‘Agri resilience to weather shocks better’

In an interview, Chand also said a faster post-covid bounce-back in the urban economy gives the impression that rural incomes and consumption are lagging behind, arguing that one should not read too much into perceived rural weaknesses. Chand’s remarks about the “resilience” of rural India follow warnings of summer temperatures soaring 2-3 degree celsius higher than normal and El Nino effects disrupting rainfall. Edited excerpts:

Farm output is projected to grow 3.3% this fiscal but there are reports about El Nino disrupting rains and food production, and fuelling inflation. Your outlook?

That possibility of El Nino is indicated by some agencies in Australia and the US. The thing is that we can’t avert El Nino. If it has to come, it has to come. But in India, in agriculture, there are two segments. One segment is very sensitive to fluctuations in monsoon. The other segment is not directly sensitive to occurrence of monsoon trends. The share of this (second) segment — consisting of livestock and fishery, which is not sensitive to fluctuations in monsoon — is getting bigger and bigger. Although not exactly half, I think it accounts for 45%. Secondly, this sector is having higher growth than the crop sector. Because of this change in composition or structure of agriculture output, you find that the effect of any weather shock is becoming less and less over time.

Secondly, the area under irrigation has increased. I would say that close to half of the (farm) area is under irrigation. Now some studies are saying productivity in irrigated areas is 2.7 times that of rainfed area which means that much more crop output comes from irrigated area than from rainfed area. Overall, the resilience of agriculture is improving.

So, because of that, even if El Nino happens, the effect will not be the way it was in the past. Thirdly, now the country has district-wise contingency plan. We have seed varieties which can be used to adapt to some deviation in vagaries of nature. That is why, we did not see negative growth in agriculture in about eight years. (Agriculture, forestry and fishing (gross value added) had last seen a contraction — of 0.2%— in FY15)

Rural inflation is higher than urban. Why is that?

That can happen for several reasons, but the most important is the base effect. If rural prices last year were lower than they were in urban areas and this year even if rural and urban prices are the same, you will find higher inflation in rural areas. And it also depends to some extent on relative consumption pattern. So unless the difference is very, very glaring, if difference is not statistically significant, it should not cause worry.

A lot of purchases by rural consumers now happen in the semi-urban and urban areas as mobility of people has increased.

We know that after covid, non-agriculture growth is very high. Then obviously because of that higher growth, you will see higher impact on consumption in urban area than in the rural area. But before that, income in urban area was negative. Year to year, these kind of things can happen. These numbers need to be understood with this kind of sensitivity.

But firms are saying consumption is happening at the higher end but there is weakness in mass-use items.

I don’t buy that argument. There are serious data issues also. As a policy person, I don’t read too much from that. A major segment of rural economy is agriculture. When it is showing stable and sound growth, I do not see any reason (to worry). Urban economy is non-agriculture mainly. In rural areas, you can say, one third is agriculture and two third is non-agriculture. So when non-agricultural economy recovered from covid and grew much faster than agriculture, it is going to have a stronger effect in urban areas than in rural areas in terms of purchases and consumption.

Given the uncertainty over monsoon, is there any commodity that makes you worry about availability which may warrant export-import related calibration?

There’s no such signal. There is a mechanism in the government to monitor it regularly. There is a committee of secretaries which meets every week and there are meetings at higher level every month. They monitor the situation. As and when a need is felt, policy decisions are taken whether to do something with trade policy or with the domestic situation including the buffer stock. I get information bulletin every day on price of sensitive commodities. (ends)