India has been in lockdown for over two months because of the Covid-19 pandemic. The economic costs are now beginning to show up in hard numbers. Industrial production for March fell by over 16%. Indeed, given one of the most stringent lockdowns in the world, April could well be the worst performing month of this fiscal. CRISIL had projected 1.8% growth in the base case for fiscal 2021, with risks tilted to the downside. With the Covid-19 curve for India yet to flatten out and Lockdown 4.0 in place, our baseline gross domestic product (GDP) growth forecast has been revised down to -5.0%.
The government’s Rs 20 lakh crore economic package is a mix of fiscal and monetary (from the Reserve Bank of India or RBI) support and economic reforms. It has a twin objective – support the vulnerable population and businesses while raising growth potential over the medium run. Overall, it is focused more on raising the ‘trend’ rate of growth, than supporting the ‘cycle’, and relies little on direct fiscal support to the tune of 10% of the economic package. That said, some of the reform announcements made by the finance minister are path breaking and can push growth later on, if pursued and implemented successfully.
Amid this gloom and doom, one sector that holds out hope is agriculture. It accounts for 15% of GDP and employs over 40% of the work force. We expect agricultural GDP to grow at ~2.5% this fiscal. Agriculture and allied activities is not one uniform product group – it has a bunch of different components, each with its own dynamics. This year’s growth will be led largely by crop agriculture and livestock/ milk, while fruits and vegetables/ horticulture livestock and fisheries will remain relatively weak. Despite a bumper rabi harvest and a reasonably good performance expected from agriculture, food inflation remains a concern due to logistics-related issues.
Reform measures related to agriculture stand out in the economic package. The proposed new law to provide the farmer choice in selling the produce rather than being captive to the Agriculture Produce and Marketing Commission (APMC) Act was long overdue. Over the years, instead of supporting farmers to sell their produce in the market, the APMC had left them vulnerable to price manipulation by traders and commission agents. Amendment of the Essential Commodities Act to deregulate food items (foodgrains, oilseeds, onion and potato), too, is aimed at improving price realisation for the farmers and curtailing ambiguity.
Monsoon is one idiosyncratic risk that agriculture faces each year. According to the Indian Meteorological Department, this year, the monsoons will strike with a delay of a week, but will be normal. And that’s good news.
