BackWill kharif harvest boost rural income and demand?
According to Care Ratings analysis, rural consumption is skewed towards food products which would also be in the nature of necessities
PremiumThe government estimates food grain production at a record 150.5 million tonne in the kharif season on the back of an expected bumper rice harvest of 107.0 million tonnes and a good recovery in production of pulses. Economists, however, believe that the robust harvest may not entirely boost rural demand.
The Ministry of Agriculture's first advance estimates for major kharif crops, a key harbinger for the overall performance of India’s farm sector, provides an indication of a fairly strong kharif output despite a somewhat erratic and backloaded monsoon in the current year.
According to Care Ratings, the net income to be earned by farmers on major kharif crops would increase from about ₹1.99 lakh crore to ₹2.10 lakh crore. “The additional income of around ₹10,700 crore would be distributed across savings and consumption with health care being an area of focus. Higher production of cotton and sugarcane will support the related industries," said Madan Sabnavis, chief economist, Care Ratings.
The gross income earned would be ₹5.36 lakh crore and ₹5.65 lakh crore respectively in the two years. The ratio of net income to total income works out to 37%.
According to Care Ratings analysis, rural consumption is skewed towards food products which would also be in the nature of necessities. Within the group, however, income does tend to get spent on higher value-added products with movement towards dairy products, meat products, pulses, processed foods etc. “This time it needs to be seen if such shifts take place as the second wave of the pandemic has affected rural households too with additional expenditure on health," Sabnavis added.
He believes that the overall demand for non-food products may not receive a booster shot from this kharif crop's performance in incremental terms. Household goods and personal care products could witness stable demand and not a uniform spike under the uncertainty on the third wave and the high inflation.
Meanwhile, on other crop harvests, Sabnavis showed concern on edible oils, especially as global prices have been elevated. Sabnavis feels that inflation impact cannot be ruled out as imports increase. Pulses inflation may be expected to come down from the present level of 8.8%, he said. The government had earlier increased the minimum support price (MSP) of all kharif crops by 1-5% with tur, urad, groundnut, jowar and bajra being towards the upper end of this scale. The monsoon as of date appears to be normal on the whole with some dispersions in specific zones. Area under cultivation was lower for oilseeds, cotton and some of the coarse cereals but higher for others.
“Overall, the first advance estimate of kharif crop is broadly in line with the sowing acreage which has been just 1% below last year’s level and will support the recovery in rural incomes in the post pandemic environment apart from moderating food inflation and thereby, headline CPI inflation, said Acuite Ratings and Research. However, it feels that a delayed withdrawal of the monsoon can act as a downside risk to the initial kharif crop estimates, although it bodes well for the ensuing rabi crop.
In the last one year, agri contribution to GDP has been healthy but some higher frequency indicators, particularly for rural, have been more mixed. Covid infections have also been higher in rural areas during the second versus the first wave.
“For agri, near term risks include lower kharif season output due to uneven rainfall, possible crop damage from the recent surge in rainfall and lower regional reservoir levels," said Sreejith Balasubramanian, economist – fund management, IDFC AMC.
He said that agri incomes seem to have increased but farm input costs and overall rural expenses have likely increased even more. Optimism around rural demand, to drive private consumption recovery, continues as headline indicators and agri contribution to GDP have remained relatively buoyant, he added.
“However, rural wage growth dynamics have been narrow-based, farm input cost and rural expenses have increased sharply while central government support has been beneficial but nuanced and softer of late. On agri, Kharif crop sowing has recovered but there are output risks from uneven rainfall this year while reservoir levels are low in some regions. Thus, the rural story is a bright spot but it cannot light up the whole economy, for which we need an economy-wide employment and wage growth cycle," Balasubramanian added.
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