The agricultural sector is estimated to have grown by 2.3 per
cent in real terms, yoy during April-June 2017. This was the lowest
growth recorded by the sector in the past five quarters. It was lower
than the 2.5 per cent growth recorded in the year ago quarter and it
was much lower than the 4-7 per cent yoy growth rates recorded in the
preceding three quarters.
It is possible that the recent growth rates of the agricultural
sector are over-estimates. Quarterly growths are derived from the
estimates of value of output. This is done by extrapolating the year-ago
real value of output by the growth in production. Prices do not enter
this computation. But, we know that prices of several commodities crashed
during the peak marketing season in the past two quarters. Besides, output
was also destroyed in some cases because of the steep fall in prices.
Prices of rabi pulses masur and peas reported a steep yoy fall of
21.1 per cent and 9.2 per cent, respectively, in the June 2017 quarter.
Vegetable prices too had a free fall. Potatos ruled 44.2 per cent
lower than a year-ago, while tomatoes declined by 31.2 per cent. Other
vegetables such as onions, peas, cabbage, radish, cucumber too suffered
fall in prices in the range of 10-20 per cent.
Annual estimates of agricultural gross value added do use
wholesale prices of the peak marketing season to compute the value added.
When the final estimates are adjusted for these price falls
(and possibly for the destruction of crops), growth could turn out to
be even lower than what the quarterly estimates suggest.
The agricultural sector has been stressed for long. 2014 and
2015 were sub-normal monsoon years. In 2016, the rains were good but,
disruptions caused by demonetisation negated a good part of the gains.
As a result, for nine consecutive quarters from June 2014 through
June 2016, agricultural sector never posted a growth of 4 per cent or
more in any quarter. The quarterly series of national accounts shows that
the highest growth during this period was of the order of 3.6 per cent in
the quarter ended September 2014. Three of these nine quarters posted
declines and the average yoy growth works out to a measly 0.9 per cent.
National accounts statistics show handsome growth in agriculture
during three consecutive quarters from September 2016 through March
2017. But, this includes the disruptive period of demonetisation when
supply chains were broken and mandis were empty with little or no cash
to transact trades. The stress erupted into political agitation with
farmers demanding, and government agreeing to, waivers of farm loans in
many states during early 2017.
Repeated dislocation of agricultural production and extreme price
volatility in many crops have rended the sector drained and unprepared
to deal with the uncertainties of 2017. Although, the farm loans have
improved the condition of farmers on paper, in reality, the beneficiaries
are yet to receive the waivers. The offtake of agricultural credit is
still low, with yoy growth touching a decadal low of 6.8 per cent in
Monsoon rains during the first three months of the 2017 season
were 96.6 per cent of the normal precipitation during this period. This
is very close to what the IMD had first predicted when it said that the
rains during this monsoon season would be 96 per cent of the normal.
Sowing has been hesitant. Overall, the area sown during
this kharif season was 0.6 per cent lower than it was in the previous
year. Sowing of foodgrain is down 2 per cent and oilseeds is down 7.8
per cent. Sowing of cotton and sugarcane - the two large cash crops
has increased. Yields in foodgrains and pulses are unlikely to offset
the fall in acreage as they had risen sharply last year.
With bans and severe controls (implicit and explicit) on the
production of beef, and the movement of livestock across states, it is
unlikely that livestock would provide any fillip to the poor prospects
of growth in the agricultural sector.
Statistically, growth will be somewhat challenged by the high
base of the previous year’s quarter as well. Agriculture grew by 4.1
per cent in the quarter ended September 2016.
It follows then that the agricultural sector is likely to post
a worse performance in the quarter that will end in September 2017
compared to what it did in the June 2017 quarter or in the September
2016 quarter. It would also be lower than our forecast of two per cent.
The silver lining is that farmers who produce sugarcane are
likely to see good increase in incomes. Cotton producers may see a
healthy growth in production, but are likely to see lower prices.