Home >News >India >Farm revival  may  cease  to offset  overall  covid losses
A farmer ploughs a paddy field in Thanjavur, Tamil Nadu. India’s farm sector, which sustains over half of its population of 1.3 billion, is expected to clock a growth rate upwards of 2.5% in 2020-21. ( Photo: PTI)
A farmer ploughs a paddy field in Thanjavur, Tamil Nadu. India’s farm sector, which sustains over half of its population of 1.3 billion, is expected to clock a growth rate upwards of 2.5% in 2020-21. ( Photo: PTI)

Farm revival  may  cease  to offset  overall  covid losses

  • Rural sector’s share in real GVA is modest at 15%, and services, industry are worse hit
  • The other two components of growth, services and industry, constituting 30% and 55%, respectively, have been severely battered by the nationwide lockdown

Farm output prices moderated in the first two months of financial year 2021 to 1.1% year-on-year while farm input prices declined in April and May at the highest pace since FY16, according to estimates by Motilal Oswal Financial Services Ltd. The farm sector in India has been relatively unscathed by the covid-19 pandemic, it added.

However, the rural sector may not really help the country overcome the effects of the pandemic soon, the brokerage firm said. “No matter how well the rural sector performs, it is important to note that the rural sector’s overall share in real gross value added (GVA) is still modest at 15% in FY20."

The other two components of growth, services and industry, constituting 30% and 55%, respectively, have been severely battered by the nationwide lockdown imposed on 25 March to contain the spread of coronavirus. Therefore, while the brokerage firm believes that the farm sector may provide support to India’s overall growth, a meaningful recovery will depend on how quickly the services and the industrial sectors rebound. Motilal Oswal estimated that real gross domestic product (GDP) will decline 5% in FY21.

Based on five factors, such as high speed diesel, electricity, fertilizers, pesticides, and agricultural machinery and implements, Motilal Oswal analysts estimated that farm input prices declined 5.3% year-on-year during April-May. In contrast, farm output price inflation (based on primary food and non-food articles) moderated to 1.1% during the same months. This was in sharp contrast to FY18-19. While farm output prices grew marginally in FY18 and contracted in FY19, farm input inflation was as high as 3.1% and 7.7%, respectively, implying declining margins for farmers.

The brokerage firm said that reversal from declining margins to improved profitability may be beneficial to rural farm income.

Overall, though the urban sector is more adversely affected by the pandemic, the government has provided immense support to the rural sector. It said within rural, the farm sector performed better than the non-farm sector, supported by nature and the government’s fiscal support in terms of procurement. The non-farm sector is more linked to the urban sector.

“Not surprisingly then, our high-frequency index of agricultural activity suggests 5% annual growth in May 20, similar to that in late-2019, while the rest of the economy is estimated to have shrunk by 22%," Motilal Oswal said in a report.

Meanwhile, the latest data of the Centre for Monitoring Indian Economy (CMIE) highlighted a stark contrast between farm and non-farm jobs during covid-19. According to the data, while farm jobs have increased 15% from February (pre-covid-19) to June, non-farm jobs are still 17% below pre-covid-19 levels.

“This is a cause of concern because farm productivity is one fourth of non-farm productivity. Hence, a sharp rise in farm jobs may lift employment numbers but may not augur well for productivity or even aggregate demand," said Edelweiss Securities Ltd.

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