Economy
CRISIL IndiaInsights
Jun – Aug 2020
Optimism pours
In the two months since the April lockdown brought large parts of the Indian economy to a grinding halt, recovery has, at best, been wobbly. Economic activity is sub-normal and is likely to remain so this quarter. Reintroduction of containment measures in several regions will once again put the brakes on economic activity. In short, the downside risks to our gross domestic product (GDP) growth outlook of -5% for the current fiscal are rising.
Amid the doom and gloom, one sector that is likely to emerge as a beacon of hope is agriculture. With only 15% share in GDP, agriculture does not have the heft to offset the deep hit to non-agricultural sectors. But, it still supports over 40% of the working population in India. Satisfactory progress of monsoons and sowing trends in kharif (summer crops) offer hope that agriculture growth would be normal this year.
Big part of this optimism springs from the monsoons’ performance this year so far. July and August are the two most critical months, accounting for ~63% of overall monsoon precipitation. Rainfall distribution across states has been relatively even, compared to previous years. Till July 16, rains have been 10% above normal at the all-India level, with central, eastern, northeastern and south peninsular regions benefitting the most. Timely arrival has sped up sowing activity across crops.
Increase in minimum support prices and abundant rains seem to have driven higher sowing of pulses and coarse cereals. Sowing activity covered 55% of total all-India acreage for the season as of July 10. This is 44% higher on-year. Sowing is higher for all crops (except jute and mesta), but especially high in pulses, which is ~2.6 times more on-year.
Against the backdrop of the pandemic, agriculture-dependent states could do somewhat better than others this fiscal. Then, there are states with a huge number of Covid-19 cases, like Maharashtra and Haryana, where good monsoons bring hope. Maharashtra has high dependence on agricultural employment, while Haryana has relatively high dependence on agricultural output. Concerns remain, however, about those with lower share of agriculture in state output and employment, and hit hard by the pandemic’s impact on non-agriculture sectors.
Good performance of agriculture augurs well for rural demand, too. Additional support to the rural economy comes from policy thrust via PM Kisan and topping up of the Mahatma Gandhi Rural Employment Guarantee Scheme by ~Rs 40,000 crore for this fiscal.
All this seeds hope that agriculture can lift the overall economy from sinking too low this fiscal.
Analytica