Wednesday, February 26, 2020

A Heavy Crown to Bear

By The Editorial Team Updated: Apr 21, 2019 10:43 pm

Whoever heads the new government at the Centre, will have to face the difficult job of taking India out of financial mess. Besides, as all the political parties have announced sops to woo the voters, if a per cent of those promises are implemented, it will be more difficult for the Indian economy to turn back. So no matter how vociferously the political parties propagate happy days, there is no immediate solution in sight. These are not the words of any doomsayer; people in the know of things have made the prediction.

How bad the condition of the Indian economy can be gauged from the report of JM Financial. It its recent report, it has been stated that the next government at the Centre is likely to inherit a rural economy in bad shape as the “informal” sector in many parts of agrarian India is yet to recover from the multiple disruptions over the past several months. The JM Financial report titled Rural Safari, “Still on a bumpy road” has said that even with the possibility of a short burst of growth in discretionary consumption like in two- and four-wheelers after the general election, “a market-led sustained recovery may be more gradual than earlier estimated”. “We have already trimmed our estimates for the auto sector and are beginning to see earning cuts for staples. In our view, a ‘pure’ rural portfolio could underperform in FY20,” the report said. The survey report noted that rural growth is currently weak in 10 out of 13 states visited when compared to September last year. It also highlighted that rural incomes are impacted by subdued realisations and stress on non-farm income. “Slackening of rural demand due to agrarian income challenge is now more widespread vis-a-vis only in western regions earlier. This is largely due to crop prices being deflationary,” the report noted. “Stress on non-farm income due to various reasons – ban on sand mining, closure of brick kilns and disruption in NBFCs – further aggravated the situation.” Rural income growth in the last fiscal has been adversely impacted by weak agri-pricing as overall crop production has not been disappointing. In terms of agri-related income, the expected rise of 13 per cent year-on-year (YoY) for paddy and 5-53 per cent YoY for other crops in the Kharif season clearly did not materialise, barring few states which have good procurement infrastructure, the report said. “From the income perspective, a clear disappointment has been the steady decline in prices for most food crops, notably the continued downtick in fruits and vegetable prices, particularly in 2HFY19,” it said. On a historical note, the report said that safer crops (wheat, paddy, sugarcane) continue to find favour with farmers and have much lower volatility. On the other hand, there was high volatility in income for farmers growing vegetables and fruits, pulses and cotton, and barring cotton, income declined for a large section of commercial crops in fiscal 2018-19 due to weak pricing levels, it added. Moreover, the difference in output, and hence in income, from irrigated and non-irrigated farms continue to rise given the patchy and erratic rainfall pattern (9.4 per cent below normal in 2018). From the income perspective, therefore, agri-income suffered in the last fiscal, and decline was higher for small farmers, while large farmers were still able to get better prices because of their ability to store and also have better market access, it added.

So, it is very clear that the crown will not fit on anyone’s head smoothly.

By The Editorial Team Updated: Apr 21, 2019 10:43:17 pm