After bountiful rains, rural India awaits demand rebound

Despite good rains, growth in rural wages inched up to just 5.3% in July this year; the situation may change when the standing crop translates into farm incomes as harvest begins this month


Government estimates show that a record harvest is on its way. Photo: Mint
Government estimates show that a record harvest is on its way. Photo: Mint

New Delhi: Following two consecutive years of crippling drought, Manik Kadam, a farmer from the Marathwada region of Maharashtra, has reasons to cheer.

Last year, his rain-fed crops were devastated and yielded next to nothing. A bountiful monsoon this year means he will harvest an excellent crop of cotton, soybean, green gram and pigeon pea.

“For the first time in five years, we are looking at record production,” said Kadam, who farms on 16 acres of land in Parbhani, among the worst drought-hit districts last year. The situation was so dismal in neighbouring Latur that water for drinking was transported in rail wagons.

In northern India, across the Bundelkhand region spanning Uttar Pradesh and Madhya Pradesh states, the drought was such that famished cattle were let loose by farmers and dead animals lying on the parched landscape were a recurrent sight.

In comparison, not just Kadam, but farmers across India are looking forward to a record kharif (summer crop) harvest this year. The rains were ample. The June-to-September south-west monsoon, which irrigates over half of India’s farm lands, have seen a normal monsoon. The good news is that rains were well distributed, with 88% of India witnessing normal to excess rains that nurtured crops, filled up reservoirs and recharged aquifers.

Moreover, the most parched regions across the country, in states such as Uttar Pradesh, Telangana, Andhra Pradesh, Rajasthan and Madhya Pradesh have seen surplus rains.

Government estimates show that a record harvest is on its way. Data released by the agriculture ministry show that till 23 September, planting of rain-fed kharif crops was 4.5% higher than normal, or the past five years’ average. Pulses, whose rising prices were a sore point for consumers and governments, have seen a 36% rise in planting compared with the normal.

The first advance estimates released by the government on 22 September show that India’s rain-fed kharif harvest will be the highest ever in history, with production crossing 135 million tonnes (mt), 9% more than the year before (2015-16) and 3.7% more than the record production of 131.3 mt harvested in 2011-12.

The record food production is not only expected to help lower retail inflation but also give more space to the Reserve Bank of India (RBI) to cut interest rates.

The new monetary policy committee (MPC) of RBI voted unanimously to cut the key interest rate by a quarter of a percentage point in its first policy review on Tuesday, citing slowing inflation

According to estimates, a major boost to the foodgrain basket comes due to a record crop of kharif pulses, which is likely at 8.7 mt, 57% more than the production in 2015-16, and higher than the record 7.1 mt harvested in 2010-11. Production of rice, the main kharif crop, is likely at 93.9 mt, the highest ever in history, and 1.1 mt higher than the previous record of 92.8 mt harvested during 2011-12.

The government has set a target of producing 270 mt of foodgrains during 2016-17, over 7% higher than the 252 mt produced the year before, and even higher than the record 265 mt Indian farmers produced during the bumper crop year of 2013-14.

Total foodgrain production comprises both kharif and rabi (winter crop) harvests.

While a bumper harvest is likely to revive farm incomes and spruce up rural demand, there is a flip side to the story.

Kadam, for instance, is worried that farm gate prices may decline.

“I harvested moong (green gram) but did not bring it to the mandi (wholesale market) as rates are between Rs3,400 to Rs4,200 per quintal, much lower than the government-announced support prices (Rs5,225 per quintal),” he said.

Data from the labour ministry shows that the revival in rural wages, a determining factor for rural demand, is sluggish.

Growth in wages of rural agricultural labourers slowed from a high of 17.5% in August 2014 to a dismal 3.8% in August 2015 (year-on-year).

Despite the good rains and a likely record harvest, growth in rural wages inched up to just 5.3% in July this year.

But the situation may change when the standing crop translates into farm incomes after the harvest begins in October.

“We see a revival in the farm economy following the good rains and a record harvest. The impact on rural India may not be steroidal but definitely positive,” said Dharmakirti Joshi, chief economist at Crisil Ltd.

Joshi added that farmers will have more of a marketable surplus and after two years (of drought); a revival in rural non-farm activities and incomes are likely. “According to our estimates, growth in agriculture GDP (gross domestic product) will bounce back to 4% (after averaging 0.4% in the past two years), food inflation will moderate and we can expect a rate cut (from RBI) in December.”

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