Battling extremes of drought and, unseasonal rains, complicated now by a warm winter, the Indian farmer had a difficult year in 2015 and his prospects are unlikely to improve in 2016, a top Indian economic policy research institute said.
This has resulted in farmer distress and may lead to a decline in food-grain output in 2016 for the second straight year, the National Council For Applied Economic Research (NCAER) said in its latest report on the short-term agricultural outlook for the 2016 rabi season.
The report estimates growth in agriculture and allied sector gross value added in the second quarter of FY 2015-16 to be 2.2 per cent, as compared to 1.9 per cent in first quarter. Overall, agricultural growth in 2015-16 is likely to be moderate at best, and is expected to remain unchanged from the 2014-15 growth rate of 0.2 per cent.
It predicted higher inflation in the next 3-4 months on the back of a rise in prices of major food articles such as vegetables, fruits, and cereals, while prices remain moderate for manufactured or processed food products such as dairy, edible oil, and grain mill.
“Between droughts and downpours, it is the Indian farmer who pays the price. The poor crop and price outcomes expected this rabi season is a graphic reminder of the vulnerability that Indian agriculture still faces,” said Dr Shekhar Shah, Director-General, NCAER.
He said the Indian farmer was getting squeezed between the vagaries of the weather and the inability of policymakers to design and implement sensible policies in agriculture, whether to do with irrigation, subsidies, marketing, or supply chains.
“And this then leads to more sops rather than structural reforms. Breaking out of this vicious cycle does not require rocket science. We have the answers. But it does require policymakers to take a realistic view of both technical solutions and the politics of agricultural reforms, and map a strategy for sequencing successful reforms, whether it is in cereals or sugar-cane or oil-seeds or pulses, based on solid evidence of what works and what the rural voter will accept. This has to be one of the highest reform priorities for the government,” he said.
The findings of the NCAER report are based on a comprehensive assessment of farm input prices and availability, monsoon rainfall, market demand conditions and government policies impacting this year’s rabi and kharif crop production.
Wheat production in marketing year 2016-17 is expected to be lower at 85 million tons as compared to the already poor 2015 production of 88.9 million tons due to poor weather, and wheat exports are likely to remain negligible. The 2015-16 rabi rice production is expected to be somewhat lower than the 2014-15 production due to poor post-monsoon rains and lower water levels in reservoirs. Rabi rice exports are forecast to decline to 9.0 million tonnes from 11.8 million tons in marketing year 2014-15.
The report covers indicators of supply and demand for major food commodities, both in the domestic economy and the global markets. External factors continue to remain less conducive to agricultural exports this year due to a better global production outlook and large carryover stocks for most traded commodities such as wheat, rice, maize, and soybean/soybean meal, except in the case of sugar.”
The study also highlighted the severe supply-side bottlenecks that persist in Indian agriculture, including poor logistics, outdated marketing arrangements, inadequate cold storage facilities, and lack of processing facilities. These continue to hurt supply and the availability of food items such as pulses and perishable food products. Dealing with these domestic structural distortions affecting the production, storage, transport and marketing of agricultural production should be at the top of the agenda for Indian policymakers if they wish to take Indian agriculture into the 21st century.
On the external front, the NCAER report said that global food markets are likely to have remain well stocked and therefore were less volatile in 2015-16. As a result, international prices of most commodities have remained well below their prices a year ago, although projections show that most commodity prices are likely to firm up modestly in 2016-17.
The report noted that external factors continue to remain less conducive to Indian agricultural exports this year as was the case last year. This was due to a better global production outlook and large carryover stocks for most commodities traded by India. Indian exports could face tough competition in the global market as domestic prices are likely to rule above world prices. There could be an increase in the import of pulses, which along with the recent weakening of the Indian rupee against the U.S. dollar, could lead to higher prices for Indian consumers.