Agriculture sector this year was expected to witness high growth, about 6 percent, in output and farmers’ income, after two years of poor performance.
The growth story of agriculture is intact as demonetisation is found to cause small and insignificant effect on growth of output as well as farmers’ income, said a blog hosted on the Niti Aayog website.
“Agriculture, which is largest informal sector of Indian economy, has shown strong resilience to effect of demonetization,” said the blog authored by Ramesh Chand, member NITI Aayog, and Jaspal Singh, consultant.
Experts said that agriculture sector this year was expected to witness high growth, about six percent, in output and farmers’ income, after two years of poor performance due to back to back droughts.
Already, kharif season, which accounts for about half of the annual crop output, showed moderate to very high increase in output of various crops. However, doubts have been raised about significant revival of agriculture growth this year due to the effect of demonetisation. As about 90 percent of rabi season area is put under cultivation by the end of December, some clear indications have become available to decipher the likely effect of demonetization on agriculture and prospects of achieving anticipated growth, said the blog “Agricultural Growth in the Aftermath of Demonetization”.
The blog carries the disclaimer: NITI blogs do not represent the views of either the government of India or NITI Aayog. They are intended to stimulate healthy debate and deliberation.
Demonetisation can affect agriculture directly in four ways. These include area sown, crop pattern, productivity and market. The trend and pattern in sowing and marketing of crops during the seven weeks following the announcement of demonetization provide useful indications to discern effect of demonetization on agriculture sector, added the blog.
Effect on Sown Area
Tentative estimates of area sown are provided by ministry of agriculture each Friday of the week. This data shows that up to November 11, which can be considered as start of demonetisation, rabi sowing was completed on 14.6 million hectare area which was 5.7 percent lower than the normal crop coverage. The gap between area sown this year and normal area steadily declined almost every week since the announcement of demonetisation. During the week ending December 30, 2016, net sown area under rabi crops exceeded the normal area by 2.77 percent and area sown last year by 6.86 percent. The data on progress of sowing of rabi crops clearly indicate that, at country level, there is absolutely no adverse effect of demonetization as far as sowing of major crops is concerned. There was a delay of 1-2 weeks in sowing this year in the beginning of rabi season but it picked up pace subsequently. Normally rabi sowing is completed on 88 percent area by 30th December. This year it has been completed on more than 91 percent area.
The progress in area sown remained uneven across regions and crops. Wheat, which accounts for 47 percent of total area under reported rabi crops, showed a big shortfall of 41 per cent in area at the time of demonetization. The gap declined to less than 1 per cent by mid-December, 2016 and crossed normal area by 2.12 percent by the end of December. Compared to the corresponding period last year wheat is sown on 7.7 percent higher area. Area under pulses and oilseeds is higher than normal for the corresponding period by 11.2 and 1.7 percent respectively. The shortfall in area is reported for rabi rice and course cereals. This shortfall is much smaller (6.6 lakh hectare) compared to the gain in area under wheat, pulses and oilseeds (22.3 lakh hectare) resulting in net increase in area under rabi by 15.7 lakh hectare over normal area and 37.4 lakh hectare over last year.
Effect on Productivity
Farmers use cash to buy quality seed, fertilizers, chemicals and diesel and to hire labour and machinery. As rabi season crops are mainly self pollinated, farmers need not buy fresh seed in rabi season every year. More than 70 percent seed used in rabi crops is self produced and rest is purchased from public sector agencies, research institutes and private sources. Sale of seed this year by public institutions is reported to be much lower than normal sales. This can have small impact on productivity.
The major impact on productivity is going to happen due to change in use of fertilizer. Representative data on fertilizer use/consumption by farmers comes with a time gap. However, ministry of agriculture maintains Fertiliser Monitoring System which indicate first point sale of fertilizer. According to this source, fertilizer offtake during the current rabi season (till 21 December 2016) was lower than the fertilizer offtake in the corresponding period during 2014-15 and 2015-16 by 7.47 percent and 7.0 percent. These are very raw statistics and subject to correction as per the sale figures reported by various fertilizer companies. Also, as on date, fertilizer takeoff statistics are not inconsistent with the area statistics.
Effect on Prices
No effect of demonetization was seen on prices of major crops like paddy, soyabean, and maize in the month of November and their wholesale prices in APMC mandis of the country were around 3 percent higher in November as compared to the month of October. However, prices of maize and soyabean fell in the month of December but paddy prices ruled higher than previous two months and also as compared to last year. There might be some delays in payment to the farmers due to cash crunch but that is a temporary phenomenon.
The perishables, vegetables and fruits, in most markets and states showed a drop in market arrival as well as prices post demonetization. Wholesale prices of banana, apple, tomato and cabbage in the month of November in APMC mandis of the country, taken together, were 3.80, 3.86, 8.47 and 5.6 percent lower compared to the month of October, respectively. These changes indicate that incomes of producers of perishable commodities have suffered due to fall in prices in the month of November. Loss to total revenue of crop sector was estimated by multiplying monthly value of output of fruits and vegetables with the difference in the prices between October and November in APMC markets. This loss comes to 0.13 percent of value of output of crop sector for one month and 0.26 per cent.
Effect on Output Growth
The situation prevailing at the end of December 2016 implies that rabi crop output will increase by 6.02 per cent over last year due to higher area sown. Lower use of fertilizer, as observed from the first point sale, can cause 1.06 per cent decline in output of rabi season. These two factors put together imply that rabi output in 2016-17 could be 4.96 per cent higher than 2015-16. Lower sale of quality seeds due to cash crunch can also affect growth but this impact is expected to be small. Other variable that can affect productivity and output growth is temperature in the forthcoming months of February and March.
The growth rate in farmers’ income is projected to be slightly lower due to drop in prices of perishables during the months of November and December. The net effect of fall in prices on farmers’ income is estimated to be -0.26 per cent. Factoring this change, farmers’ income in year 2016-17 is projected to witness increase of 5.8 percent in real terms.
Read the complete blog here