Shower Power

Farmers across India would surely like to forget the last three years. The rains played truant, output dimmed and life was hard. This year, ...

Farmers across India would surely like to forget the last three years. The rains played truant, output dimmed and life was hard. This year, though, the mood is upbeat, as generous rains continue to boost agricultural output.

On Mumbai8217;s Mint Street, Reserve Bank of India Governor Bimal Jalan is also sharing this optimism. 8220;As per the latest assessment of rainfall conditions, a strong growth in agricultural output is likely during the year. Along with the continuance of the upturn in the industrial and services sectors, the expected growth for 2003-04 may significantly exceed the earlier projection,8221; the RBI says.

The central bank says the six per cent growth in real gross domestic product GDP forecast for the current fiscal earlier 8220;may now be exceeded significantly8221;. Many others8212;from the Confederation of Indian Industry CII to the Centre for Monitoring Indian Economy CMIE8212;have upgraded the country8217;s growth forecasts.

8220;The revival in the economy is mainly due to the sharp turnaround in the fortunes of the agriculture sector,8221; says Mahesh Vyas, director of CMIE. Anand Mahindra, chief of CII and managing director of Mahindra 038; Mahindra, has predicted a 6.6-7 per cent growth in the economy. This is first time that growth has exceeded the 6 per cent level since 1999-2000.

Growth Driver

The RBI, CMIE and others credit the economy8217;s resurgence to the recovery in the farm sector, and rightly so. According to the CMIE, agricultural growth fell by 7.5 per cent last year due to a major drought in many parts of the country. And this had a negative impact on the economy.

Foodgrain output fell 14 per cent last year, with the kharif and rabi crops falling by 19 per cent and 8 per cent, respectively. Oilseed production was also down 24 per cent last fiscal. 8220;Even if foodgrain production touches the last five years8217; average, it would translate into a growth of 11 per cent,8221; says the CII. The government has forecast an improved kharif output of 110 million tonnes in 2003-04 90.48 million tonnes during the same period last year.

Mahesh Vyas of CMIE says higher farm output will lead to higher spending, which in turn will lead to a surge in demand for goods. 8220;This will boost the manufacturing sector. On the other hand, the higher farm output will also check the inflation level,8221; says Vyas. Delhi-based NCAER National Council for Applied Economics and Research has said the farm sector will grow 4-4.5 per cent while revising the GDP growth to 5.8-6 per cent.

Chipping In

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India Inc also appears to be joining the party. The corporate sector has started reporting good profits. In fact, for the first quarter April-June, top companies posted a 45 per cent growth in net profit.

Many corporates have cut costs by restructuring their operations. The sharp fall in interest rates has helped many companies8212;especially steel, and cement8212;to save money.

The upward swing continues and is likely to beat the so-called annual 8220;boom and bust8221; cycle, the CII says. However, there are sceptics who harbour doubts. 8220;The industrial sector, though maintaining pace, is not showing signs of broadening the recovery. Given the heavy dependence of tax collections on industrial performance, this could well mean a significant slippage in the deficit this year, despite better overall growth,8221; warns Crisil.

But CII claims that despite the weak agricultural performance, industry and services sectors grew 6 per cent and 7.1 per cent in 2002-03. In other words, it8217;s seeing a further pick-up in industrial production, especially the manufacturing sector.

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Brokers and investors should be thanking the farmers for the 1,200-point rally in Sensex to the 4,250 level, one of the fastest rallies in the market in the last ten years. 8220;What we8217;re seeing now reflects the economy8217;s growth,8221; says Vyas.

If the dream run continues and the IPO market revives, the country could witness the equity cult spreading to all corners. Manufacturing companies are leading the bull rally this time.

Foreign funds have brought in nearly US 2.9 billion in 2003 and forex reserves have swelled to over 85 billion.

While a war or another 9/11, and a consequent global downturn, can spoil the scene, the wind, for the time being, is in India8217;s favour.