Weekly Wrap – Agriculture not to be the panacea of all economic woes

Global economic recovery has become complicated by a new wave of the virus spreading at a record rate all over Europe and the United States. Overall growth is projected at -4.4 percent in 2020 and 5.2 percent in 2021. China’s return to growth has been stronger than expected. For many other emerging market and developing economies, prospects remain bleak.

The pandemic-induced growth contraction and additional spending to support the needy in India, amounting to a little over 2 per cent of the economy are likely to push the combined fiscal deficit to 13 per cent of the GDP this fiscal – nearly double of the past year. 

Similarly, these numbers will see the government debt, which has been under 70 per cent of GDP for long, shooting past the 80 per cent mark this year to Rs 75.6 lakh crore or $1.01 trillion, making India the second-most indebted country in Asia after China.


Even as India’s agriculture sector remains fairly immune to the disruptions led by the coronavirus pandemic, the sectoral growth may not be able to offset the loss of the overall economy. The rural demand will perk-up somewhat, but will not be able to offset the shortfall in urban demand as the share of agriculture in India’s GVA (Gross Value Add) is smaller.

Agri GVA for India is expected to be only 17.3 per cent in the current fiscal. While other sectors were brought to a near-standstill, it was earlier believed that the rural demand could drive the economic recovery. But that may be easier said than achieved.

Meanwhile India’s central government has set a target to purchase 74.2 million tonnes of paddy equivalent to nearly 50 million tonnes in terms of rice, in the current kharif marketing season (October-March). This target is 18 per cent higher than last season’s 62.7 million tonnes. 

The Food Corporation of India has already purchased 19 million tonnes  of paddy across the country during this kharif marketing season, 24 per cent higher than in the corresponding period last year.

The government is doing its best to control the spiraling prices of onions and potatoes. In addition to banning hoarding of onions by wholesalers and retailers, the government has also started importing over 30,000 tonnes of onions and potato from Turkey Afghanistan and Egypt to stem the rising prices.


Indian steel consumption fell to its lowest in at least six years during April-September 2020 at 35.86 million tonnes, while finished steel production also fell, by 25 per cent, to 38.6 million tonnes. With the Indian economy contracting because of the coronavirus pandemic, domestic demand for steel has been weak, and steel producers in India have been offloading their surpluses to Chinese buyers.

China was the top foreign buyer of Indian steel between April and September 2020. China bought 1.9 million tonnes of finished steel from India, cornering 29 per cent of India’s finished steel exports.  China and Vietnam together purchased just over 75 per cent of Indian hot-rolled coils, of the overall 4.49 million tonnes exported. 

Consumption of non-ferrous metals like copper and aluminium have also contracted significantly due to the COVID-19 pandemic. Analysts expect consumption of these metals to contract significantly, ranging from 3-4 per cent for copper and zinc; and up to 8 per cent for aluminium on a Y-o-Y basis. However, prices of these three non-ferrous metals have strengthened sharply in the last five months.


India’s gold demand has recovered modestly in the second quarter of this fiscal. Still the demand was 48% lower year-on-year, notching the third lowest quarter for Indian jewellery demand.

After India’s nationwide lockdown caused gold jewellery demand to drop to a record low during the second quarter, there was a modest recovery during the third quarter to 52.8 tonnes, according to the World Gold Council (WGC).

While the total gold and jewellery demand in India fell by 48 per cent in Q2 FY21, total investment demand during the second quarter surged by 52 per cent to 33.8 tonnes, compared to 22.3 tonnes in the same period of 2019. 

Gold prices closed the week at Rs 52,560 from Rs 53,000 per 10 gm a day before. Silver sold at Rs 62,410 per kg.  India’s gold demand in the fourth quarter is expected to recover in the festive season due to pent-up demand and festivals.

Demand for the precious metal usually spikes towards the end of the year in India, as buying gold for weddings and major festivals such as Diwali and Dussehra is considered auspicious.


Oil prices saw its worst month since March this week. Oil prices a 5-month low as COVID cases climbed, new lockdowns were put in place and reports emerged that OPEC may not maintain its production cuts in 2021. Prices plunged this week after spending months trapped in a narrow range around $40 per barrel.

Renewed national lockdowns in France and Germany rattled financial markets, while the U.S. case count for covid-19 remained at record levels and may continue to rise. WTI fell to $35 per barrel and Brent crude was at $37 a barrel.

Three of the biggest OPEC producers behind Saudi Arabia seem reluctant to extend the current cuts into next year. Iraq, the United Arab Emirates (UAE), and Kuwait are reportedly not particularly inclined to support a rollover of the cuts of 7.7 million barrels per day (bpd), because such cuts are too deep for their economies and budget incomes to sustain.

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