Farm sector will continue to shine in 2020-21 but rural as a whole may not

The non-farm sector occupies a large part of rural income, and unless it grows substantially, just expecting farm growth to bring about rural sector revival is unreasonable, say experts

Just like in several other countries, in India too, agriculture and allied activities were the only areas that clocked a positive growth in the Covid-ridden quarter ended June this year.

As the countrywide lockdown closed down almost all economic activities, agriculture was among the few sectors that was spared and India’s farmers responded by delivering the highest ever rabi output, followed by record sowing of summer and kharif crops in the subsequent months.

The consequence of this all-time high output is that agriculture growth in the first quarter of 2020-21 was 3.4 per cent at constant prices, up from three per cent in the same quarter of 2019-20.

At current prices in the first quarter of 2020-21, the Gross Value Added (GVA) for agriculture and allied sector was 5.7 per cent in Q1 of 2020-21 as compared to 8.6 per cent in Q1 of 2019-20.

This translated into an inflation impact of 2.3 per cent in Q1FY21, down from 5.6 per cent in the first quarter of the previous financial year. 

This was among the lowest increases in inflation in more than a year in agriculture items.

So though the farm sector posted strong growth in the first quarter of 2020-21, it might not have translated into higher incomes for all farmers.

And if the wholesale price index for the first three months of 2020-21 is indication, it was the vegetable and eggs, meat and fish growers who suffered the biggest drop in incomes in the first quarter.

Going forward 

The big question is: after somewhat rescuing the Indian economy in the Covid-battered first quarter of 2020-21, will agriculture and allied activities continue to provide support in the subsequent quarters and also in all of 2020-21?

Most experts agree that it will. And, the reasons are well documented.

These include fairly widespread and evenly distributed southwest monsoon rains, a record increase in kharif acreage, brimming water in the reservoirs and above all, a delayed withdrawal of southwest monsoon, which should leave adequate moisture in the soil for a strong rabi harvest.

Madan Sabnavis, Chief Economist at CARE Ratings in a recent interaction with Business Standard said that farm sector growth in the second quarter of 2020-21 is also expected to be good on the back of a likely bumper kharif harvest (a portion of which will start hitting the market from September before the second quarter numbers are out) and also due to good growth in allied activities such as livestock, fisheries and forestry.

“I feel for the full year, agriculture and allied sector growth in 2020-21 should be around 2.5-3 per cent, based on the performance in the first quarter. Also the monsoon has been good and water level in the reservoirs is adequate, and this should lay the foundation for a strong rabi harvest as well,” said Mahendra Dev, Director of Indira Gandhi Institute of Development Research (IGIDR).

A 2.5-3.5 per cent growth in agriculture and allied activities will mean that the sector’s share in India’s overall GDP will climb to over 18 per cent in 2020-21 as against 14.64 per cent in 2019-20.

Of course, the share will come at the expense of shrinking in other economic activities due to the Covid-19 impact.

An increase in share of agriculture and allied activities in the country’s GVA should ideally translate into higher good for a greater number of people given that the proportion of those directly dependent on farming or related activities is disproportionately high.

Farmers' income 

Though agriculture and allied activities in 2020-21 are expected to register a positive growth in 2020-21 as compared other sectors, how much of it will translate into higher incomes for farmers and bring about a strong recovery in the rural sector depends on how the non-farm sector of the rural economy fares.

The non-farm sector currently occupies a substantial part of the incomes of rural households.

According to the Nabard Financial Survey of 2016-17, just around 23 per cent of the rural households’ monthly incomes come from farming sources that includes cultivation and animal rearing, while the bulk comes from other sources which aren’t related to agriculture.

Experts said unless this portion of a rural households’ income grows substantially, just expecting that agriculture growth will pull the rural sector revival is unreasonable.

“To me the whole theory of agriculture pulling rural recovery is overstated because unless non-farm incomes rise, households won’t have higher incomes and as regards crop prices, over production can lead to drop in prices, which could harm farmers,” Mahendra Dev of IGIDR said.

TABLE 1: GVA For Agriculture & Allied Activities At Constant Prices (2011-12)

Quarter	2017-18	2018-19	2019-20	2020-21
Q1	4.2	3.8	3.0	3.4
Q2

4.5 2.5 3.5 . Q3 4.6 2.0 3.6 . Q4 6.5 1.6 5.9 . GVA figures percentages; Source: MOSPI

TABLE 2: Difference between current and constant prices for GVA in agriculture and allied activities

Quarter	2016-17	2017-18	2018-19	2019-20	2020-21
Q1

8.6 -1.4 2.9 5.6 2.3 Q2 6.8 2.8 0.4 5.0 . Q3 3.4 4.5 0.3 10.3 .

Q4

3.8 1.2 5.0 7.1 .

Figures in percentages; the difference between current and constant prices which largely is inflation is sometimes also gives a broad picture of farm incomes. Demonetisation happened in third quarter of 2016-17; Source: Government of India