The silver lining

Contrary to earlier claims, farm growth may be robust

The projection by the Commission for Agricultural Costs and Prices (CACP) of robust agricultural growth of above five per cent and a consequential handsome rise in rural incomes comes as a silver lining to India's otherwise gloomy economic scene. The CACP's reckoning, based on a rigorous mathematical model, virtually discounts the agriculture ministry's kharif crop output estimates (called first advance estimates) that had pitched the likely growth at an unduly pessimistic 0.87 per cent. This prognosis had indicated negative growth in the output of the main staple cereal, rice, and two key pulses, pigeon pea (tur or arhar) and black gram (urad). The kharif season accounts for more than half of annual farm output. In contrast, the CACP's study projects growth in agricultural production to be between 5.2 and 5.7 per cent, which should push up nominal rural incomes by 15 to 20 per cent. Besides the remarkable monsoon rainfall, high prices of farm goods and a steady annual surge of nearly 20 per cent in agricultural wages in the past few years have contributed to higher disposable income in rural areas. This also bodes well for other sectors of the economy, through its impact on rural demand.

The corporate sector apparently concurs. A study issued by the Associated Chambers of Commerce and Industry (Assocham) has anticipated that farm sector GDP will swell this year by 5.5 to six per cent. It also points out that every one per cent increase in agricultural GDP normally results in 0.4 to 0.6 per cent additional growth in industry. This optimism is reinforced by market reports that indicate that the sales of consumer goods are rising faster in rural areas than in urban centres. The corporate sector, in general, is looking for higher demand for farm inputs and machinery; two-wheelers; electronic items including mobile phones; and a host of fast-moving consumer goods. The sales of tractors have, in fact, already surged in recent months by about 20 per cent, and those of urea by 10 per cent.

So why did Krishi Bhawan release a half-baked, hastily put-together, and wholly unrealistic crop outlook so early in the season? The first crop estimates are often put out when even the area planted under different crops is still unclear. Far from being useful, these projections can send out misleading signals, including to the markets; the prices of several farm commodities went up after these projections were released. Food inflation, significantly, soared to 18.4 per cent in September when it would normally have eased in anticipation of a bumper harvest. Equally noteworthy is the spike of 19.8 per cent in the prices of rice, regardless of a healthy standing crop and huge inventories in the official grain coffers. It may, therefore, be advisable for the agriculture ministry to come out with its preliminary crop outlook only when it has firmer indications of likely production numbers.