The only times when the word agriculture crosses the minds of policymakers and analysts of the Indian economy are when inflation is on the rise or when rains are on the wane. It is that time of the year again.
Late last week, the India Meteorological Department (IMD) released monsoon data for the week of 17-23 June. At the same time, the government was announcing decontrolling of fuel prices. From there it was a quick, small step to make the link with inflation. But is the link linear and simple?
There is no doubt that monsoon data for June makes for less than happy reading. From 1-24 June, the country as a whole received 11% less rain than the long-period average (LPA). Crucially, the north- west region, the grain basket of the country, received 6% less than LPA. All this may change in the next three months of the monsoon, but it was sufficient to cause concern.
Rains, however, are only one part of the story. If one looks at the link between poor rainfall and its effects on agricultural output, the link has weakened considerably, if not greatly, since the 1970s. Pick a few bad data points in this link and one can see the difference. In 1979-80, a 19% shortfall in rain over LPA led to a massive -12% swing in output. The same shortfall in 2002-03 only caused a -6% shortage. Now cherry-picking data like that is perhaps a bad idea and purists would perhaps wait for time series analysis. But the moral of the story is this: even if Indian agriculture has not escaped the clutches of the monsoon, it has learnt to cope with it better. An increase in the share of the winter crop and a rise in non-farm income in many parts of the country have contributed to this resistance to poor rainfall.
This, however, has not prevented agricultural growth from remaining in the doldrums. In 2010-11, it is not expected to cross the 3.5-4% mark. For a sector that employs the bulk of the population, this represents a decrease in per capita output while the other sectors (services and industry) power ahead. It is this relative decline that ought to worry policymakers and not inflationary spikes, which in any case owe more to administrative failures than volatility in output.
How strong or weak is the link between weak rains and agricultural output? Tell us at email@example.com