The South West monsoon has withdrawn, having brought 18 per cent less precipitation than normal. Nowhere near as bad, as for a moment, it had seemed in July, but certainly not good. How badly will farm output be impacted? The agriculture ministry has been crying itself hoarse that disaster is afoot and canny state governments have clambered aboard that caravan, hoping for doles from the Centre. Quasi-official estimates for the kharif harvest were generously provided to the press on 24 September, well in advance of the official estimates scheduled for release later this week. According to the preview, foodgrain output would suffer a 19 per cent decline to 90.8 million tonnes (mt) from last year?s record of 111.6 mt, with small declines in sugarcane and fibres.
First, a small quibble: the agriculture ministry?s preliminary estimate for the 2001 kharif harvest was 105.6 mt, which later was to become the 111.6 mt of the final estimate. That has been the story with foodgrains for some years now. Each year the comparison is made between preliminary and final, with the conclusion that output is lower this year. So, we can reasonably expect that the final estimate for this year?s kharif harvest will also be proportionately higher, in which case the estimate of output is likely to be 97 mt and the decline would have been 13 per cent.
Second, if there has indeed been a precipitate decline in the output of rice, coarse cereals, pulses and oilseeds, would not one see a sharp rise in the prices of these commodities in the market? Well, wholesale price indices are available up to the middle of September 2002, and what they show is that there has indeed been an increase in prices ? but hardly of an order that matches a decline in output by one-fifth and more. Take pulses, for example. Between end June 2002 (when everyone thought the monsoon was going to be ?normal?) and mid-September, the price of pulses rose by 2.8 per cent, compared with an increase of about 1 per cent during the same period last year. The price of rice rose by 2.6 per cent during this period this year compared with a decline of about 1.2 per cent last year.
Do these price movements reflect a fall in output of 17 per cent? I would submit that they do not. While it is certain that the kharif harvest in 2003 will be smaller than in 2002, the order will be less than sought to be presented by farm lobbies in government, with the objective of transferring greater resources to agriculture through higher support prices and other means. All with an eye to elections, that in India have come to be perennially round the corner.
The first quarter gross domestic product (GDP) figures were released last week, showing a not surprising 6 per cent growth. However, the growth from agriculture was less, and that ascribed to services somewhat stronger than expectation. Nevertheless, 6 per cent has a nice ring about it, and has set off some rather misleading conclusions about economic recovery and such like. A few things ought to be noted. First, there is a mild recovery on going in the industrial and service sectors. Non-agricultural GDP growth has strengthened from 4.3 per cent in the first quarter of 2001-02 to 6 per cent in the last quarter, and to 6.5 per cent in the first quarter of 2002-03. In the remaining three quarters of this year one expects this figure to cross 7 per cent.
Great news, but agriculture will dampen things considerably. Even if one takes a moderated view of the official alarm regarding the drop in crop output, agriculture might register negative 4 per cent growth in both the second and third quarters. In consequence, overall GDP growth in Q2 may drop to the 4.5 per cent region. Happily, the advance estimates will be released in early February 2003, indicating 5 per cent growth for the full year, long before (end of March) the depressing third quarter GDP growth ? of perhaps below 4 per cent ? become due for release.
The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)