The Covid-19 affliction curve seems to be flattening in India. High-frequency data in September also shows economic conditions improving. Exports turned positive, the Purchasing Managers’ Index (PMI) for manufacturing tipped an eight-year high, and power consumption and Goods and Services Tax collections have grown on-year. However, this recovery is fragile and largely led by pent-up demand. The ongoing festive season will bear watching since the resurgence of cases can stem the dawdling recovery.

But all is not gloom and doom. Agriculture remains the bright spot for India, courtesy the above-normal, timely and largely well-distributed monsoon. Rains not only arrived on time, but also covered the entire country at least 12 days ahead of the normal date. La Niña added to the bounty. This season’s rainfall was 9% above the long period average at an all-India level. This benefited sowing activity and has helped shore up water reserves.

Good rainfall has brought some cheer to agriculture-dependent states amid the pandemic. No major kharif-growing state faced rain deficiency, though a few that suffered excess rains. Kharif sowing has covered 5% more area than the previous year. Already, the first quarter of this fiscal benefited from a record rabi production. Now kharif output also promises to be good, especially in pulses and oilseeds, which have seen stubbornly high food inflation. This augurs well for inflation control in food items, which re-entered the double-digit territory in September.

While unseasonal rains in October affected a few crops in some regions, this is unlikely to spoil the overall agriculture story. As a result, we expect agricultural gross domestic product (GDP) to grow at 2.5% this fiscal.

Meanwhile, though the procurement of kharif food grains by the government has been progressing rapidly, mandi prices, which dipped during April and May (nation-wide lockdown), remain below the minimum support price. This is true for all crops. This raises some concerns, because the recent increase in Covid-19 cases in rural areas also threatens to hinder post-harvest marketing and other activities for farmers.

Summing up, though good rainfall has provided support to farm output and perhaps also farm jobs (including to migrants who returned to villages), overall farm incomes and profitability may not have seen as much a leg-up, given that prices accrued to farmers appears low. That said, higher agriculture output augurs well for the high food inflation. The risk is that if the virus spins out of control in rural areas, supply-side disruptions (which impact mandi arrivals, collection, storage and transportation) could surface. Food inflation will take longer to ease in that situation. Fingers crossed.