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Wednesday, August 12, 2020

Explained: Why the high price of diesel is a dampener for a rural-led economic recovery

A more than 11/litre jump in the price of the fuel, used for powering tractors, combines and irrigation pumps, will offset any gains to farmers from higher MSPs

Written by Harish Damodaran , Edited by Explained Desk | New Delhi | Updated: July 3, 2020 8:21:38 am
kharif crops, diesel prices, rural economy, Covid rural economy, Coronavirus news, monsoon status, Indian Express A farmer harvests his crops during the lockdown imposed due to Covid-19 in New Delhi. (Express Photo: Praveen Khanna)

First, the good news.

Retail sales of fertilisers are up over 79% year-on-year in June, marking the eighth straight month of double-digit growth. That, together with the area sown under kharif crops till June 26 being 104.25% higher compared to the coverage at this time last year, is clear indication of agriculture being the lone bright star in today’s Covid-19 battered economy.

There are two factors inducing farmers to increase plantings and invest more in productivity-enhancing inputs.

The first is the monsoon: Last year, rainfall in June was 32% below the “normal” long-period average for the month. This time, the country has not only received 17.6% above-normal precipitation in June, but the surplus rains right from the second half of 2019 has led to a significant recharging of groundwater tables along with the filling of dam reservoirs to near capacity.

As a result, farmers sowed 9.5% higher area even during the 2019-20 rabi (winter-spring) season, which is reflected in fertiliser sales registering double-digit growth rates since November (see table below). The improved soil moisture conditions have impelled them to expand acreages in the ongoing kharif season from mid-May as well.

All-India retail fertiliser sales (lakh tonnes):

2018-19

2019-20 % Growth

Oct

48.37 45.17

-6.62

Nov

63.26 73.84

16.72

Dec

70.86

87.08

22.89

Jan

58.04 64.50

11.13

Feb

30.39 46.61 53.37

Mar

24.60 28.96

17.72

Apr

14.17 20.56

45.10

May

20.24 40.02 97.73

Jun

38.35

68.74

79.24

(Data source: Department of Fertilisers)

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There is one potential dampener, though. And that has to do with diesel prices. Since June 6, retail prices of this fuel used for powering tractors, harvester combines and irrigation pumps have gone up more than Rs 11 per litre (from Rs 69.39 to Rs 80.53 in Delhi). The impact of it can be understood by looking at just paddy, the most widely-grown kharif crop.

According to Pritam Singh Hanjra, a farmer from Urlana Khurd village in Haryana’s Panipat district, paddy requires a “minimum” of four ploughings. The first two primary dry ploughings, using tractor-drawn disc harrow and tiller/cultivator, consumes around 3 litres each of diesel per acre. The third and fourth ploughings are in wet condition, for which paddy harrow or “puddler” is employed. The diesel consumption in this case is higher, at 5 litres each per acre. The four ploughings are followed by one “planking” or smoothening and compacting of the soil surface, which consumes another 3 litres. The total diesel consumption during field preparation before transplantation of the paddy seedlings, thus, comes to 19 litres per acre.

“This is the bare minimum. More ploughings and even leveling may be required in the event of excessive weed growth or if the soil is uneven,” emphasises Hanjra.

Burning of diesel also takes place during harvesting (a combine consumes 7-8 litres to cover an acre in roughly 40 minutes) and irrigation (especially in states with relatively poor electricity infrastructure). Ajay Kumar Singh, a farmer from Emiliya village in Chandauli district of eastern Uttar Pradesh bordering Bihar, estimates that a 12-horsepower diesel engine will consume up to 1.5 litres in an hour. Further, it takes five hours for watering one acre of paddy.

“Most small farmers in our belt use diesel engines, as they do not have and cannot afford electric tubewell connection for submersible pumps. Paddy needs at least five irrigations even in a normal monsoon season, more so during the 30 days after transplanting, when you have to ensure continuous standing water,” he says. The diesel use in such irrigation, then, works out to 37.5 litres per acre.

All in all, the consumption of diesel for paddy cultivation would range from 27 to 65 litres per acre. If the use in off-field operations – hauling produce to the market, bringing fertilisers, pesticides and other inputs to the farm, etc. – is added, it may go up to 35-70 litres per acre. A Rs 11/litre jump in diesel prices within a month, therefore, means an additional expenditure of Rs 385-770 per acre. On an average paddy yield of 25 quintals per acre, that translates into Rs 15-31/quintal.

The Narendra Modi government, on June 1, hiked the MSP of the 2020-21 paddy crop from Rs 1,815 to Rs 1,868 per quintal for common and from Rs 1,835 to Rs 1,888 for Grade ‘A’ varieties. To the extent that the Rs 53/quintal MSP increase is offset by the extra Rs 15-31 outgo on diesel – similar calculations can be made for other crops – it could act as a sentiment dampener.

And that’s not-so-good news in the present scenario, when all hopes of an economic recovery are being laid on agriculture and rural consumption.

(Data source: Department of Fertilisers)

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