September 2020, South Asia

India’s agriculture sector isn’t the bright spot in the economy that many think it may be.

While farming was the only industry to post positive growth in the June quarter’s gross domestic product data, the rapid spread of the coronavirus in rural areas and declining prices are set to weigh on the outlook.

The optimism about the sector has been fueled by timely rains, a good monsoon and an increase in the crop area. But here’s a look at the risks that may curb growth going forward:

Least Productive
With manufacturing and the dominant services sectors contracting sharply after lockdown measures to stem the pandemic, expectations are piling on the farm sector to support an economy headed for its first full-year contraction in more than four decades.

“Agriculture is like a safety net,” Siraj Chaudhry, managing director and chief executive officer of National Collateral Management Services Ltd., said about the sector that accounts for about 15% of the economy. “There is a large percentage of people who are dependent on agriculture and what it does is essentially take care of the food for that population. Agriculture will help you to draw the match rather than win the match.”

Virus Impact
While the 3.4% growth in agriculture and allied activities was the “only saving grace” amid an economic contraction of 23.9% in the last quarter, that performance was expected as the government had imposed the least restrictions on this sector, said Soumya Kanti Ghosh, chief economist at State Bank of India.

What’s worrying to him is that the growth in nominal agriculture GDP came in at 5.7%, as against an average 13.5% in the previous two quarters. Also, with Covid-19 infections now spreading in the rural areas, the next quarter could easily give up the gains seen now, he said.