The Indian economy is all set to contract this year due to the Covid-19 pandemic. There is only bright spot in this year’s economic story; the agriculture sector.
A good rabi (winter) crop harvest, adequate rainfall during the ongoing monsoon and encouraging data on sowing on kharif (monsoon) crops, all point towards a good performance by agriculture.
“We have had a very good rabi crop. All of what were necessary, have been procured at reasonable price so that farmers are not left high and dry looking for purchasers. Now the estimate for kharif crop has also come. We can clearly see agriculture driving the revival”, Sitharaman said on Tuesday.
Can a high growth rate in agriculture boost demand? This cannot be taken for granted. Real growth rate calculations take into account value of production at constant prices.
The constant price method is necessary to ensure comparability across time periods. Day to day purchasing power, and therefore demand, is more likely to be a function of current or nominal incomes.
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In 2018-19, the total value of output of fruits and vegetables in constant prices was Rs 3.74 lakh crore. For cereals, this figure was Rs 3.61 lakh crore.
A bumper crop this year might create a glut in agricultural markets. Given the fact that non-farm output, and therefore purchasing powers, are set to contract, this could well lead to a sharp fall in food prices.
The current value of output of crops and therefore growth in farm income may be lower than real growth in agriculture.
This will have a direct bearing on agriculture’s ability to boost the rest of the economy.
If the agriculture sector has to play a lead role in economic recovery, policy intervention is needed to make sure that farm prices do not crash and put a squeeze on farm incomes.
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