy by 2047. No wonder, Prime Minister Narendra Modi has termed the next 25 years, when India completes 100 years of Independence, as Amrit Kaal.
However, it requires inclusive and sustainable economic growth and development:
- There are two issues that we need to focus on.
- First, how inclusive is this growth, and second, how sustainable it is likely to be, especially from an environmental standpoint, given that climate change is already knocking on our doors.
What is meant by Inclusive growth?
- We measure inclusiveness by looking at the record of the laggard states, especially the so-called BIMARU states (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh), and also the performance of the agricultural sector that engages the largest share of workforce — 46.5 per cent in 2020-21.
- It is well-known that with development, the workforce moves out of agriculture to higher productivity jobs in urban areas, especially in the construction of new cities and the infrastructure required to run these urban centres.
- More than half the world’s population today lives in cities, though India is still roughly two-thirds rural.
- In the next 25 years, the country’s focus should be on infrastructure construction, including in rural areas, and skilling a large mass of the working population for higher productivity jobs.
- The Union budget of 2023-24 has done well on this account, and Finance Minister Nirmala Sitharaman deserves to be complimented for that.
Performance of GDP at the state level in agriculture sectors in particular — over the period 2005-06 to 2021-22,
- The infographic shows that the country averaged a GDP growth of 6.7 per cent per annum in this period and its agri GDP growth stood at 3.8 per cent per annum.
- This is satisfying, though not as outstanding as China’s performance. Of all the major states, Gujarat topped the list in overall GDP growth at 8.9 per cent closely followed by Uttarakhand (8.7 per cent), Telangana (8.6 per cent) and Haryana (8 per cent).
- At the bottom of this list were Jammu and Kashmir (5.2 per cent), Assam (5.4 per cent), West Bengal (5.5 per cent), Uttar Pradesh (5.6 per cent) and Jharkhand (5.7 per cent).
- To analyse how inclusive this growth has been, we look at the agri-GDP growth in BIMARU states.
- Madhya Pradesh has performed very well it has clocked the highest growth rate in agriculture at 7.3 per cent.
- Its overall GDP growth is a respectable 7.5 per cent. The state’s agri-GDP growth is way above the all India agri-GDP growth and the state is a shining example of doubling the contribution of horticulture in its value of agriculture and allied sector
- Amongst other BIMARU states, Rajasthan has also done well in agriculture recording an annual average growth rate of 5.7 per cent, followed by UP and Bihar with 4.5 per cent and 4.4 per cent respectively.
MP model in agriculture as a guiding light for agricultural growth
- Madhya Pradesh has performed very well it has clocked the highest growth rate in agriculture at 7.3 per cent.
- MP has made its mark as a top-notch player in tomato, garlic, mandarin oranges, pulses (especially gram) and soyabean cultivation.
- Pulses and oilseeds fix nitrogen and use very little water, saving on fertiliser and power subsidies, and ensuring environmental sustainability.
- MP is also the second-largest producer of wheat (after UP), and the third-largest milk producer after UP and Rajasthan. It is following a well-diversified portfolio in agriculture while doubling irrigation coverage from 24 to 45.3 per cent of its gross cropped area over the last two decades.
- MP is the only state whose agriculture contribution to overall GDP has increased to 40 per cent, as against 18.8 percent at the all-India level — its model should aptly be described as inclusive and sustainable.
Few areas of concern:
- Green Revolution champion Punjab hasn’t done well. Its agri-GDP growth was a meagre 2 per cent per annum over this period.
- There may be argument that the state already has a high level of productivity in wheat and rice, and further higher growth in agriculture may not be feasible.
- But If Punjab had diversified to high-value horticulture, or even some pulses and oilseeds, it would have registered higher agricultural growth and more importantly, saved precious groundwater and power subsidy.
- The methane and nitrous oxide emissions that ensue as a result of paddy cultivation could also have been much less. This is something for Punjab’s policymakers to pause and think about.
