Ashika Monthly Insight Flip July 2016

FDI - WINDOW OF OPPORTUNITY
Average amount of water needed to grow crops in (Cubic Meters / Tonne)
Brazil India China
United
States
Rice 3,082 2,800 1,321 1,275
Sugarcane 155 159 117 103
Wheat 1,616 1,654 690 849
Cotton 2,777 8,264 1,419 2,535
Sources: National Water Footprint Account, UNESCO-Institute for
Water Education, May 2011; PRS
A realignment of the different regions and cultivation of
crops should be based on regions which are naturally
water abundant. Nevertheless, in a country like India, the
structural reforms are hard to come by and rather happen
at a snail’s pace. The key element for implementation of
swift reforms has to be the strong urgency which is
hardly seen in agriculture sector. Thus, the inter-linkage
between monsoon, sowing, food production, import, food
inflation, MSP of crops and its final impact on CPI
inflation cannot be ignored. However, last year’s food
production figures have been better than previous year
(albeit by an iota), despite poor monsoon and drying up
of reservoirs. Food grain production for 2015-16 crop
year increased marginally to 252.23 million tonnes,
according to third advance estimates. Although, food
production of coarse cereals, rice, oilseeds and sugarcane
was significantly lower than last year. With the rise in
population, the per capita demand for food grains is on
the rise. To cope up with the demand, in the face of
rising demand, the government has to resort to imports of
cereals, pulses. However, despite these measures, lack of
supply side reforms largely leads to higher food price
inflation and consequently high retail inflation.
Food production (in million tonnes)
2015-16
2014-15 % Change
Rice 103.36 105.48 -2.01
Wheat 94.04 86.53 8.68
Coarse cereals 37.78 42.86 -11.85
Pulses 17.06 17.15 -0.52
Oilseeds 25.9 27.5 -5.82
Sugarcane 346.72 362.33 -4.31
Total 252.23 252.02 0.08
Source: Ministry of Agriculture, Economic Times
For instance, the prices of the key pulses – Tur, and Urad
have been often blamed for the overall increase in food
inflation in India. According to Crisil analysis, the price of
pulses spikes every third year (based on data taken for a
decade). However, this has a lot to do with the lower
yield or productivity of the crop which has not made any
major improvements to keep up with the rising demand.
The per hectare productivity of pulses in FY14 was just
764 tonnes which is poor when compared to wheat
(3,075 tones), rice (2,424 tones) and sugarcane (69,838
tones). The production of pulses declined both in 2014-15
and 2015-16, understandably when the monsoon has been
under deficit for the last two years. One of the reasons
why the pulses production is so vulnerable to monsoon is
explained by the poor irrigation coverage for the crop
which stands abysmally low at 16%. The national average
irrigation coverage is ~45% and most of the other food
items are above that threshold mark. For instance,
irrigation coverage is highest for sugarcane (90%) while
Wheat and rice also enjoy good irrigation coverage of over
50%. To make up for the shortfall in production, the
government has to resort to imports. The imports in
volumes have been on the rise for the last two years, thus
the sustained increase in food prices component in both
WPI and CPI. The imports for 2016-17 have been
estimated to be lower than previous year figures. The
notion will probably again be above average monsoon.
However, a disappointment on that front can easily push
the prices higher and thus food inflation and adjoining CPI.
The prices of major pulses – Chickpeas, Lentil, Tur, Urad
and Moong have all exhibited higher trend almost in line
with international prices. Besides, the minimum support
price (MSP) of the list of major pulses also witnessed
significant appreciation in the last five years. These factors
will certainly put heavy pressure on the inflation numbers
unless the production numbers prop up for 2016-17.
Pulses Production, Trade, and Consumption of India (million tonnes)
2013-14 2014-15 2015-16 2016-17*
Production 19.78 17.15 17.06 17.82
Total Imports 3.65 4.58 5.79 4.67
Availability 23.43 21.73 22.85 22.49
Total Exports 0.34 0.22 0.25 0.27
Total Availability
for Domestic
Consumption 23.09 21.51 22.6 22.22
Source: Ministry of Agriculture, Ashika Research,* estimated figures
Irrigation cover of top five pulses producing states
% share in
pulses
production
(2014)
Madhya Pradesh 26% 938 35.10%
Maharashtra 16% 796 8.70%
Rajasthan 13% 589 13.10%
Uttar Pradesh 9% 742 21.00%
Andhra Pradesh 8% 928 3.70%
Total 72%
Source: Ministry of Agriculture, Economic Times
Yield
(kg/hectare)
% Irrigation
coverage
(2012)
37