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  1. Rural distress may lessen even as agriculture growth may stay flat

Rural distress may lessen even as agriculture growth may stay flat

The distress in rural India on account of a glut-induced crash in prices of farm commodities will likely alleviate soon as prices tend to look up, but statistical factors will keep farm-sector growth subdued in the short-term.

By: and | New Delhi | Updated: September 14, 2017 6:33 AM
agricultural growth in india, agricultural situation in india, agricultural growth A crash in prices kept growth in nominal gross value added (GVA) for the agriculture and allied sector above the expansion in real term in Q1FY18 for the first time in five years, but the situation may reverse as early as the second quarter. (PTI)

The distress in rural India on account of a glut-induced crash in prices of farm commodities will likely alleviate soon as prices tend to look up, but statistical factors will keep farm-sector growth subdued in the short-term.

A crash in prices kept growth in nominal gross value added (GVA) for the agriculture and allied sector above the expansion in real term in Q1FY18 for the first time in five years, but the situation may reverse as early as the second quarter. This is because inflationary pressure has returned from July with the post-harvest seasonal hardening of food prices and a conducive base effect has waned, especially at the retail level. This means the GDP deflator for the farm sector is set to rise during the second quarter, reversing the growth balance in favour of nominal instead of real GVA.

However, an unfavourable base will still weigh on the farm sector growth in real terms this fiscal, especially from the third quarter. So, even if the country maintains last year’s record kharif grain output of 138.5 million tonnes in 2017-18, as suggested by agriculture secretary SK Pattanayak recently, the sector’s growth will remain subdued. The sector had grown at a decent pace of 6.9% and 5.2% in Q3 and Q4 of the last fiscal, respectively; in current prices, the growth rates were even higher at 8.8% and 7.9% respectively.

In Q1FY18, the nominal GVA in agriculture grew just 0.3% against the real expansion of 2.3%, thanks to a 1.7% decline in wholesale price food inflation in Q1 from a year earlier.

Already, the number of districts with the first level of drought trigger rose sharply to 225 by end-August from 104 in the previous month, with parts of central and southern India facing the wrath of erratic monsoon more severely than others, according to the Mahalanobis National Crop Forecast Centre under the department of agriculture.

However, the situation might not turn out to be as alarming as it appears now — by July-end last year, as many as 109 districts were in the first-level drought-trigger category, but only 59 districts mostly spread over Karnataka and Tamil Nadu were finally declared “drought-hit”.

For the full year (2016-17), the real agri growth was as much as 4.9%, which was aided by a conducive base (just 0.7% expansion in 2015-16), apart from the bumper harvest. This means much of the GDP growth in 2017-18 will have to come from the industrial and other sectors for the country to record an expansion of 7% or so and remain the fastest-growing major economy. This will be a key challenge, given private investments

are rarely flowing in and consumption — the major growth driver so far — is losing sheen (growth in private final consumption expenditure slowed to 6.7% in Q1, against 7.3% in the previous quarter).

“This year’s overall agri GDP growth is likely to be less than last year, partly due to higher base effect and partly due to less satisfactory rainfall,” Ashok Gulati, former chairman of the Commission for Agricultural Cost and Prices, told FE.

A 5% drop in monsoon rains in the country from the benchmark average and a reduction of rainfall in the range of 20-35% in certain parts of Uttar Pradesh, Madhya Pradesh, Karnataka and Kerala has already posed risks to kharif crops, which will be harvested from late September.

The summer sowing of paddy has dropped 1.4% from a year before, while that of inflation-sensitive pulses and oilseeds is down 3.9% and 9.6%, respectively, as the planting season draws to a close. Water storage across 91 reservoirs in the country remained around 16% lower than a 10-year average until September 7, with a critical shortfall in southern states, which could potentially affect sowing in certain pockets in the coming rabi season as well.

Thankfully, the government has almost two million tonnes of pulses stocks, and global edible oil prices are not as elevated as they used to be. This could reduce the possibility of “imported inflation”, although price pressure could still be higher in the coming months than the preceding ones.

The central bank has forecast higher retail inflation for the second half of this fiscal (3.5-4.5% against 2-3.5% for the first half), partly due to expected higher food inflation in the second half. If wholesale price inflation follows this trend, which is very likely, nominal GVA growth (unadjusted for inflation) in agriculture will only be higher than real GVA expansion in the coming quarters.

“Depressed prices of agricultural commodities adversely impacted the (nominal) agri-GDP growth in Q1. We need to closely monitor the current year’s output to arrive at any impact on the growth (for the entire fiscal),” said former agriculture secretary Siraj Hussain.

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