Agriculture slows, but decouples: Dec 11, 2009 : Financial Express

The 0.9% growth number in agriculture for Q2 of this year has spoilt the otherwise joyous party that spoke of growth in GDP of 7.9%. But, does this number matters? The answer is that the second quarter of the financial year is not agri-intensive, and while less than a fifth of the agricultural output emanates from this period, most of it is in the nature of residual farm output as well as forestry and fishing. Agriculture is basically a two-season phenomenon and would typically cover the third quarter (kharif) and fourth quarter (rabi). Therefore, the number of 0.9% is not startling even though it is lower than that last year (2.4%) which may be partly attributed to the base year effect.
It must be pointed out that the first two quarters contribute to just over 40% of agricultural GDP. Around one-third of our agricultural GDP comes from the third quarter while over a quarter comes from the fourth quarter. Hence, the performance in the next two quarters will really be more decisive.
The ministry of agriculture has already indicated that there are problems on the kharif front caused by the triad of late monsoon, drought and floods (in some regions). Rice output is to decline by 18%, coarse grains by 20%, pulses by over 7%, oilseeds by 15% and sugarcane by 9%. This virtually means a sharp decline in farm output in the third quarter. Considering that the kharif season accounts for around half of total foodgrains and 65% of oilseeds production, we are really talking of a double digit fall in farm output. We are also aware of the major fall in production of vegetables, which has led to the exorbitant increase in prices in the last four months or so. If the ‘market guess’ of 15% decline works out, then overall growth in this sector could slip to between -4% and -4.5% for the first three quarters. The disturbing aspect of this decline is that it spans all major products such as rice, jowar, bajra, maize, moong, ‘other pulses’, soybeans, groundnuts, sesame, sunflower, castor and sugarcane.
What does this mean for the full year? There is an increasing dependence on rabi and we have heard bold statements that the rabi crop will compensate for the loss in kharif even before the latter fructified. The rationale was that the late arrival of the rains would substantially add to the water table level .that would aid rabi production. Further, it was felt that the farmers who lost their income would possibly sow early or grow more rabi crops to make up for the deficit. Also, it was argued that the floods in Karnataka and Andhra Pradesh would assist the growth of rabi crops. All this may partly be true, but the more important question is whether or not this will help to alleviate the damage.
Given the relatively lower importance of rabi in oilseeds and an equal share in foodgrains, we need to have substantial growth in Q4. Can this happen? Wheat had reached a record of 81 million tonnes last year and to make up for this loss, would have to touch 93 million tonnes, which does not look realistic. The same holds for oilseeds that have to grow by 26% to maintain overall oilseeds production at last year’s level. Even the more optimistic minds would not really take a chance with these numbers.
Therefore, it would be reasonable for one to expect a decline in overall production by the end of the year, notwithstanding the major rabi crops succeeding in the last quarter. Putting numbers on farm output is fraught with risk as no one really knows how the harvest will turn out to be. Very often such conjectures are based more on hope than conviction.
A positive development over the years is however a certain kind of decoupling between agriculture and the rest of the economy. The high growth in social and public services, which is the mirror image for fiscal stimulus, can make up for this loss of output. Industry, too, appears to be more urban-centric and is gradually getting divorced from the farm sector. Therefore, while at the margin the rural folk dependent on agriculture for an income may cut down on demand for industrial products, the urban class has made up for this loss, as it is supported by higher wages (already seen) and booming stock markets, (which provides liquidity to spend).
It will not, therefore, be surprising to have steady growth in real GDP coexist with a negative growth in farm output, high industrial growth, booming service sector and low WPI but high food inflation and higher poverty levels. ..