Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.This is an entirely free service. No payments are to be made.
The Indian Meteorological Department (IMD) has forecast monsoon rainfall to be 106% of the long period average (LPA) in 2016. This has bought some relief to the government which has been battling with two years of back to back deficient rainfall.
Agriculture is the largest user of water resources in India. As per World Bank data, around 37% of the area in the country is irrigated while 63% is rainfed. The government is targeting to double the rural income in the next few years. In such a scenario, India can least afford the rain-fed areas to be left at the mercy of monsoons. This requires increased investments in the irrigation sector.
According to a recent study by the ASSOCHAM India, over 84% of irrigation projects worth Rs. 4.7 trillion are stuck in different stages of implementation. Interestingly, private sector has an abysmal 2% share in investments made in the irrigation sector.
Investments in this sector has grown at a compounded annual growth rate (CAGR) of over 11% in the past decade. Five states contribute to over 45% of the ongoing projects in the irrigation sector. Surprisingly Punjab which is also called as the 'rice bowl of India' is ranked 16 amongst top 21 states with investment growth at 10%. This is well below the average growth rate for the country.
The completion of projects has been affected due to delays with Jammu and Kashmir recording a maximum delay of 229 months. And the resulting cost escalations have also hurt the sector badly with Assam recording escalations of over 97%.
Investments in the irrigation sector do not have any gestation period which means that. the results can be seen in the next season itself. Although the Finance minister has promised the Centre's help to the State governments in their efforts, it remains to be seen how much of it actually translates into action.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!