June , 2020
Farm sector turns saviour amidst economic deceleration!
00:11 am

Tushar K. Mahanti

The nationwide lockdown following the outbreak of the Covid-19 pandemic has shut down offices of the sprawling services sector in India and closed down factories halting urban economic activities. But crops standing across the vast fields of the country kept growing and farmers continued to nurture them.


Economic indicators show that production has contracted in factories and services have suffered huge losses. The seasonally adjusted IHS Markit India Marketing Purchasing Managers’ Index (PMI) declined to 27.4 last April from 51.8 in March; the lowest since data collection began 15 years ago. Manufacturing output declined by 1.3% last year against an increase of 3.9% in the previous year.


In a Confederation of Indian Industry (CII) survey, about 45% of CEOs in India said that they do not expect economic normalcy returning before at least a year. Another 36% were slightly more optimistic and said it would take 6-12 months for the economy to function normally.


This left agriculture to look after the growth of the Indian economy. The World Bank in its latest ‘Global Economic Prospect’ report has recognised the role of the farm sector in India and said that it was the only sector that displayed growth following estimates of bumper production as the sector had remained largely unscathed in the lockdown. And, the good news is that India has produced a record food grains of 298.32 million tonnes in 2019-20.


That was last year but even this year, agriculture is expected to compensate for some of the loss of other sectors. According to NITI Aayog, the agriculture sector could be a silverlining for the Indian economy in the current year. It has projected the sector to grow at 3% in 2020-21. NITI Aayog attributed the estimated growth in the agricultural sector to the prospect of a normal monsoon this year along with better water availability in reservoirs, which is 40-60% higher than last year.


However, this would largely depend on the quality of monsoon as the most important determinant of kharif output is the distribution of rainfall in each month from June to September. The IMD has announced a normal monsoon across the country but then its forecasts have gone wrong in the past.


In addition, the reverse migration of workers during the lockdown is threatening to hamper agricultural activities in the coming months. The biggest problem in agriculturally-richer states would be the availability of labour. Transplantation of paddy in Punjab and Haryana is largely done by migrant workers. It is now almost certain that they will not be available for transplantation.


Punjab has announced a 40%-50% subsidy on machinery used for direct seeding of rice (DSR). Under this technique, seedlings are not raised in nursery and puddling and transplantation and submergence of fields in water are not required. The requirement of workers in the DSR method is considerably low but to adopt a new method without adequate training and machinery may not be easy for many farmers.

Backed by a bumper food grains production, the gross value added (GVA) of agriculture, forestry and fishery increased by 4% in 2019-20 against 2% in the previous year. GVA from manufacturing grew by 0.03% and that from construction by 1.3%. That is the 3.9% growth in India’s total GVA last year was largely attributed by agriculture. Agriculture’s share in total additional GVA generated in 2019-20 over the previous year was 15.2% - the highest in six years.


Agriculture's share in total GVA


% Share



















Source: MOSPI, GoI.


What is disturbing is that even after growing at a higher rate than the total GVS, agriculture’s share in total has remained the same in 2019-20 as in the previous year. This has been happening for years. In fact, the share has declined unchecked during the entire last decade – down from 18.5% in 2011-12 to 14.6% last year.


Conventional economic theory suggests that with economic development, the share of the primary sector in national output declines. But in India, the decline seems to have been rather sharp, especially since the share of population depending on it has not gone down proportionately.


The question is: Why has agriculture’s share in the national economy gone down so sharply? Is it because other sectors have grown at a higher rate? Or, agriculture has failed to cope up with national economic growth? The answer is both but the main reason probably is the apathy of the policy makers.


The unremunerative prices of farm produce seems to be the major cause of low earnings. This is reflected in the steady decline in the share of agriculture in GVA. This happens despite considerable rise in agricultural production. Food grains production increased from 259.2 million tonnes in 2011-12 to 298.3 million tonnes last year when agriculture’s share in total GVA fell by 4.1 percentage points. This was partly because the GVA is calculated in monetary value and the growth in crop production is not fully reflected due to poor prices of agricultural produce.


The government has promised to double farmers’ income by 2025. It has announced a host of schemes for the development of the farm sector and has also increased the minimum support prices (MSP) of agricultural commodities at regular intervals to address farmers’ immediate problems. 

Recognising the farmers’ plight during lockdown as also to facilitate the farm sector growth in the current year, the government has increased MSP of 14 kharif crops anywhere between 50 to 83%.The MSP of paddy has been increased by `53 a quintal to `1,868 while the rates of oilseeds, pulses, and other cereals were hiked substantially.


Among commercial crops, the MSP of cotton was increased by `260 per quintal to `5,515 for medium staple variety, and by `275 per quintal to `5,825 for long staple variety of cotton for the current crop year (July-June).


It may be so that higher MSP would raise farmers’ income. But that would in itself not guarantee higher return for farmers. Economists believe that the main reason for the farm sector’s low return is actually rooted in India's chronic failure of coping with surplus harvests because of lack of adequate food storage and processing capacity. Ashok Gulati, an agriculture specialist at the Indian Council for Research on International Economic Relations, has observed, “If the rains are good, you end up with a glut of crops and prices crash. The glut only highlights the inefficiencies of the farming value chain and hits farmers.”


Agricultural marketing still continues to be in a bad shape in rural India. In the absence of sound marketing facilities, the farmers need to depend on local traders and middlemen for the disposal of their farm produce which is sold at throw-away prices. In most cases, these farmers are forced, under socio-economic conditions, to carry on distress sale of their produce. In most small villages, the farmers sell their produce to the money lender from whom they usually borrow money.


The government's `20 lakh crore rescue package seems to have addressed the long-standing demand of India’s agricultural economists. The package may have been criticised for not taking immediate steps to mitigate the misery of farmers but it has initiated some major reforms for the farm sector. The Finance Minister Nirmala Sitharaman has decided to roll out three key reforms which economists have long advocated - to remove the trouble in the process of selling of produce and providing farmers with more avenues of sale.


The first is relaxing of the agriculture marketing rules, whichthe FM has promised to do through a central law in due course and would enable farmers to make inter-state sales and enable e-trading of produce. The second is the amendment of the Essential Commodities Act of 1955. The Act, which was brought into effect during a time of scarcity, allows the government to control the price and quantity stored of any commodity listed as an essential.


The government has promised to deregulate cereals, edible oils, oilseeds, pulses, onions, and potatoes allowing farmers to trade them freely. The FM has also said that the stock limit of them will only be imposed in very exceptional circumstances.

The third reform involved contract farming that would allow farmers to enter into contracts with buyers with assured sales price and quantities before the crop is sown providing them with an assured income.

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