Counting on agriculture?

With the manufacturing sectors in a slump, there is no room for the agriculture sector to dawdle this fiscal. The paltry agriculture growth of 0.85 percent in FY19, a rather lean year, must be followed up by a sufficiently rich output growth this fiscal. Three months in, a look at different agricultural inputs shows a battle between favourable and unfavourable circumstances of both environmental and economic nature.

First up, there is plenty of water to meet the domestic agriculture demand. This is thanks to a heavy monsoon rainfall season this summer. This should compensate for the drought-like conditions seen last year in some regions. The effects will show in higher output in the October-December harvest period of Kharif crops like rice, sugarcane and maize.

Those rains have also elevated moisture levels in soil, which is good news for upcoming Rabi crops’ plantation. Crops like wheat, tobacco, lentils, barley and gram are being sown from October to December and will be harvested next year mostly from April to May. Meanwhile, livestock and horticulture (fruits, vegetables and condiments) sectors are also expected to benefit from excess water availability.

But due to downside of heavy rains the cotton crop in some regions attracted pests in standing water. In some other regions, strong gusts of wind harmed the development of cotton bolls. As a result, against demand of 15 million bales, industry sources fear that the cotton output will again disappoint this year. Production is estimated at 11-12 million bales, leaving some large buyers to cotton import again. Also at work was a cash-strapped government’s inability to announce an incentive package to motivate growers.

The other side of climate change may also limit potential gains in output from excess rains. Due to prolonged warm weather into August and September this year, there are reports that rice and maize crops’ yield will decrease. Meanwhile, sugarcane growers, who were stung by the delayed cane crushing season last year, have demanded the government to significantly raise the indicative price. Another showdown between growers and millers this year may affect the sucrose content of the crop.

Other agriculture inputs are a mixed bag. The fertilizer prices have grown in double digits this year, as feedstock gas tariff was increased and as other fertilizer inputs also became dearer on account of tax hikes. Faced with expensive fertilizer, farmers tend to apply less of di-ammonium phosphate.  This will affect yields of crops as the balance gets disturbed.

There is not much the government can do to bring down fertilizer prices in time. However, for electricity use, the tariff differential subsidy on agriculture tube-wells is set to continue, despite its fiscal (and ecological) impact.

For agriculture credit, the July 2019 numbers are almost the same as previous year – but one must wait for at least quarterly data for better understanding. Last fiscal was a good one, though, as agricultural credit disbursements reached a high of Rs1.17 trillion in FY19, growing 21 percent year-on-year. It is expected there will be positive, lagged effects of those disbursements in initial months of FY20 as well.

In the end, a healthy growth in agriculture is critical to lift the GDP growth this fiscal. On one hand, higher output will support agro-based industries as well as services sectors like transportation, wholesale and retail trade. On the other hand, surplus crops can be exported to earn some much-needed forex.