Conclusion:
- There the states can adopt the model of MP in agriculture sector with modification in order to improve agriculture led economic growth along with it there is need for diversification of crops in order to protect environment and natural resources
- Then this model of agriculture growth will be more
Editorial 2: India’s sticky inflation: Causes and consequences
Context:
- Last week, CSO released the inflation data, it showed that in January, India’s retail inflation surged by 6.5%.
- In other words, the general price level facing the consumers in January 2023 turned out to be 6.5% higher than the price level in January 2022; this is called a year-on-year (or y-o-y) growth rate.
- As things stand, it now looks quite likely that India’s inflation rate will be above the crucial 4% level in each of the five years of the current government’s term
- To be sure, 4% inflation is the target level under the current monetary policy regime.
Policy significance of inflation spike in January
- The headline retail inflation rate was 7.4% in September but since then it was fast losing steam every month and fell to 5.7% in December.
- This moderation had convinced many to demand that the RBI should avoid raising interest rates — something the RBI did not do when it met on February 8.
- In fact, the RBI raised the repo rate the interest rate at which it lends money to the banking system by 25 basis points (100 basis points make up a full percentage point).
- RBI raises the repo rate when it believes that inflation is not in control. Higher interest rates drag down overall demand for goods and services by making loans costlier. Lower demand is expected to cool down inflation.
- The January surge was also an unexpected event — most economists and observers expected inflation to rise by just 6% and it has renewed the apprehensions of the RBI raising the interest when it meets again in April
- . RBI’s Monetary Policy Committee (MPC) meets every two months to reconsider its monetary policy stance.
- As increase in interest rate, while doing its bit towards containing inflation, impacts on India’s economic growth.
- To be sure, there is a constant tradeoff between maintaining price stability (read containing inflation) and boosting growth (which hopefully creates jobs and reduces unemployment)
- Therefore, if inflation stays persistently high (‘sticky’), it would necessitate the RBI to keep raising interest rates or, at the very least, keep them at a high level for a longer period and, in doing so, hurt India’s economic recovery out of the twin shocks of the Covid pandemic and the Russia-Ukraine war.
What caused the spike in January? : There were two main reasons.
- One, higher food inflation.
- In particular, it was the cereal prices that seem to have shot up. Cereals are grains such as wheat and maize.
- However, data suggest that cereal price inflation was far more modest than mentioned in the official release. In their view, it is possible that the final retail inflation rate may fall to 6.2%, instead of 6.5%.
- Two, core inflation has inched up. Core inflation is a measure of inflation arrived at by removing the prices of food and fuel.
- Since food and fuel prices fluctuate massively, often looking at core inflation provides a sense of how the broader economy is doing. Even stricter measures of core inflation such as super core inflation (calculated by Nomura Research) too has gone up in January.
- Super core inflation is calculated by removing gold and silver price inflation from core inflation. According to Nomura, core inflation rate has inched to 6.2% from 6.1% in December and super core inflation rate has gone up to 6.3% from 6.2%
Why is India’s inflation turning out to be sticky?
- Inflation being sticky essentially means that inflation is taking longer than expected to fall. Essentially, higher food and fuel prices have seeped into the broader economy and made other things costlier.
- “A deeper dive into the core inflation basket suggests that firms continued to pass on higher input costs to consumers, while inflation is moderating in the services sector.
- Core goods inflation continued to inch up to 7.6% y-o-y in January from 7.5% in December and 7.1% six months back. Core services inflation, by contrast, has progressively been moderating from 5.5% in September to 5.0% in January
- Rise in food and fuel prices got increasingly generalised over ensuing months. This was reflected in highly elevated and sticky core inflation.
- Unprecedented input cost pressures got translated to output prices, particularly goods prices, in spite of muted demand conditions and pricing power.
- As the direct effects of the conflict waned and international commodity prices softened, the strengthening domestic recovery and rising demand enabled pass-through of pent-up input costs, especially in services, adding persistence to elevated inflationary pressures.
- However, for what it is worth, India is not the only country facing sticky inflation; many others such as the US and countries in the euro zone — are also struggling to extricate themselves from sticky inflation.
- inclusive and sustainable for economic growth and development.