Dec 13, 2002|
Agriculture: Near-term concerns
Amidst all the positive triggers, a recent media report highlighting the challenging demand scenario in 2HFY03 and FY04 seem to have been ignored by the stock markets. Advance estimates suggest that kharif output for the current fiscal year has declined by 10%. While it is known to everyone that monsoon in 1HFY03 was not favorable for the agricultural sector, we go a step further to analyse the possible effect of the same in the near-term.
First let us take a look at the rainfall itself. One of the key reasons for sluggish economic growth over last three years is apparent from the table below. For almost four consecutive years, actual rainfall as a percentage deviation from normal rainfall during the period between June-September has been in the negative territory. For the period between June-September 2002, the deviation has been as high as -21%, which is a big cause of concern. The mid-term economic review released by the Finance Minister suggests that atleast 14 states in the country are witnessing a drought-like situation due to poor rainfall. According to CMIE, the deviation is significantly higher for select regions including East Uttar Pradesh (-24%), West Uttar Pradesh (-21%), South interior Karnataka (-44%), Punjab (-36%), Tamil Nadu & Pondicherry (-45%), West Rajasthan (-71%) and East Rajasthan (-60%).
What is the significance of this huge deviation from normal rainfall? Of the country's total food grain production in FY01, as high as 77% was contributed to by the nine states in the pie-chart below. Uttar Pradesh contributed to as high as 27% of total food grain output in FY01. Given the large deviation in rainfall in UP, the impact is likely to be significant. The scenario is similar for other eight states as well. Given this backdrop, CMIE expects the country's foodgrain production for FY03 to decline by 5% to 200 MT in FY03 as compared to 211 MT in FY02. While there could be a rise in prices due to lower output and drought relief programme (this will result in release of food grain by the government through FCI), agricultural sector is expected to register a 2.5% fall in value-add in FY03. Since as high as 72% of Indian population is in rural areas and as most of this section rely on agriculture for income, demand prospects in the near-term are challenging.
This is the key reason why CMIE expects Indian economy to grow only 3.1% when Reserve Bank of India's growth projections range between 5%-5.5% in FY03. While the rise in output for the industrial sector in November 2002 is a positive, one should not place much emphasis on this when taking a future growth outlook for the corporate sector. We expect the impact of poor monsoon and fall in agricultural sector to be felt in the second half of this fiscal year and consequently there could be an adverse impact on demand.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407