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Timely succour from the agriculture sector

The creditable performance of the Indian agricultural sector in three successive seasons ending 2007-08 has taken the output of food crops to 227.3 million tonnes from 208.6 million tonnes in 2005-06. The yield of fine cereals, particularly wheat, has improved dramatically as out of the increase of 18.7 million tonnes in total food output, fine cereals alone account for 11.3 million tonnes — 7.4 million tonnes from wheat and 3.9 million tonnes from rice. The output o f coarse cereals too has risen by 5.6 million tonnes and pulses by 1.8 million tonnes. The improved supply situation has helped the government in its procurement operations and net increase in buffer stocks.

With two record crops Agriculture Minister Sharad Pawar could state that there would be no need for further wheat imports and the requirements of the public distribution system and other programmes could be easily met. Wheat production has touched a high of 76.8 million tonnes against 75.89 million tonnes and 69.40 million tonnes in the two previous years.

As much as 15.4 million tonnes of wheat could be procured by May 1 crossing the target of 15 million tonnes. It is now expected that the total wheat procurement may go up to 18 million tonnes. Rice purchases too are likely to exceed 28 million tonnes in the current marketing season. The procurement of the two cereals may thus be around 45 million tonnes, if not more, against 35.9 million tonnes in 2006-07 when the share of wheat was only 9.2 million tonnes. With offtake by the public distribution system and other programmes estimated at around 38 million tonnes, there can be significant additions to buffer stocks.

The prospects for 2008-09 also are considered encouraging. With a satisfactory monsoon expected in the current season and an optimistic outlook for the rabi, food output may be even 232 million tonnes. The supply situation may thus witness a significant improvement in the coming months along with a softening trend in open market prices. It may thus be stated that prices for essential commodities can be brought down gradually on top of a higher output of oilseeds and pulses in 2007-08 though there may be a queering effect of external factors. The arrangement for import of one million tonnes of edible oils and 1.5 million tonnes of pulses will surely remove supply constraints though the cost of imports will be a major factor.

The slashing of import duties on edible oils and pulses and even the abolition of import duties on coarse cereals should help reduce the landed cost of these imports. The inflation rate of course remains high — 7.57 per cent in the weak ended April 19, the highest for 42 months. While the changes in inflation rate will be determined by other factors, the effect of a drop in prices for essential commodities may be nullified to some extent by the continuing high world prices for crude and petroleum products, metals and edible oils.

The happenings in respect of crude and petro products in world markets will prove to be worrisome to the UPA and subsequent government. It is being speculated that crude prices may touch new high levels unless the OPEC cartel decides to increase output.

While a definite view about the prospects for the next year can be taken only in the light of developments in the domestic and world markets, the monetary authorities have taken a hopeful view and visualise that the average inflation rates may be around 5.5 per cent, even nearer to 5 per cent. RBI Governor Y. V. Reddy has therefore refrained from raising the repo, reverse repo and Bank Rate.

With the earlier decision to raise the CRR by 0.5 percentage point to 8 per cent the funds immobilised in three stages will be around Rs. 27,500 crore. The Finance Minister also has stated that interest rates will not be raised by public sector banks and therefore by the banking system.

The norms for housing loans for individuals has been liberalised while it has been emphasised by Finance Minister P. Chidambaram that credit extended to borrowers in the agriculture sector and to those in the medium and small industries sector have increased significantly and there may also be no noticeable reduction in outlays on ongoing schemes.

With the new fiscal measures announced by the Finance Minister, before the Finance Bill was fully adopted, the reaction in industry and stock market circles has been favourable and it is confidently expected that inflows of foreign funds will continue to be encouraging and there may not be any paucity of resources for various purposes.

There may be also a net increase in food credit even allowing for the recess in the lean season being higher than fresh procurement purchases. Expansion of credit may thus be at a higher pace than in 2007-08. The market stabilisation operations should not therefore be intensified for some months as the happenings in the 2008-09 busy season also may have greater importance than in the two previous seasons. It can therefore be reasonably anticipated that there will be no undue assertion of inflationary pressures on account of supply constraints in essential commodities.

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