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Potential third COVID wave likely to put a dent in farming activities and overall economy

The growth in the rural sector did moderate during the second wave largely on account of underperformance from the farm sector.

September 04, 2021 / 05:00 PM IST
Agriculture was the one bright spot that emerged during the pandemic. It clocked a positive growth of 3.4 percent at constant prices in 2020-21 while all the other sectors declined.

Agriculture was the one bright spot that emerged during the pandemic. It clocked a positive growth of 3.4 percent at constant prices in 2020-21 while all the other sectors declined.

The severity of the second COVID wave is not hidden from anyone. When it comes to the economy, higher penetration of COVID-19 across the rural society was particularly worrying. Prior to the second wave, the rural economy was the only shining spot in the economy. It managed to grow while all the other sectors declined.

The rural sector did weaken under the impact of the second COVID wave as rural consumption took a beating with the rising number of COVID cases. Rural consumption managed to grow 6.6 percent YoY in Q1FY22. However, it moderated from 16.4 percent YoY growth in the same quarter a year ago. However, it was still stronger than the average growth of 3.7 percent YoY in the last seven years before COVID.

Farm sector underperformed in Q1FY22

Underperformance from the farm sector was the major reason behind the dip in rural consumption. The sector did manage to grow but it was largely outperformed by the non-farm sector who managed to grow on the lower base of last year.

While the farm sector's gross value added (GVA) grew by 6.6 percent YoY in Q1FY22, the non-farm sector's GVA grew by 25 percent, against a 10.8 percent YoY growth in Q4FY21 and a contraction of 16.1 percent YoY in Q1FY21.

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Challenge of Sustaining Growth

Agriculture was the one bright spot that emerged during the pandemic. It clocked a positive growth of 3.4 percent at constant prices in 2020-21 while all the other sectors declined. India's foodgrain output stood at a record 297.5 million tonnes in the crop year 2019-20. And, the share of agriculture in the country's GDP increased to 19.9 percent in 2020-21 from 17.8 percent 2019-20. It was for the first time in 17 years that the share of agriculture went above 19 percent in GDP.

Buoyed by the surge in farm activities, the government had targeted to increase the foodgrain production by 2.66 percent to 305.43 million tonnes in the current crop year. However, with several indicators turning negative, it is likely to be a challenging task to sustain that momentum.

First of all, the Southwest monsoon has been below par in the current season, leading to an all-India rain deficit of 10 percent below normal. States including Gujarat, Odisha, Jharkhand, Madhya Pradesh, Nagaland, Manipur, and northern Maharashtra are witnessing extremely dry conditions. Mild to severe dry conditions are prevailing in the south and central Rajasthan, Himachal Pradesh, and Punjab.

Kharif sowing has also declined in the current season due to the weak monsoon. Total area covered under Kharif sowing in the first week of August 2021 stood at 93 percent against 95 percent last year.

Government support was the key enabler for the growth of the farm sector last year. But, rural spending by the government has contracted 34.2 percent YoY in Q1FY22. It is the lowest growth in at least 14 years. As a result, the government's share in total rural expenditure has declined to 12 percent in Q1FY22 from a very high share of 19 percent in Q1 last year.

Finally, the 'terms of trade' for the farm sector have also turned unfavourable. Farm input cost has grown by 16 percent due to the rising cost of diesel, electricity, fertilisers, pesticides, and agricultural machinery. In the meantime, output prices have grown by only 6.4 percent YoY, resulting in shrinking margins.

Closing Comments

The growth in the rural sector did moderate during the second wave largely on account of underperformance from the farm sector. Other indicators like below normal monsoon and the government's reduced spending are the key indicators of likely challenges lying ahead for the farm sector. And, its spillover effect on the overall rural economy.

A potential third wave is likely to put a further dent in the level of activities in the farming sector and overall economy. But, its impact largely remains unfathomable at the moment.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Vaibhav Agrawal
first published: Sep 4, 2021 05:00 pm

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