Andhra Pradesh among six states accounting for 32.7% GVA poised for higher rural spend in FY21

Business
Typography

The situation would differ at the disaggregate level as the share of agriculture in GSVA and its contribution to GSVA growth differ across states

The agricultural activities across the country have almost remained unaffected despite COVID-19 and the related lockdown. This has raised the hope that rural demand could drive the economic recovery and Andhra Pradesh among six states that contributed over 32 percent to gross value added are expected to register higher growth in rural spend in the ongoing fiscal, said a report

 Rural demand will perk-up somewhat, but will not be able to offset the shortfall in urban demand because the share of agriculture in gross value added (GVA) of the Indian economy ranged between 14.6 percent and 17.8 percent during FY13-FY20 and is expected to be 17.3 percent in FY21 (FY20: 14.6 percent), said a report by India Ratings and Research (Ind-Ra).

Furthermore, the contribution of agriculture to GVA growth ranged between 4.8 percent and 11.2 percent during FY13-FY20 and is expected to increase to only 14.4 percent in FY21 (FY20: 8.6 percent), despite the COVID--19 induced contraction in the industrial and services sectors.

“The situation, however, would differ at the disaggregate level as the share of agriculture in gross state value added (GSVA) and its contribution to GSVA growth differ across states,” said the report.

As such having a higher share of agriculture in GSVA and its contribution to GVA/GSVA growth are not considered to be a plus point because of the agricultural sector’s lower potential/actual rate of growth and/or productivity than the industrial or services sector. However, in the post COVID-19 pandemic period, those states stand to benefit and witness higher rural spend where the share of agriculture in GSVA and its contribution to GSVA growth is higher and they are Andhra Pradesh, Madhya Pradesh, Rajasthan, Uttar Pradesh, Punjab and West Bengal. These six states contributed 32.7 percent to real GVA in FY20.

According to the first advance estimates released by the Ministry of Agriculture and Farmers Welfare on September 22 this year, the production of Kharif food grains during FY21 is estimated at 144.52 million tonne as compared to 143.38million tonne in FY20. This means Kharif food grain production in FY21 is expected to be higher by only 1.14 million tonne.

The increase in minimum support prices (MSP) announced by the government for the Kharif crops for FY21 compared to FY20 though range between Rs 53 and Rs 755 per quintal, the increase in MSP of the major kharif crop paddy is just Rs 53.  The MSP of pulses have been raised in the range of Rs 146 to Rs 300 but they constitute only 6.4 percent (in volume terms) of the total Kharif food grain production. So, the Kharif food grain production in FY21 neither in terms of volume nor in terms of value is going to be significantly higher than FY20.

Since the largest chunk of rural population consists of daily wage earners and not farmers, a peep into the rural wages is as vital as the agricultural income to understand the rural demand. A glance at the rural wage data suggests that rural wages have been under pressure and declined substantially both in nominal and real terms during FY16-FY20.

Thus, FY21 may not result in significantly higher income either for farmers or wage earners than the previous years. However, the rural demand may still perk up somewhat due to - (i) four consecutive good harvests – Rabi 2019, Kharif 2019 and Rabi 2020 and now Kharif 2020, (ii) close link between agricultural performance and a number of non-agricultural rural activities (iii) increased allocation under MGNREGS to Rs 10,150 crore for FY21 from the initial allocation of Rs 6,150 crore (FY20RE: Rs 7,100 crore) and (iv) front loading of funds transfer under Pradhan Mantri Kisan Samman Nidhi, said the Ind-Ra report.

Image credit: Sentinel Assam

All Comments