The big boost to agriculture sector will help revive investment prospects

In line with the broad GDP numbers on agriculture, which estimates a 4.1% growth in the sector during 2016-17, the second advance estimates of production of major crops indicate food grain production will touch a record level of 272 million tonnes which is around 7 million tonnes more than the previous record achieved in 2013-14 and 20 million tons more than in the previous year. This means that the country has not only made up for the losses, made from the poor crops in the previous two years due to bad rainfall, but also covered new ground.

What makes this year gains especially significant is that production will touch record levels in a host of crops including rice, wheat, coarse cereals, pulses, and oil seeds. The impact of the higher output is already evident from the deceleration and fall in wholesale and retail prices of agriculture products in the recent months.

Especially encouraging is the fact that wheat production is expected to be 4.4 million tons more than in the previous year.  This should help loosen supply constraints as the government has also liberalised imports of wheat in recent months. Similarly the 5.8 million tons increase in pulse production, which is almost a third higher, has helped bring down prices of pulses from the astronomical levels it has reached just a few months back.

The increase in agriculture production by record levels will help boost rural incomes and sustain consumption spend which could add to the buoyancy in the economy. This is a major gain as the surge in agriculture output is accompanied by a slow pick up in exports in recent months. Such domestic and the external sector buoyancy will have a multiplier impact and it should help the economy fire on new engines and boost growth.

The pickup in agriculture growth will hopefully help reverse the declining share of the sector in the overall economy, from 16.5% to 15%, in the last two years. Numbers also indicate that the traction of the agriculture sector will be substantially more in the second half of the year. That means that the gains to the economy will continue in the next few months and hopefully lead to a revival in demand and reduce excess capacities and thus boost investments.