Three reasons why farm sector growth may be nearing its LPA in FY22

Farm Sector Growth: Swift progress of southwest monsoon, sharp surge in govt procurement and general uptrend in commodity prices this year could deliver better numbers

Agriculture and allied activities are expected to clock a growth of 3.6 per cent at constant prices in FY21, slightly lower than 4.3 per cent in the previous financial year, but closer to the long-term trend for the sector at 3-4 per cent.

At current prices, the growth is expected to be around 6.6 per cent in FY-21, down from 12.5 per cent in FY20.

This means that the inflation impact, which some experts also attribute to a measure of farmers’ income provided there is perfect transmission, is expected to be 3 per cent in FY21, down from 8.2 per cent in FY20.

The drop in full-year numbers for agriculture and allied sector is largely because of below-par performance in the fourth quarter of FY21.

However, despite all these, agriculture and allied activities were among the very few sectors that registered a positive growth in FY21 where overall GDP growth slumped due to the impact of Corona lockdown and also its resulting sluggish economic activity.

As India battles another wave of the dreaded Corona, all eyes will be on how agriculture performs in FY22, because unlike the first wave, the impact of the second has been more severe in rural India.

Rural versus urban Corona

Data and reports showed that unlike in the first wave of 2020, in April 2021, rural areas of the country contributed more than half of the all new cases, as against 40.8 per cent contributed in urban areas.

The trend has been maintained in May 2021 as well. Rural areas that are usually categorised by much poorer health infrastructure than their urban counterparts, were expectedly hit much more severely than urban areas this time.

That apart, several mandis closed down their operations due to the lockdown, impacting farmers’ earnings as they weren’t able to sell their crops properly and in time.

“For agriculture to make a positive contribution to GVA this year, the spread of disease in rural areas needs to be prevented by using all possible means,” former agriculture secretary Shiraz Hussain and former rural development secretary Jugal Mohapatra wrote in a piece for moneycontrol.com almost a month back around May 11.

Since then, the Covid situation on ground has changed drastically and the number of cases has dropped sharply. The positivity rate, which is a barometer of spread of infection, has also come down forcing several state governments to lift their restrictions and help people resume normal life.

Amid all the mayhem, three factors give hope.

First is the steady and swift progress of southwest monsoon, second the sharp surge in government procurement and finally, the general uptrend in commodity prices this year.

Declining Covid footprint

Recent analysis from the health ministry showed that as of June 15, 2021, there has been an almost 85 per cent decline in daily Covid cases since the highest reported peak on May 7.

Not only this, the number of districts reporting more than 100 daily cases has reduced from 531 as recorded in the week ending May 4 to 165 in the week ending June 13.

There has been a decline of 75.6 per cent from the peak of Covid active cases recorded on May 10 across the county.

As on June 15, there are 20 states and UTs where active cases are less than 5,000 and a drastic reduction is being noted in almost all states.

Due to restrictions imposed at the field level as part containment activities, a sharp decline of 78 per cent has been noted since the highest weekly Covid case positivity of 21.4 per cent, recorded between May 4 and 10 during the second wave.

Clearly, the numbers show that the second wave of Corona is on the wane for the time being.

This should come as a big relief to both urban and rural consumers, as well as the farmers, who had seen the worst in April and May.

Swift monsoon progress

Among the big positives for the farm sector is the performance and progress of southwest monsoon. The rains are crucial as almost half of the country does not have proper irrigation facilities and depends on the four-month rainfall season to get its precipitation.

Monsoon is also crucial for India's $2.7-trillion economy, as it delivers nearly 70% of the rain needed by farms, besides replenishing reservoirs and aquifers.

It is here that the performance of the rains has been satisfactory so far and the forecast for the future holds hope.

After making a late entry, the rains have progressed steadily across the country, covering almost two-thirds of the landmass in the first fortnight--almost 15 days ahead of schedule.

According to data from the India Meteorological Department (IMD) between June 1 and 14, India received almost 28 per cent more-than-average rainfall and almost 75 per cent of the estimated 694 districts received normal or above-normal rains during this period.

A quick progress of southwest monsoon should spur planting of kharif crops such as paddy, soybean, pulses and cotton and boost their yields.

