TOWARDS DOUBLE-DIGIT INCLUSIVE GROWTH
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The Approach (Free Available)
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The Results (Free Available)
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India’s economy is headed in a new direction – striving to
touch double-digit annual growth rates, and a sustainable, equitable and
inclusive growth, taking into account the needs of all sections of society.
Despite the current slowdown, the rapid economic growth attained over 2004-09
has raised high hopes that the Indian economy can grow at a double-digit rate.
Here we explore the role of agricultural development in inclusive double-digit
growth. What role will agricultural development play if the Indian economy is to
grow in an inclusive and sustainable way at a double digit rate for three
decades as China’s economy has done? Continued population growth and
double-digit economic growth that is inclusive will drive up food demand rapidly
and change its composition. Supply will have to increase and it will have a
different composition.
Agricultural output can increase only through expansion of
irrigation, investment, intensiûcation of input use, and by way of technical
progress. Since intensiûcation of input use will run into diminishing returns,
and since water availability is limited, technical progress will be the ultimate
source of agricultural growth. What rate of total factor productivity growth (TFPG)
in agriculture will be needed to sustain agricultural and economic growth? In an
open economy, rising food demand can be met by imports, but natural and
political economy constraints limit the proportion of food that can be imported
without putting the food security of the huge population of India at risk.
Indian agriculture is also considered to be vulnerable to the threat of
climate change, which is expected to lead to global price increases and make
reliance on imports less acceptable.
Will accelerating productivity growth and sustained expansion
of irrigation supportthe higher agricultural growth needed? Will domestic
agriculture be able to provide the required food in the long term, say over the
next three decades? Or will limits to agriculture growth impose limits to
economy-wide consumption and/or income growth? What will be the role of imports?
These are the speciû c questions we address here.
The Approach
We explore these questions using a multisectoral,
inter-temporal programming model that has the needed structure and features for
addressing these issues. It has 28 sectors, of which 15 are agricultural (for
details, see Parikh et al 2011). Crop production from irrigated and unirrigated
land is distinguished so that there are 40 production activities. Land
allocation to different crops is done within the constraint of 140 mha of net
cultivated area and the available irrigation capacity. The model covers the
whole economy and captures macro feedback and ensures macro balances.
It has 20 consumption classes, 10 rural and 10 urban. Of
these, ûve classes in each sector are at much higher consumption levels than
observed today and will be the ones into which the population will move as its
income increases. Each class has its own expenditure system. Income distribution
is determined for every period endogenously, depending on the level of aggregate
consumption and prescribed parameters of the log normal income distributions for
rural and urban consumption. Rural people migrate to urban areas depending on
the relative gross domestic product (GDP) from agriculture and non-agriculture.
A particularly important feature of the model is a demand system that can
predict the consumption behaviour of classes at much higher income levels where
income elasticities of demand for food will be much lower than today.
The possibilities of imports and exports provide some û
exibility in sectoral composition. The scenario will be affected by whether
consumption or GDP is maximised.The model in most scenarios maximises the
present discounted value (PDV) of private consumption over 10 time points four
years apart. If growth is to be inclusive, we should maximise private
consumption. The base year is 2007 and the last year is 2039. We develop various
scenarios that provide alternative possible futures for the economy and its
agriculture. They are not predictions, but tools to explore the economic
consequences of alternative assumptions.
The Results
The Reference Scenario In the reference scenario (RS), we
take trend values of critical variables. An important concern is how fast
technical progress increases productivity. Technical progress is widely
recognised as an important driver of economic growth. Output can be increased by
investing more capital, employing more labour, cultivating more land, or by
using more inputs. TFPG measures the increase in the productivity of factors
such as land, labour, and capital. It indicates that output will increase by
TFPG with the same levels of factors. In the model, TFPG is incorporated as the
rate at which capital/ output ratio goes down and the rate at which yield per
hectare increases for the same levels of inputs.
