Concerns to damaged crop remain
After the industrial sector, it’s the turn of agriculture to add to India’s growth story.
On the back of a bright kharif outlook, analysts and experts expect around 5.5 per cent agricultural growth this financial year. They are also looking at their estimates for overall growth in second and third quarters with an upward bias. Analysts expect second-quarter growth to be in the range of 8.2-8.7 per cent while third-quarter gross domestic product (GDP) is estimated to grow nine per cent.
Most analysts estimate overall growth at 8.5 per cent, which matches the government’s estimate. However, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said that on the back of high agricultural growth of 5-5.5 per cent, the overall growth rate may be slightly more than 8.5 per cent.
Total foodgrain production in the ongoing kharif season is likely to be 114.63 million tonnes (mt), 10.4 per cent higher than in 2009-10. Last year, the output of kharif foodgrain was 103.84 mt as drought marred paddy production.
“Well, the growth in kharif output this year is along expected lines and will have quite a substantial impact on GDP in the third quarter, and not so much in the second,” said the principal advisor to the Planning Commission, Pronab Sen, also the previous chief statistician of India.
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The agricultural growth rate of 5.5 per cent in 2010-11 will be highest in the 11th Plan period (2007-2012). In 2007-08, agriculture and allied sectors grew 4.7 per cent. In the previous year (2009-10), the sector posted only 0.2 per cent growth. Agriculture contributes 14-15 per cent to overall GDP.
The growth estimate for kharif by the Ministry of Agriculture has been expected as the drought of 2009-10 had depressed the base. Analysts are enthused by the estimates as the impact of drought this year in eastern parts of the country has been less than expected.
Moreover, estimates suggest the wholesale inflation rate for food articles will fall to high single digits as supply pressures ease. Food inflation stood at 14.56 per cent for the second week of September.
“The kharif estimates are obviously good news. We are projecting second quarter growth at around 8.8 per cent. We were expecting such an increase because it’s on a low base of 2009. Besides, the risks to the kharif output are not over,” said Rupa Rege Nitsure, chief economist with Bank of Baroda.
Deutche Bank, in a research note, has also expressed optimism that “intensification of monsoon rains in the last few weeks, especially in the northern region, have caused flooding in certain pockets and some damage to crops.”
According to Deutche Bank, the outcome of the kharif seasion will help agriculture return to a trend level of four per cent year-on-year growth, from 0.2 per cent in 2009-10.
In 2009-10, the growth was primarily led by the winter crop as kharif output for all major crops had fallen.
Rabi crop now contributes almost 50 per cent to the overall production of foodgrains, with the share rising above 50 per cent in 2009 due to an extremely poor kharif production.
Like Sen, Crisil Chief Economist D K Joshi expects a major impact of the kharif output in the third quarter as most arrivals, like that of sugarcane, start from October. Joshi, who has pegged second-quarter GDP growth at 7.8 per cent, expects a reassessment of the numbers when full monsoon data are available.