Farm sector the only silver lining in FY21 as economy nears negative zone

Though it may not have a huge impact on overall economic growth given its diminishing share in India's GDP, positive growth in agriculture has the potential to revive the rural economy

By now most economists, policy makers and watchers of Indian economy have reached a common conclusion that while overall India’s economic growth in 2020-21 is expected to remain tepid and might even fall into negative territory, agriculture and allied activities could be the shining armor and register near 3 per cent growth in 2020-21.

Though it may not really be able to push overall economic growth given its diminishing share in India’s GDP, positive growth in agriculture has the potential to revive the rural economy, provided growth translates into higher incomes for farmers.

At current prices, India’s agriculture and allied sector is projected to grow at an almost 11.4 per cent in 2019-20, which is among the best during the past few years.

A significant part of the growth in current prices could be due to the livestock sector where milk and meat prices ruled considerably higher for most of 2020-21 before the Covid-19 crisis hit it at the fag end of the financial year.

Going into 2020-21, the growth in current prices will be keenly watched and as some experts said that a 3 per cent growth in real terms should translate into 7-9 per cent nominal growth. Though this is lower than 2019-20, it  could be beneficial in relation of nominal growth in other sectors that are expected to be in the negative territory this year. 

Rating agency Crisil in a recent research note said, “Growth in agriculture and allied activities this fiscal hinges on bumper food grains production. A normal monsoon will be critical, too. Horticulture might have to bear the brunt because of perishability. Livestock is an important fallback in times crop output volatility.”

Crisil said milk, which comprises the biggest chunk of livestock, is expected to do well, while categories such as meat, eggs, fishing and aquaculture are likely to face a prolonged impact, as there is a tendency to reduce consumption of non-vegetarian food during the pandemic.

“A fall in exports in these commodities too is expected to stifle demand. But with the contribution of these items in the agriculture and allied activities sector being relatively lower, overall farm growth may stay resilient,” the rating agency said.

The big questions, though, is how demand will be generated to absorb all the expected good farm output.

Monsoon holds the key 

The southwest monsoon, as per the second estimate released earlier this month, is expected to be 102 per cent of the Long Period Average (LPA), with almost all the major geographical regions expected to get ‘normal’ to ‘above normal’ rains.

More than the overall performance, the regional distribution this year as per IMD projections is projected to highly favourable mainly in the non-irrigated areas of Central, Western and parts of Southern India.

The met department said that Northwest India, which is comprised of states such as Punjab, Haryana, UP and Delhi, is projected to get ‘above normal’ rainfall this year at 107 per cent of the LPA.

The IMD said central India, most of which is rainfed, is expected to get rainfall equivalent to 103 per cent of its LPA. Southern India may get rainfall equal to 102 per cent of the LPA.

The central India subdivision covers Goa, Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh and Odisha, while the southern peninsula subdivision consists of Kerala, Puducherry, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana.

East and Northeast India are expected to get 96 per cent of the LPA. However, this should not cause much problem, as the total quantum of rainfall in the eastern part of India is higher than other regions. 

The forecast comes with a model error of plus or minus 8 per cent.

The east and northeast subdivision covers all the northeastern states besides West Bengal, Jharkhand, and Bihar.

The IMD classifies rainfall between 96 and 104 per cent of the LPA as normal and between 104 and 110 per cent is classified as above normal rainfall. Rainfall between 90 and 95 per cent is categorised as ‘below normal’.

Though the cumulative LPA for the four-month rainfall for all-India is 88 cm, there can be regional variations.

Apart from the favourable outlook, as per IMD’s projections, rainfall in July and August is expected to remain normal.

It said that in July, rainfall would be 103 per cent of the LPA, while in August it will be 97 per cent.

July and August are the two most important months for the southwest monsoon as they get the maximum quantum of rains. The forecast is with a model error of plus or minus 9 per cent.

There is just a 15 per cent chance of rainfall being below normal this year and just 5 per cent of it being deficient, the MET department said.

Clearly, the monsoon, which some experts say has a 60-70 per cent on India’s agriculture growth, is expected to be good this year.

The downside 

While that should take care of lot of the sector's problems, given the unpredictable nature of Indian monsoon, it will be fallacy to place all bets on the weather phenomenon.

However, some would say that over the years the impact of monsoon on Indian agriculture has waned considerably, but it still plays a very important role.

A good monsoon will guarantee not only higher kharif output, but also prepare the ground for a better rabi harvest.

Fertiliser sales remain robust 

In April and May, while the whole country was enduring a strict lockdown and virtually nothing moved, one sector whose wheels simply did not stop was fertiliser sales and production.

According to data from the fertiliser ministry, sales in April were almost 47 per cent more than the same period last year, while in May the performance was even better with sales nearly twice the level achieved in the same month in 2019.

Though a record increase in summer planting, mainly of moong in Madhya Pradesh and UP could have boosted the consumption, as some industry players say, this rise in sales was recorded in point-of-sale (PoS) machines, which also means that farmers were paying cash to buy fertilisers.

However, a section of the fertiliser industry feels that more than consumption demand, it was largely fueled by stocking need, as farmers thought that going forward fertilisers might get scarce due to the lockdown. This could disturb their kharif sowing plans as forecast of a normal monsoon in 2020 had started arriving by then.

“The surge in April and May sales seems to be a pre-stocking by farmers apprehending shortages due to likely supply disruptions during the lockdown. Also, the monsoon prediction has been good which could have made them hopeful of a good harvest. This sales growth might not be sustained in the months to come during Kharif and could taper off,” Rakesh Kapur, ex-Chairman, Fertilizer Association of India (FAI) told Business Standard.

Seeds, pesticides & tractor sales show pick-up signs 

While concrete figures are not yet out, various sources say seed sales in April and May have been almost 20 per cent more than last year, while consumption of pesticides and plant chemicals has also been good.

Tractor sales, which dropped sharply in April, picked up inn May as farmers returned to the fields. 

Though the May numbers are almost 53 per cent lower than May 2019, they are still better than April 2020, when tractor sales fell to just 12,456 units, before recovering to 30,751 units in May.

The sales figures in the corresponding months of last year, according to Tractor and Mechanisation Association (TMA), were 62,497 in April 2019 and 64,514 units in May 2019. 

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