The Hindu Business Line : From drought to fiscal emergency

NORTH India consists of Uttar Pradesh, Haryana, Punjab, Jammu and Kashmir and Himachal Pradesh. It produced 30-32 per cent of India's food production in the early 1970s. In the early 1980s, this proportion increased to 38-40 per cent.

In the late 1990s, this proportion rose to 41 per cent. Between1970-71 and 2000-01, the trend growth rate of foodgrains production in the region declined. In the 1970s, it was 3.3 per cent per annum. It went up to 4.1 per cent in the 1980s. But in the 1990s it declined to about 2.3 per cent. This region has been significantly affected by the Green Revolution and well served by irrigation and other sources of water supply. In the 1970s, the standard deviation of foodgrains production was about 5.3 million tonnes.

In the 1980s, this went up to about 8 million tonnes but slipped to 6 million tonnes in the 1990s. Thus, the quantitative effect of climatic fluctuations decreased in the standard deviation. According to latest reports, this region has also been adversely affected by drought this year and includes sub-regions such as Eastern Uttar Pradesh, East and North Punjab, Himachal Pradesh and Kashmir, which have been historically, and regularly, affected by drought.

According to Dr S. R. Sen — among the earliest to study the drought-proneness of the Indian economy (his paper on Growth and Instability in Indian Agriculture, presented in 1967, is a classic in this subject) — Eastern Uttar Pradesh was affected by severe droughts, involving less than 20 per cent in production, in 20 years in the 66-year period from1901 to 1966. Western Uttar Pradesh was also affected by severe droughts in 20 of the 66 years. Punjab, after Partition, benefited from irrigation development. Between 1901 and 1946, East and North Punjab were affected in 23 of the 46 years — almost once in two years. South and West Punjab were affected by severe droughts for 17 of the 66 years. Kashmir was affected by severe droughts in 26 of the 66 years. This year some parts of these areas have also been affected. In 1987-88, the northern region suffered a decline in output compared to the next year's peak by as much as 11 million tonnes. This drought period, we may expect a reduction in foodgrains output of 8-11 million tonnes in this region.

The Eastern region consists of Bihar, Orissa, West Bengal and Assam. These areas also benefit from the South-West monsoon. It accounted for 20-24 per cent of foodgrains production in the early 1970s. However, by the late 1990s, this proportion declined to 17-18 per cent.

The trend growth rate in the 1970s was 0.9 per cent per annum. It increased to 3.9 per cent in the 1980s. However, it has now come down to about 2.1 per cent. Assam is more affected by floods than droughts. Bengal was affected by droughts for nine years between 1901 and 1946. Orissa was affected for 15 years between 1901 and 1966. Bihar, through which the Ganga flows, was affected by severe droughts for 17 out of 66 years. Fortunately, this sub-region now does not seem to have been affected by severe droughts.

The standard deviation in the eastern region's foodgrains production in the 1970s was about 3.9 million tonnes. This rose to 5.1 million tonnes in the 1980s and the 1990s — the standard deviation was as high as 6 million tonnes — and the instability in production increased quantitatively. In the current drought, a reduction of 3-4 million tonnes can be expected in this region.

Now consider the Western region, which consists of Rajasthan, Maharashtra, Madhya Pradesh and Gujarat. This region has persistently showed a declining trend in the growth rate of food production. In the 1970s, the trend growth rate was 2.36 per cent per annum, falling in the 1980s to about 1.98 per cent and to almost nil in the 1990s. Parts of the Western region, especially Maharashtra and Gujarat, have been known to have high per capita income mostly from non-agricultural activities. Yet, agriculture is important here. Not much benefit has been reaped in this region by the development of irrigation so far, abstracting from the effects on production in Gujarat of the controversial Narmada dam.

The contribution of the western region to the total foodgrains production was about 24 per cent in the first three years of the 1970s. In the last three years of the 1990s, it slipped to about 21 per cent. Historically, this region has been prone to droughts. Western Rajasthan was affected by severe droughts in 29 of the 66 years of Dr Sen's study. Eastern Rajasthan was affected in 21 years. The sub-region of Gujarat was also affected in 21 of 66 years.