The forecast

The India Meteorological Department (IMD) upped its 2021 monsoon forecast to 101 per cent of the Long Period Average (LPA) in the second stage released in June, with most parts of the country, except some in East and North-East India, likely to get normal to above-normal rainfall.

Rainfall between 96-104 per cent of the LPA is considered a normal rainfall. The forecast is with a model error of plus and minus 4 percent.

The Long Period Average (LPA) of the four-month southwest monsoon season that starts from June is 88 centimeters.

Releasing the second stage forecast for 2021 monsoon season, the met department had said the forecast has been revised upwards due to prevailing neutral El Nino conditions along with neutral Indian Ocean Dipole, the two weather systems that have a direct bearing on the performance of southwest monsoon in India.

In its first stage forecast released in April, the IMD had said that the 2021 monsoon is expected to be normal at 98 per cent of the LPA.

Region-wise, the IMD said that North-West India is expected to get normal rains at 92-108 per cent of the LPA, while Central India is expected to get above normal rainfall at more than 106 per cent of LPA.

Southern India is likely to get rainfall in between 93-107 per cent of LPA while North-East India is expected to get below normal rainfall at less than 95 per cent of the LPA.

The rainfed areas of the country which fall in the Core Monsoon Zone, are expected to get more than 106 per cent of LPA rainfall in the four-months.

This should augur well for oilseeds, pulses and coarse cereals farmers as the rainfed region has very low irrigation penetration.

Few weeks back, private weather forecasting agency, Skymet had also said that the southwest monsoon in 2021 is likely to be ‘normal’ at 103 per cent of the Long Period Average (LPA).

Steady procurement

Amid the gloom surrounding the second wave of Covid-19 and its cascading impact, one economic activity which has done commendably well despite all the bottlenecks is procurement of wheat in the current rabi season.

According to latest data from the department of food and consumer affairs, till June 14, at an all India level an all-time high around 42.57 million tonnes of wheat has been procured as compared to over 37.84 million tonnes procured during the same period last year, a jump of almost 12.50 per cent.

Data shows because of this bumper procurement till June 14, around 4.75 million farmers from big wheat producing states have been benefited and a sum of over Rs 85,000 crore has been transferred into the bank accounts of farmers. A significant chunk of the transfers has gone to farmers of Punjab, Haryana and Madhya Pradesh based on the sheer size of their contribution to the Central pool.

High commodity prices

Another factor that could be positive for the farm sector is expected buoyancy in commodity prices, which should be beneficial to pulses and oilseeds farmers.

India's wholesale inflation hit a record high of 12.94 per cent in May, driven by continued rise in fuel and commodity prices as well as due to a low base effect, data released by the government showed. Wholesale inflation came in at 10.49 per cent in April.

Trailing WPI, retail inflation accelerated to a six-month high of 6.3 per cent in May, breaching the upper tolerance limit of the inflation target range set by the Reserve Bank of India’s monetary policy committee.

Data released on Monday by the Ministry of Statistics and Programme Implementation showed that higher inflation was driven by higher prices across sectors — including food, fuel, transportation and communication.

Though, not always, high food prices do have a transitory impact on the rate at which farmers sell his or her produce, but the pass through effect is limited due to presence of multiple intermediaries between the farm and the fork.

But international commodity prices are supportive.

Recent data from the United Nations Food and Agriculture Organization (FAO) showed that world food prices increased for the 11th consecutive month in April, hitting their highest level since May 2014, with sugar leading a rise in all the main indices.

The FAO’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 120.9 points last month versus a revised 118.9 in March.

Ray of hope

All these gives the hope that though, rural India has been worst hit by second wave of Covid in FY22, its impact on GVA numbers are yet to be assessed properly and if things get near-normal from here onwards, farm sector growth in FY-22 could be near its long term average of 3-4 per cent.

“My assessment is it should be between 3-3.5 per cent at constant prices partly due to high base and also because of bumper kharif and rabi harvests. It could have been better but the Covid impact is still unclear,” Madan Sabnavis, chief economist at Care Ratings, told Business Standard.

Table: GVA of agriculture and allied activities

At constant prices		At current prices
2019-20	4.30%	2019-20	12.50%
2020-21	3.60%	2020-21	6.60%