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Economy: Agriculture FY03 review

Oct 4, 2002

While it is known to everyone that rainfall in the current fiscal has not fared well and as a result agricultural sector would register a fall in output. But what has not been quantified is the extent of damage. The latest Monthly review on Indian economy by Centre for Monitoring Indian Economy (CMIE) throws some light on monsoons and expected foodgrain production for FY03. Consider monsoon for the current fiscal first. After remaining lull till July 2002, the country witnessed good rainfall in the month of August 2002. As a result, the deficiency in cumulative rainfall improved from -32% as of July 2002 to -23% by August end. However, the overall picture is not all that promising. Of the total gross cropped area in the country (i.e where cultivation is done), as high as 46% has received deficit rainfall for the two months between June and August 2002. As the table below indicates, only 1% of the gross cropped area received excess rainfall (some regions of Eastern India). As against 65% last year, only 39% of gross cropped area received normal rainfall. As per CMIE, rains were still deficient in Punjab, Uttar Pradesh, Madhya Pradesh, Karnataka, Kerala and Orissa. This is a cause of concern. But one has also got to keep in mind that most of the Southern parts of India are highly dependent on monsoons between September-December.

Monsoon this year…
(% of gross cropped area)2001*2002*
Excess18.8%1.3%
Normal65.1%38.9%
Deficit16.0%45.7%
Scanty - 14.1%
Total100.0%100.0%
* Between 1st June to 28th August

Given this backdrop, what effect could weaker monsoon have on the agricultural sector, which is the heartline of the Indian economy. Overall food grain production for FY03 is expected to decline by 5.5% to 200 MT (million tonnes). Food grain production in India primarily consists for two types of crops viz. Kharif (summer crop that is harvested around fag end of September) and Rabi (winter crop that is harvested starting January). Kharif and Rabi crop contribute equally to total food grain production of the country. Due to poor monsoon in 1QFY03, CMIE expects Kharif output to fall significantly by 12% to 98 MT in FY03, as compared to 112 MT last year. On the other hand, late monsoons is expected to result in better Rabi output in FY03. CMIE expects Rabi output to rise by 2% to 102 MT.

Food grain estimates…
(MT)FY99FY00FY01FY02FY03E
Kharif 102.9 105.5 103.4 111.5 97.6
Rabi 100.7 104.3 92.6 99.8 102.0
Food grain (Total) 203.6 209.8 196.0 211.3 199.6
% increase5.9%3.0%-6.6%7.8%-5.5%
Source: CMIE

Given this backdrop, CMIE expects agricultural production for FY03 to fall by 4.9%, which means that prices would head north. In order to compensate for the fall in output in the current year, the government is contemplating a rise in minimum support prices (the price at which the government procures from the farmers). On its eventuality, farmers could benefit, albeit to a certain extent only.

Though GDP in the first quarter of the current fiscal grew at an impressive rate of 6%, sustaining such growth rates, in light of weaker agricutural sector, in the coming quarters is unlikely. The sharp spurt in GDP could also be on account of recovery in industrial sector and the after-effects of good agricultural output last year. To conclude, CMIE expects the indian economy to grow by 3.1% in FY03 on the back of a 4.9% fall in agricultural production and 3% rise in Index of Industrial production (IIP).

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