Agriculture is the sector we are all banking on this year to drive growth. This is logical considering that this is the only sector which has so far been insulated from the pandemic and also been outside the purview of the lockdown. With few impediments on account of the shutdown, which were only transient in April for rabi crop of 2019-20, the focus on this sector this year is sharper.
The IMD has forecast a good monsoon which is a good sign as good rains are a necessary condition for a good kharif harvest as well as rabi crop as the water retention during these months helps the second crop, too. The fact that the monsoon arrival is on time augurs well for the farmers and country as a precondition is satisfied even though the progress and spread across geographies will also determine the efficacy of this forecast.
Also the area under cultivation so far has been more than good though it is still early days. This can be ascribed to the fact that the large volume of migrant labour that has returned to the villages have been employed on land which they had earlier left in search of better opportunities in the cities. Therefore, the problem of labour shortage faced by farming in the last few years especially at the time of harvest would not arise as there are more hands at work. In fact, there could be a tendency for too many hands which can push down labour productivity and lead to disguised unemployment – which was the case earlier.
Hence, on the whole the prospects for agriculture look positive for this year and looking at growth of 3-4% being sustained cannot be ruled out and could be real. This would probably be the only other sector besides the government which will be in the positive territory.
The challenges for agriculture however still remain. A good crop does not necessarily mean that incomes will increase. It has been observed in the past that excess supplies which are an outcome of a very good monsoon and crop leads to a decline in prices which affects incomes. Where there is public procurement, like rice, the farmers are protected. However, when it comes to pulses or oilseeds, it is imperative that the state government plan in advance and make arrangements for procurement to protect the interest of farmers.
The government has spoken of repealing of APMC laws and enabling farmers to sell directly to the consumer. This has to be done as fast as possible. Today the situation is one where the farmer is getting a low price but the consumer paying a higher price due to the high cost of intermediation. In Mumbai for example, several farmers are driving from Nashik and selling vegetables to the consumer directly and hence increasing their incomes as well as lowering the price for the household. The same is required for pulses so as to ensure that the income increases especially where there is no procurement.
It has to be mentioned here that on account of the lockdown and the rise in unemployment and fall in salary income, overall demand too could be impacted and hence the millers may be taking lower stocks of grains from farmers. This factor will surface in the coming months when the harvest takes place post September.
Therefore it is necessary to distinguish between production and income of farmers as the link between them has been severed in the last couple of years. A good harvest is a necessary though not sufficient condition for higher income. This also means that per capita income in this segment will decline if prices do not rise as the population working in agriculture will be higher this year. It is hence essential that the government should aggressively support income through the NREGA programme and ensure that 100 days of work is available. Interestingly the historical average of number of per capita days worked is less than 50 days.
Hence while it is tempting to think of post-harvest and festival season starting September to be probably the turning point in the economy where rural demand picks up, caveats need to be in place. There has to be affirmative action taken by the government to ensure there is procurement where possible and freedom and access to the retail customer so as to cut out the middleman. Here one can already see the big gap between wholesale and retail inflation for food products. The deviation is high mainly due to the intermediation costs and the inability of farmers to sell directly to the customer. It is an old problem, but this could be the time when the government could make this transformation possible and can be the tipping point.
The writer is chief economist, CARE Ratings. Views are personal.