New Delhi: India’s foodgrain production is projected to fall for the first time in four years on the back of erratic monsoon rainfall last year, which could put further pressure on already elevated food prices.
According to data released by the agriculture ministry on Friday, a day after a government agency forecast a record drop in the economic growth rate this fiscal to 5%, foodgrain production is set to decline by 3.5% in the 2012-13 crop year.
The second advance estimate of agricultural production for 2012-13 shows that foodgrains output will touch 250 million tonnes (mt), compared with the previous year’s peak of 259 mt.
Last year’s deficient monsoon, which arrived late and caused a drought in parts of the country, led to a drop of 7 mt in foodgrain production during the kharif (summer crop) season and possibly contributed to the high rate of food price inflation that delayed monetary easing by the central bank.
“It (the advance estimate) is a decent estimate for agricultural production given that it was a bad year in terms of monsoons,” said Abhijit Sen, a member of the Planning Commission. “I would say it is not negative. In fact, I expect an upward revision when the final estimates are out.”
Advance estimates of India’s gross domestic product (GDP) released on Thursday attributed the forecast slump in economic growth in the current fiscal to the poor performance of manufacturing, agriculture and the services sector. The Central Statistics Office forecast that the agriculture, forestry and fishing sector would grow 1.8% in 2012-13, nearly half last year’s pace.
In its press statement on Friday, the ministry of agriculture said, “In the present crop year (July 2012-June 2013), despite deficient and late rainfall in many parts of the country in the monsoon season, the estimated production is higher than the foodgrain production achieved any time before last year, showing the growing resilience of Indian agriculture.”
Still, there is concern on the food price front. Food inflation jumped to 11.16% in December from 8.5% a month ago.
Himanshu, an assistant professor at Jawaharlal Nehru University and a Mint columnist, said the data may mean that foodgrain prices would inch higher. It may also reduce the likelihood of an upward revision in the 5% forecast for GDP growth in the fiscal year ending 31 March.
“There will be price pressures due to the supply shock,” said Himanshu, who uses only one name. “This could be exacerbated by lower GDP growth and lower incomes, which will mean that the poor and middle-class families may not be able to cushion the price rise.”
The Reserve Bank of India (RBI) on 29 January cut policy rates by 25 basis points (bps) to support economic growth after inflation, as measured by the Wholesale Price Index, decelerated to a 11-month low. After cutting rates by 50 bps in April, RBI resisted calls for further monetary easing for nine months as it battled inflation.
A basis point is one-hundredth of a percentage point.
Himanshu said unseasonal rain in January may have damaged standing crops, and the data released on Friday most probably does not factor in that possibility. “The whole assumption that inflation will go down may not happen now and RBI will also take this into account,” he added.
Management of food stocks holds the key to compensate for the dip in foodgrain production, said Ashok Gulati, chairman of the Commission for Agricultural Costs and Prices.
“Though the production this year is expected to be lower, it can be easily managed using the stocks. Procurement of crops is expected to be higher than last year at 42 mt. It is high time we channelize these stocks efficiently to keep the prices in check,” Gulati said.
Stocks of rice and wheat held by Food Corporation of India as of 1 January 2013 were 66.6 mt, which is higher by 20.24% over the level of 55.39 mt a year ago.
The agriculture ministry said production of major crops, except pulses, is likely to be less than last year’s. Wheat production is estimated at 92 mt, a drop of 2 mt, while rice production may touch 102 mt, compared with 105 mt in 2011-12.
Cereal production may dip by 10 mt. Production of pulses is expected to grow by 0.5 mt to 17.5 mt.
The production of commercial crops, too, is expected to decline. Oilseed production is expected to drop by 1 mt to 19.45 mt. The decline in sugar cane and cotton production is expected to be sharper. Sugar cane production is pegged at 334.5 mt against 361 mt produced last year; cotton production is estimated at 33.8 mt versus 35.2 mt.
The production of rapeseed and mustard is expected to be higher.