Farm growth: Govt, experts differ on impact of uneven rains

Experts say it will make GDP growth target of 5.7-5.8% difficult to achieve, while ministries feel late resurgence will help in sowing of rabi crops

The slow start to the southwest monsoon this year and its impact on the yield of kharif crops have led to fear that farm sector growth for the remaining three quarters of 2014-15 might fall to one-two per cent from a robust 3.8 per cent for the quarter ended June. This could make the government’s 2014-15 gross domestic product (GDP) growth target of 5.7-5.8 per cent difficult to achieve. This is because though the agriculture sector’s share in overall GDP is less than 15 per cent, it has a cascading impact on other sectors, say economists.

However, senior officials from the finance and agriculture ministries feel the concern is unfounded, as kharif acreage has improved considerably through the past few weeks. Also, the late resurgence in rains will help in the sowing of rabi crops, and this might offset some of the losses recorded for kharif crops. “This year, kharif sowing is only 3.3 per cent less than last year. So, a below-normal monsoon won’t have much of an impact on growth in the coming quarters,” said a senior finance ministry official.

However, economists and experts disagree. Madan Sabnavis, chief economist at CARE Ratings, says a revival of the southwest monsoon isn’t enough for a good harvest. As of now, the area under coarse cereals, oilseeds, pulses and sugarcane is less than last year; also, the final yields of these commodities are expected to be lower. “In my assessment, the impact might not be substantial in the second quarter of 2014-15, as the full extent of a low harvest will not be felt, but things might turn bad from the third quarter,” Sabnavis said, adding except rice, all the other four crops mentioned earlier might see a significant drop in output.

Latest data from the agriculture ministry show till September 5, the total area under kharif crops stood at 3.4 million hectares, less than last year. The situation is the worst in the case of coarse cereals and oilseeds — the acreage is 1.75 million and 1.55 million hectares less than last year, respectively.

With the southwest monsoon at its final stage (it starts withdrawing from September), there is little chance of a significant improvement.

Rains are crucial for India’s agriculture sector, as about 45 per cent of the arable land doesn’t have proper irrigation facilities. This year, rains started on a weak note; in June, the deficit was 43 per cent, triggering fears of a widespread drought. Since mid-July, rains have revived in most parts of the country, narrowing the deficit to 13 per cent as of September 5.

About 70 per cent of the total rainfall received by India is accounted for by the months of June to September.

National Statistical Commission Chairman Pronab Sen said in the second quarter, the effect of a shortfall in the monsoon would be clear. “There will be a fairly sharp drop. I expect it to be under one per cent in the second quarter,” he had said in a recent interview with Business Standard.

“Not much should be read into the first-quarter numbers, as these are based on crop-production data for 2013-14, a year of a record monsoon. The real impact of uneven rains will be felt from the second quarter,” said Ramesh Chand, director of the National Centre for Applied Economics and Policy Research.

The finance ministry official quoted earlier said, “The sub-normal monsoon has already affected crops in the harvest season. The rains in late August will help rabi crop output, and this will be reflected in next year’s GDP growth.”

A fall in growth in the agriculture segment might affect rural incomes and, in turn, demand, which might hit manufacturing. This will make the task of meeting the GDP growth target of 5.8 per cent difficult. While Economic Survey 2013-14 pegged economic growth this financial year at 5.4-5.9 per cent, with the lower range likely, the finance ministry later exuded optimism growth would be 5.8 per cent.

On the retail inflation front, officials are optimistic of meeting the Reserve Bank of India’s target of eight per cent by January 2015 but not the six per cent target set for January 2016. “Between now and January 2016, there will be another monsoon. If that, too, is bad, it will be difficult to tame inflation and keep it below six per cent,” the finance ministry official said, adding he thought in 2016, retail inflation would be six-seven per cent.

Sabnavis of CARE Ratings, however, said by January 2015, retail inflation might be 7-7.5 per cent, though price pressures might remain.

India’s GDP grew 5.7 per cent in the quarter ended June this year, the most in about two years. While wholesale inflation declined to a five-month low of 5.19 per cent in July, against 5.43 per cent in June and 5.84 per cent in July last year, retail inflation rose to 7.96 per cent in July from 7.46 per cent the previous month.