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Saturday, September 19, 2020

Explained: With better monsoon, what is the outlook for India’s farm sector?

More and better-distributed rainfall this year is likely to result in higher sowing, higher production, productivity and profitability for the agriculture sector.

Written by Udit Misra , Edited by Explained Desk | New Delhi | Updated: August 25, 2020 4:11:28 pm
Farmers sowing paddy after monsoon rain in Dairhi Village on the outskirts of Mohali in Punjab

While it is clear that India’s broader economy will contract this year, it is also true that well-distributed rainfall has meant that the agriculture sector per se may be quite productive this year.

A new report by Crisil throws light on the prospects of the farm sector. Here’s a closer look at the farm sectors and its prospects.

What is the status of Southwest monsoon?

As of August 21, monsoon is 7 per cent above normal, according to the Crisil report. “Rains in India, normal and most well spread in three years – across time and regions so far,” it states.

What is the likely impact?

Overall, better rains would allow the crop acreage — sown area — to increase across most crop groups such as cereals, oilseeds and pulses. Acreage for fruits and spices will also likely go up.

But acreage for cotton and vegetables is likely to decline marginally. Apart from the sown area going up, productivity too is expected to go up by around 3 per cent.

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Would these imply a reduction in prices?

Yes, according to Crisil, surplus production will exert downward pressure on prices of 10 out of 14 field crops. Horticulture prices will also moderate.

What about farm-level profitability?

According to Crisil, sugarcane and paddy will continue to be the highest profit-making field crops, thanks to government support in the form of minimum support prices. Apple will lead profitability among horticulture produce.

What is the outlook on regional distribution?

According to Crisil, thanks to a low base, eastern states will see healthy growth in crop profitability.

Southern and Western states will likely bear the brunt of lower cotton and maize prices. Overall, however, North India is expected to continue to remain the most profitable region for Kharif season 2020.

What do these trends imply for agriculture-related industries?

Agriculture input industries such as fertiliser, seeds and pesticides are expected to grow 2-3 per cent in the current financial year. Farm equipment industries will also likely see 5-7 per cent higher profits due to labour shortage and higher mechanisation.

What are the major risks to the farm sector?

The rapid spread of Covid-19 in rural India is the main threat to the well being of the farm sector. As Chart 1 below shows, districts with more than 60 per cent rural population account for almost half the cases as of August.

As Chart 2 shows, the rate of increase in rural cases is much faster than the rate of increase in urban cases.

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