Indian agriculture sector to grow despite economy weakening: Religare Broking

Date:07-15-2020

We expect the year 2020-21 to be the most important year for Indian agriculture both nationally and globally. The Agri sector could play a major role in supporting Indian GDP growth. This is what has been corroborated by FICCI in its recent survey. While it predicts India's GDP growth in FY21 to contract 4.5 percent, it also mentions "Agriculture seems to be the only sector with a silver lining right now."

FICCI indicated a median growth of 2.7 percent for agriculture and allied activities for 2020-21.

The reasons have been plenty:

Production and demand are the 2 aspects of Agri sector growth. India being a major producer, consumer and exporter of most agricultural commodities, keeps raising the bar when it comes to the production aspect. Record production in many food items keeps getting noted year after year. Aided by good Monsoon (this year too), we can expect better crop as sowing area rises.

The recent initiatives taken by the government to virtually scrap the Essential Commodities Act and increasing the scope of markets for farmers are steps that will go a long way in achieving the objective of doubling farmers’ income by 2022. Eliminating the middlemen would, in effect, lower the costs for the ultimate consumers too. This will bring in more efficiency. Hence, private sector participation can be expected to rise in this sector. We apprehended the agricultural growth to not be affected by the global slowdown, as is the case with many other sectors.

However, due to coronavirus, the export and domestic demand had been adversely affected over the last few months. But demand by consumers cannot stay weak for long. As economies re-open globally, the demand on both fronts is expected to rise in the coming weeks and months. And the exports will pick up mainly from India.

We believe that there is a huge scope in increasing the agri sector growth beyond the 2.70 percent predicted as of now. Pushing exports could possibly be a good way to ensure that. Globally, the pending export demand from India over the last few months is expected to arrive gradually. Further initiatives by the government to boost exports of agricultural commodities could ensure the huge excess stocks that we have will not only be taken care of but also disposed of profitably. This could favourably affect the farmers, traders and others associated.

As FICCI in its survey says, "It is, however, still uncertain when supply chains will be restored fully; how long will it take for demand conditions to normalize". But it also mentions, "the rural sector supported by a steady agriculture performance and hopefully a contained number of COVID-19 cases will be a key demand generator for India this year."

These are facts the remain important for the agri growth figures this year. We expect demand will gradually improve over the next few months. But it can rise strongly once the coronavirus impact diminishes or gets over gradually. Once trading activities start rising and exports start picking up, the growth in the agricultural sector too will pick up.