Six states accounting for 32.7 percent of GVA poised for higher rural spend in FY21: Report

The share of agriculture in gross value added (GVA) of the Indian economy is expected to be 17.3 percent in FY21, India Ratings and Research (Ind-Ra) said in a report.

“Despite COVID-19 and the related lockdown, the agricultural activities across the country have almost remained unaffected. This has raised the hope that rural demand could drive the economic recovery. Rural demand will perk-up somewhat, but will not be able to offset the shortfall in urban demand,” said Ind-Ra said in the report.

“Because the share of agriculture in gross value added (GVA) of the India economy ranged between 14.6 percent to 17.8 percent during FY13 - FY20,” the report added.

The ratings agency said that the contribution of agriculture to GVA growth ranged between 4.8 percent to 11.2 percent during FY13-FY20 and is expected to increase to only 14.4 percent in FY21 (FY20 8.6 percent), despite the COVID--19 induced contraction in the industrial and services sectors.

Besides the share of agriculture in gross state value added (GSVA) and its contribution to GSVA growth differ across states, Ind-Ra said in the research note.

“The states that stand to benefit and witness higher rural spend where the share of agriculture in GSVA and its contribution to GSVA growth is higher and they are Andhra Pradesh, Madhya Pradesh, Rajasthan, Uttar Pradesh, Punjab and West Bengal. These six states contributed 32.7 percent to real GVA in FY20,” Ind-Ra said in the report.

According to the first Advance Estimates released by the Ministry of Agriculture and Farmers Welfare on September 22, the production of Kharif food grains during FY21 is estimated at 144.52 million tonnes compared to 143.38 million tonnes in FY20.

Following the forecast by the ministry, the report estimates Kharif production for FY21 to be higher by only 1.14 million tonnes.

“The increase in minimum support prices (MSP) announced by the government for the Kharif crops for FY21 compared to FY20 though range between Rs 53 to Rs 755 per quintal, the increase in MSP of the major kharif crop paddy is just Rs 53. The MSP of pulses have been raised in the range of Rs 146 to Rs 300 but they constitute only 6.4 percent (in volume terms) of the total Kharif foodgrain production. So, the Kharif foodgrain production in FY21 neither in terms of volume nor in terms of value is going to be significantly higher than FY20,” it said.

The agency expects that the FY21 may not result in significantly higher income either for farmers or wage earners than the previous years. However it believes that the rural demand will witness reversal because of four consecutive good harvests, close link between agricultural performance and a number of non-agricultural rural activities, increased allocation under MGNREGS to Rs 1.02 lakh crore for FY21 from the initial allocation of Rs 61,500 crore, and front loading of funds transfer under Pradhan Mantri Kisan Samman Nidhi.