Can agriculture revive economy?

The Indian financial system is all set to contract this yr as a result of Covid-19 pandemic. There is simply brilliant spot on this yr’s financial story; the agriculture sector. rabi (winter) crop harvest, satisfactory rainfall through the ongoing monsoon and inspiring information on sowing on kharif (monsoon) crops, all level in the direction of a superb efficiency by agriculture. Finance minister Nirmala Sitharaman echoed these sentiments whereas talking on the India Ideas Summit organized by the US India Business Council. “We have had a very good rabi crop. All of what were necessary, have been procured at reasonable price so that farmers are not left high and dry looking for purchasers. Now the estimate for kharif crop has also come. We can clearly see agriculture driving the revival”, Sitharaman mentioned on Tuesday.

Can a excessive progress price in agriculture enhance demand? This can’t be taken without any consideration. Real progress price calculations have in mind worth of manufacturing at fixed costs. The fixed worth technique is important to make sure comparability throughout time durations. Day to day buying energy, and due to this fact demand, is extra more likely to be a perform of present or nominal incomes.

A HT evaluation of not too long ago launched National Account Statistics (NAS) information exhibits that actual and nominal incomes needn’t transfer in the identical route for India’s farmers.

The NAS offers worth of output for all crops at present and fixed costs from 2011-12 to 2018-19. The worth of output for crops will be taken as a proxy for farm incomes. In fixed worth phrases, worth of output of crops grew on the highest price, 5.9%, in 2016-17. This was not the yr of quickest progress in nominal farm incomes, although. The highest nominal earnings progress was 15.3% in 2013-14, when the actual earnings progress was 4.9%. In 2012-13, when actual incomes grew at 0.6%, nominal incomes grew at 11.6%. This is greater than the 11.1% nominal earnings progress in 2016-17, when actual progress was the best. (See Chart 1)

To ensure, the headline numbers on worth of output of all crops disguise vital crop-wise variations. For instance, actual worth of output for cereals and fruit and veggies grew on the nearly the identical price, 1.3% and 1.4%, in 2018-19. However the expansion in nominal values was drastically completely different. It was 8.4% for cereals and 0.1% for fruit and veggies. (See Chart 2A and 2B)

When learn in consonance with wholesale costs index (WPI) information, which exhibits that fruit and vegetable costs are way more risky than cereal costs, the divergence between nominal and actual worth of output doesn’t appear stunning. WPI is a extra helpful measure so far as monitoring farm gate costs is worried. (See Chart 3)

While it’s common to trace rice and wheat output as a metric of agricultural efficiency, fruit and veggies are as vital as cereals on the subject of farm incomes. In 2018-19, the entire worth of output of fruit and veggies in fixed costs was Rs 3.74 lakh crore. For cereals, this determine was Rs 3.61 lakh crore.

A bumper crop this yr may create a glut in agricultural markets. Given the truth that non-farm output, and due to this fact buying powers, are set to contract, this might properly result in a pointy fall in meals costs. If this occurs, the present worth of output of crops and due to this fact progress in farm earnings could be decrease than actual progress in agriculture. This may have a direct bearing on agriculture’s means to spice up the remainder of the financial system. If the agriculture sector has to play a lead position in financial restoration, coverage intervention is required to make it possible for farm costs don’t crash and put a squeeze on farm incomes.