The Maharashtra region, excluding the Konkan and Vidarbha, was affected in 13 of 66 years. The Konkan was affected in 11 out of 66 years, whereas the Vidarbha felt the effects of droughts for 18 years. Areas in Madhya Pradesh also seem to have been affected in 16 of the 66 years.

The standard deviation in foodgrains production in the western region was about 4 million tonnes in the 1970s, which rose to about 5.1 million tonnes in the 1980s and further to 6.1 million tonnes in the 1990s. In 1987-88, the decline in this region's production compared to a peak of 42 million tonnes was as high as 10 million tonnes.

This region may witness as high a drop in production this year, as in 1987-88. The instability in production has been increasing in this region and the effects of droughts would be severe here. The current Finance Minister comes from this region and it is hoped that he will consider the adverse effects of inflationary financing on region's people, especially those in Rajasthan, Madhya Pradesh, Gujarat and parts of Maharashtra.

The southern region consists of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. The Hyderabad portions of Andhra Pradesh and Rayalaseema have been prone to severe droughts. In 22 out of 66 years, severe droughts have plagued this sub-region.

The Bombay Deccan area, including portions of Andhra Pradesh, Karnataka and Maharashtra, was affected in 14 of 66 years.

Mysore has been affected by droughts for 14 years, whereas the eastern and southern areas of the old Madras Presidency in Tamil Nadu and Kerala were affected in 19 out of 66 years by droughts.

In the same period, southern and eastern Tamil Nadu were affected for 19 years and the northern portion of Tamil Nadu and the eastern portions of Andhra Pradesh for 11 years.

The southern region accounted for 20 per cent of the total foodgrains production in the early 1970s.

This has been steadily falling and declined to 16 per cent in the last three years of the 1990s.

Thus, the trend growth rate in foodgrains production was about 1.7 per cent in the 1970s, falling to about 1.4 per cent in the 1980s and increasing marginally to 1.9 per cent in the 1990s. Meanwhile, the standard deviation in foodgrains production was about 2.4 million tonnes in the 1970s, slipping to about 2 million tonnes in the 1980s, but increasing to about 2.3 million tonnes in the 1990s.

In 1987-88, the previous, most severe drought, compared to the next year's peak, production declined by nearly 3 million tonnes. This was so in 1994-95 as well. But in 1997-98, the absolute decline in production compared to the next year's peak was as high as 7 million tonnes.

In the current drought, there may be a maximum decline in production of the same order, unless winter rains compensate the decline.

So what is the maximum decline in food production in 2002-03 expected to be? Considering 1987-88, the decline over the next year's peak was as high as 29 million tonnes. But over the previous peak, the decline was about 12 million tonnes. This year's drought seems to be spread over all regions and most States.

According to Dr Sen's classification, a drought should involve a 20 per cent decline in production. And according to our region-wise estimates, the decline may range between 20 and 30 million tonnes of production in foodgrains. If winter rains and late precipitation do not compensate production, the prospect looks bleak.

Several crops such as oilseeds and cotton are also affected by droughts and the overall potential loss in agricultural production this year for a monsoon failure of 30 per cent may reflect a drop in GDP from agriculture by 10-15 per cent.

This would imply a severe loss in agricultural incomes and the probability of a sharp rise in prices that would hurt rural agricultural labour and urban purchasers.

If the food stocks are to be run down by 20-30 million tonnes and issue prices are not allowed to rise, then the subsidy bill will rise by at least three times.

Neither the Finance Ministry nor the Reserve Bank of India has no reason to remain complacent.

Perhaps the situation may not be as bad as predicted, but it would be good to frame economic policies assuming maximum potential damage.

It would be good to declare a national emergency in economic matters so that the problem can be tackled through concerted efforts to help agricultural producers and the poor in agriculture with maximum economy in other fiscal matters.

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