Home >Opinion >Columns >Opinion | Agriculture cannot support our economy without a fiscal push

Even though covid-19 infections continue to rise in India, with daily cases going beyond 50,000, the government has decided to move into Unlock 3.0 from 1 August. With the economy opening up further, Unlock 3.0 is certainly going to increase the pace of economic activity, compared to the stringent lockdown of March and April. But taking these incremental increases in economic activity as signs of “green shoots" of an economic revival would be an exaggeration.

Discounting for the base effect of lockdown versus unlock, the reality is that the economy is far from showing any signs of recovery from the slowdown that it was in. A comparison of estimates of consumer durable sales and demand for electricity with comparable numbers from last year would suggest that the rebound is not yet strong enough to claim any recovery in the economy. However, with monsoon rains expected to be good this year as well, agriculture is the only sector likely to see robust growth.

The agricultural sector was also the one with the third highest growth last fiscal year, after public administration and financial services and real estate, with real growth of more than 4%. Given the base effect, it is unlikely that agriculture will witness a much higher growth than what was achieved in 2019-20. The issue is whether our farm sector growth at 4-5% is sufficient to pull the rest of the economy up at a time when other sectors are witnessing negative growth. While agricultural growth may be statistically irrelevant, given that agriculture contributes only 15% of national income, it remains a major driver of economic activity, given its ability to spur demand in the rural economy, which has been in distress for a long time. There is now a consensus that the current slump is primarily a result of declining demand. Therefore, the relevant way to measure the effectiveness of agricultural growth is to track the growth in farmer incomes, rather than farm output growth.

Whether growth in agricultural output also implies growth in the income of farmers depends on a lot of things. Most importantly, it depends on the prices received by farmers for the produce that they sell. On that measure, the early indicators are not very encouraging. The wholesale price index (WPI), a measure of producer prices, suggests deflation with wholesale prices falling in the last three months. For the farm sector, there is a clear trend of deceleration in inflation, with most food groups showing declines in producer prices in that time frame. While cereal prices continue to show positive inflation, most other food groups, such as fruits and vegetables, eggs, poultry and fish, continue to see prices decline. It has now spread to milk prices, which have sharply fallen, and also other important cash crops such as cotton and a majority of oilseeds. So, even though agricultural output continues to grow, it has not materialized in better incomes for farmers. But with input prices also rising, most small and marginal farmers are likely to witness a decline in incomes rather than an increase. Farmers were lucky during the last two years when political expedience let the government to procure large amounts of grain. But the flip-side of this is that this largesse of the government is unlikely to be available this year, given that its granaries are already overstocked.

With farmer incomes under pressure, weak non-agricultural sectors are also likely to hurt the rural economy. Even in the rural economy, agriculture now accounts for only one-third of total income, with two-thirds from other sources such as small and medium enterprises, which have been hit badly by the pandemic. With rural wages showing downtrends, it will also hurt those who are net consumers of food products. But another reason that the rural economy is likely to see lower incomes is a decline in remittances, with so many urban migrant workers having returned to their rural homes.

Green shoots of the Indian economy are unlikely to grow until they are watered with fiscal stimulus measures that create broad demand for agricultural commodities. This will require a massive increase in fiscal spending, not just to maintain agricultural incomes through increases in procurement and subsidies, but also to boost non-farm sectors that could act as strong demand generators for the agricultural sector. Another large round of fiscal stimulus is not just necessary, but also urgent for it to impact the economy in this season of kharif crops. Indian farmers have done their job, it is now time for the government to do its part.

Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi

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