Kharif sowing has been better this year owing to the good monsoon. It is being widely believed that a good monsoon (this year) can save the Indian economy - in the backdrop of the economic downturn following the Covid 19 pandemic. A well-performing agricultural sector means good employment generation, availability of food and importantly, generation of effective demand in the economy. Notably, agriculture and allied sectors contribute about 14% of India’s GDP but engage about 50% of the Indian population.
Weather reports estimate that the country has experienced the best monsoon in the last six years as of July 24, 2020. The reported rainfall this year is 6% higher than the average long period rainfall. It is also reported that this year, about 800 lakh hectares have been covered under kharif crops. This is about 75% of the total normal kharif sowing area of the season and is 18.5% higher than that of FY 2019-20. But one should not be complacent. Observers are hesitant to conclude as they would like to wait for the quantum and distribution of rainfall in August and a few days beyond. The volumes of kharif and rabi production are similar. In 2018-19, total kharif food production was 141.71million tonnes (MT) and rabi production was around 143.24 MT.
A CARE Ratings report has stated that on the individual crop basis, enhancement of sowing of pulses has risen by 26%. Rice sowing has been raised by 17%, oilseed by 25% and cotton by 22.5% as compared to last year. Another important factor contributing to India’s agricultural production has been the volume of water reservoirs. According to the CARE Ratings report, good rainfall has helped to increase the water volume in reservoirs. Additionally, out of India’s 36 meteorological subdivisions, nearly 80% have received excess to normal rainfall as of July 22, 18 have witnessed normal rainfall and only seven sub-divisions have reported deficient rainfall.
Recent RBI assessment
A few days ago, RBI Governor Shaktikanta Das opted for shifting the terms of trade in favour of agriculture. The terms of trade have been going against agriculture which meant that average prices of agricultural goods are increasing less than those of manufactured goods and services. According to Das, this issue needed immediate attention in order to develop the agricultural sector in the country.
During the last several decades, terms of trade has been going against agriculture. The phenomenon became widely known when Raul Prebisch and Hans Singer independently published their celebrated papers in the 1950s which theorised why terms of trade of agriculture exporting developing countries would decline. Actually, this phenomenon has been a reflection of Engel’s Law whereby demand for agricultural products rises less quickly than that for manufacturing and service sector products as an economy develops and incomes rise.
Das has recommended three measures to boost agriculture. First is the amendment of the Essential Commodity Act to encourage private investment in agriculture. Second in repealing the APMC Act to promote better marketing of agricultural produce. The third is repealing the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services to empower farmers to engage with processors, aggregators, wholesalers, large retailers and exporters in an effective and transparent manner.
Will market oriented reforms rescue the sector?
In India, the irrigation system is yet to be developed and agriculture is still heavily dependent on monsoons. Government policy is needed to develop modern irrigation and soil testing facilities. India’s minimum support price is still enjoyed by less than 6% of agricultural households. There is no adequate agricultural insurance scheme. Financial allocation in this sector has been inadequate. A well-developed marketing facility is the key to farmers’ prospects and that is still a far cry. Therefore, whenever India experiences good monsoons, then only there is hope of economic prosperity and higher rural income. Das should have also considered many other factors for increasing the terms of trade in agriculture by which output cost of agriculture can be minimised and farmers can get cost plus prices of their products. Implementing well-developed irrigation facilities in the country could have been his starting point.