Agriculture may be the Last Hope for India’s Declining Economy

The ongoing Pandemic has affected all the major except the Agricultural Sector, which employs almost 15% of the economy. This sector was the only industry to post positive growth in the June quarter’s gross domestic product data. The reason for this positive growth has been timely rains, a good monsoon and an increase in the crop area. But here’s a look at the risks that may curb growth in the future.


Least Productive

The manufacturing and the dominant services sectors have declined sharply after lockdown measures to stop the spread of Pandemic. So now the expectations are piling on the farm sector to support an economy headed for its first full-year contraction in more than four decades.

video ads


Virus Impact

For many, the 3.4% growth in agriculture and allied activities was the “only saving grace” amid an economic contraction of 23.9% in the last quarter. Soumya Kanti Ghosh, the chief economist at State Bank of India, said that the performance was expected as the government had imposed the least restrictions on this sector. It is to be noted that the growth in nominal agriculture GDP came in at 5.7%, as against an average 13.5% in the previous two quarters. Although, with Covid-19 infections now spreading in the rural areas, the next quarter could easily give up the gains seen now.


Falling Prices

For now, better-than-normal rains have raised the food grain output. According to the farm ministry, there was an increase of 7.2% in the farm sector last year. As of Aug. 28, the area under monsoon-sown crops including rice, oilseeds, corn and cotton stand at 108.2 million hectares.


While a good harvest will help put a lid on inflation by checking food prices, it also means lower income for farmers and allied workers who make up 70% of the country’s workforce.
According to Sunil Kumar Sinha, principal economist at India Ratings and Research Pvt. in Gurugram, a large part of rural demand, comes from consumer non-durables even though there is encouraging sales of motorcycles and tractors in June.


“The hope is that while the industrial and services sectors are still struggling to recover from the adverse impact of Covid-19, the agricultural sector could become an engine for economic recovery,” Sinha said. “Rural demand at best can extend support to consumer demand, but cannot be a substitute for urban demand.” With the sudden imposition of the lockdown, the rural workers started fleeing for their homes. This resulted in abundant labour supply in India’s rural area, but resulted in depressed earnings, leaving them with little purchasing power to lift the economy out of a ditch.