Bountiful rains to boost agriculture output this year; can investment demand keep pace to buoy economy?

If a little over 30 percent of districts report less than sufficient rainfall, and 44 percent of these don’t have adequate irrigation facilities to fall back on, is an agriculture and rural demand revival still possible? According to Crisil in its Monsoon Granular report put out on Sunday, the rating agency points out that these distressed districts have a minuscule share in total sown area as well as in total kharif production. [caption id=“attachment_2129547” align=“alignleft” width=“380”]  Reuters[/caption] According to the report, 33 percent of 629 districts for which data is available had seen rainfall deficiency of 20 percent or more as of September 28. This is lower than in 2014 and 2015 when the number of rainfall-deficient districts was 46 percent and 49 percent respectively. The number of districts reporting normal or excess rainfall has correspondingly increased - 67 percent this year, against 54 percent in 2014 and 51 percent in 2015. When the figures of rainfall-deficient districts are further dis-aggregated, it shows that nearly 54 percent have good irrigation cover. So they are somewhat insulated from stress. The same cannot be said of the 46 percent of these districts that are deprived of both normal rainfall as well as irrigation facilities. But these distressed districts account for less than 4 percent of total kharif production and less than 7 percent of total sown area. Uttar Pradesh and Maharashtra, the study shows, account for 36.7 percent and 28.8 percent respectively to the country’s kharif production. Rainfall was deficient in 37 districts of Uttar Pradesh, but fortunately, these districts had good irrigation facilities; the State had only one district which comes under the distressed category. Maharashtra’s irrigation story is nothing to write home about, but the State had only one district with deficient rainfall, and none which can be called stressed. Overall, healthy agricultural production growth is quite in the realm of possibility. Crisil expects a 4 percent growth in agriculture this year, though NITI Aayog’s member, agriculture Ramesh Chand insists he is confident about growth touching 6 percent. But an overall robust picture hides stories of individual stress at the state and household level. The Crisil study shows that Gujarat and Karnataka are the worst affected states this year. Eight of Gujarat’s 16 districts which saw deficient rainfall come under the distressed category, since they did not have adequate irrigation backup. In the case of Karnataka, six of the nine rainfall-deficient districts are in the distressed bucket. The share of these districts in all-India kharif production may be negligible (1.5 percent in the case of Gujarat and 0.5 percent in the case of Karnataka) but they account for 32.9 percent and 24.4 percent of the kharif output of Gujarat and Karnataka respectively. Kharif production accounts for 66 percent of overall agriculture output in Karnataka and 55 percent in Gujarat. Assam, too, has 13 distressed districts accounting for 61.8 percent of the state’s kharif production, though that is only 19.8 percent of the state’s total agricultural output. Farmers in these districts are also going to face individual hardship. Cotton farmers in Gujarat, for example, will be affected, since the distressed districts accounts for 40 percent of the state’s cotton production. Despite these blips, Crisil is expecting overall private consumption to touch 8.3 percent this fiscal, against 7.4 percent last year. It is not basing its optimism on agricultural production growth alone. It also points to a spurt in road construction in rural areas and says this could push non-agricultural rural incomes. Roads completed under the Pradhan Mantri Gram Sadak Yojana between March and August totalled 21,000 km as against 15,000 km over the same period last year. So rural consumption demand will also partner with urban consumption demand (which will get a push from the Seventh Pay Commission award), but what the economy needs now is an investment demand push. Will the combined consumption demand push up capacity utilisation levels which could then drive investments? The government’s economic managers will certainly be hoping it does.