Hopes of bumper harvest

Govt must guard against farm commodities' price crash

The good run of the monsoon so far this year has strengthened optimism about a rebound in farm output after a two-year hiatus and a positive overall impact on other sectors of the economy. However, any bid to quantify this impact would be premature at this stage, as the picture could alter between now and the Kharif harvest, which is still over two months away. Trade circles, though, seem to have already factored in a seven to 10 per cent surge in the agricultural gross domestic product (GDP) in their business strategies. This might come true if the monsoon remains as bountiful and well-distributed for the rest of the season as it has been till now. The danger, nevertheless, is that the strengthening of La Niña, which makes the monsoon vigorous, might cause excessive rains and waterlogging in some areas to hurt crops requiring less water such as pulses and oilseeds.

The point to note, however, is that agricultural growth is no longer dependent solely on the monsoon. This is clear from the positive agricultural growth - even if a measly 0.4 per cent, on an average, in the past two years, which were impacted by drought. There are at least two reasons for that. One, the composition of the broad agriculture and allied sector has changed dramatically with a gradual shrinking of the share of the crops segment and the rise in the contribution of non-crop segments, notably livestock and fisheries. These segments have a growth trajectory of their own, which is not affected much by the monsoon. Moreover, even the crops sector is steadily acquiring a degree of resilience against the monsoon. The findings of a recent study by India Ratings and the National Centre for Agricultural Economics and Policy Research (NCAP) bear this out. It showed that the correlation between the Kharif foodgrain output and the quantum of monsoon precipitation has shrunk to 0.3 in the decade (2004-05 to 2013-14) from 0.6 in the earlier period, thus, implying that Indian agriculture is now relatively better equipped to withstand routine weather shocks.

This apart, multiple factors are now contributing to farm sector growth. These include expansion of agro-processing, higher farm exports, and growing private participation. The constant inflow of new technology from research centres and increased use of information technology in the dissemination of know-how are also playing a significant role in reshaping agriculture.

Significantly, rural demand for goods and services, which is critical for boosting GDP, is a function of farm incomes rather than output. Any crash in the prices of farm commodities, which is usual in the wake of a bumper harvest, can subdue income generation and thus adversely affect rural demand. The government would do well to guard against it. Normally, about 48 per cent of motorcycles, 44 per cent of television sets and 40 per cent of cement, apart from a sizeable chunk of other consumer goods, are sold in the rural belt. Their higher demand can potentially lift capacity utilisation in industries and spur fresh investments. The general belief is that a one per cent spurt in farm output in value terms facilitates 0.5 per cent rise in industrial production and 0.7 per cent surge in national income. However, all this is unlikely to materialise overnight; not at least till the crops are harvested and marketed.