Poor prospects of agricultural growth in Q2

Growth dropped to 5-quarter low during Q1 2017-18

by Mahesh Vyas

The agricultural sector is estimated to have grown by 2.3 per cent in real terms, yoy during April-June 2017. This was the lowest growth recorded by the sector in the past five quarters. It was lower than the 2.5 per cent growth recorded in the year ago quarter and it was much lower than the 4-7 per cent yoy growth rates recorded in the preceding three quarters.

It is possible that the recent growth rates of the agricultural sector are over-estimates. Quarterly growths are derived from the estimates of value of output. This is done by extrapolating the year-ago real value of output by the growth in production. Prices do not enter this computation. But, we know that prices of several commodities crashed during the peak marketing season in the past two quarters. Besides, output was also destroyed in some cases because of the steep fall in prices.

Prices of rabi pulses masur and peas reported a steep yoy fall of 21.1 per cent and 9.2 per cent, respectively, in the June 2017 quarter. Vegetable prices too had a free fall. Potatos ruled 44.2 per cent lower than a year-ago, while tomatoes declined by 31.2 per cent. Other vegetables such as onions, peas, cabbage, radish, cucumber too suffered fall in prices in the range of 10-20 per cent.

Annual estimates of agricultural gross value added do use wholesale prices of the peak marketing season to compute the value added.

When the final estimates are adjusted for these price falls (and possibly for the destruction of crops), growth could turn out to be even lower than what the quarterly estimates suggest.

The agricultural sector has been stressed for long. 2014 and 2015 were sub-normal monsoon years. In 2016, the rains were good but, disruptions caused by demonetisation negated a good part of the gains.

As a result, for nine consecutive quarters from June 2014 through June 2016, agricultural sector never posted a growth of 4 per cent or more in any quarter. The quarterly series of national accounts shows that the highest growth during this period was of the order of 3.6 per cent in the quarter ended September 2014. Three of these nine quarters posted declines and the average yoy growth works out to a measly 0.9 per cent.

National accounts statistics show handsome growth in agriculture during three consecutive quarters from September 2016 through March 2017. But, this includes the disruptive period of demonetisation when supply chains were broken and mandis were empty with little or no cash to transact trades. The stress erupted into political agitation with farmers demanding, and government agreeing to, waivers of farm loans in many states during early 2017.

Repeated dislocation of agricultural production and extreme price volatility in many crops have rended the sector drained and unprepared to deal with the uncertainties of 2017. Although, the farm loans have improved the condition of farmers on paper, in reality, the beneficiaries are yet to receive the waivers. The offtake of agricultural credit is still low, with yoy growth touching a decadal low of 6.8 per cent in July 2017.

Monsoon rains during the first three months of the 2017 season were 96.6 per cent of the normal precipitation during this period. This is very close to what the IMD had first predicted when it said that the rains during this monsoon season would be 96 per cent of the normal.

Sowing has been hesitant. Overall, the area sown during this kharif season was 0.6 per cent lower than it was in the previous year. Sowing of foodgrain is down 2 per cent and oilseeds is down 7.8 per cent. Sowing of cotton and sugarcane - the two large cash crops has increased. Yields in foodgrains and pulses are unlikely to offset the fall in acreage as they had risen sharply last year.

With bans and severe controls (implicit and explicit) on the production of beef, and the movement of livestock across states, it is unlikely that livestock would provide any fillip to the poor prospects of growth in the agricultural sector.

Statistically, growth will be somewhat challenged by the high base of the previous year’s quarter as well. Agriculture grew by 4.1 per cent in the quarter ended September 2016.

It follows then that the agricultural sector is likely to post a worse performance in the quarter that will end in September 2017 compared to what it did in the June 2017 quarter or in the September 2016 quarter. It would also be lower than our forecast of two per cent.

The silver lining is that farmers who produce sugarcane are likely to see good increase in incomes. Cotton producers may see a healthy growth in production, but are likely to see lower prices.

Unemployment Rate
Per cent
6.2 +0.0
Consumer Sentiments Index
Base September-December 2015
101.5 +0.3
Consumer Expectations Index
Base September-December 2015
100.7 +0.5
Current Economic Conditions Index
Base September-December 2015
99.5 +0.9
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 17 Dec 17 Mar 18 Jun 18
New projects 1.25 1.51 3.43 2.32
Completed projects 1.26 1.16 1.57 0.91
Stalled projects 0.69 0.88 3.44 0.30
Revived projects 0.34 0.24 0.26 0.22
Implementation stalled projects 0.78 0.71 1.92 0.04
Updated on: 18 Aug 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Sep 17 Dec 17 Mar 18 Jun 18
All listed Companies
 Income 7.9 12.0 9.7 16.3
 Expenses 9.0 13.0 16.2 19.4
 Net profit -18.0 -14.3 -80.1 3.7
 PAT margin (%) 5.5 4.8 1.2 5.5
 Count of Cos. 4,508 4,503 4,360 4,023
Non-financial Companies
 Income 8.2 13.3 11.1 18.5
 Expenses 8.2 12.4 11.7 20.3
 Net profit -6.0 13.2 1.8 33.5
 PAT margin (%) 6.2 6.4 6.6 7.2
 Net fixed assets 9.2 11.8
 Current assets 2.9 7.2
 Current liabilities 11.0 10.4
 Borrowings 3.4 1.9
 Reserves & surplus 7.9 7.2
 Count of Cos. 3,464 3,471 3,372 3,172
Numbers are net of P&E
Updated on: 18 Aug 2018 12:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.6 1.8 6.0 9.9
 Expenses 5.7 1.9 6.0 13.3
 Net profit 0.1 -9.7 25.8 -37.5
 PAT margin (%) 3.0 2.8 3.5 4.2
 Assets 9.5 10.2 7.5 13.2
 Net worth 8.5 11.3 7.7 12.8
 RONW (%) 5.8 4.9 5.8 5.7
 Count of Cos. 26,178 24,474 22,051 749
Non-financial Companies
 Income 4.9 1.0 5.8 8.5
 Expenses 5.1 0.4 6.1 8.0
 Net profit -9.4 19.9 20.7 6.6
 PAT margin (%) 2.0 2.4 3.0 9.3
 Net fixed assets 13.3 17.9 6.7 27.6
 Net worth 7.0 12.0 6.6 9.7
 RONW (%) 4.6 5.1 5.9 13.2
 Debt / Equity (times) 1.1 1.1 1.0 0.4
 Interest cover (times) 1.9 1.9 2.1 6.2
 Net working capital cycle (days) 66 65 62 8
 Count of Cos. 21,351 20,488 18,371 585
Numbers are net of P&E
Updated on: 12 Aug 2018 11:30AM