KHARIF CROPS AND RURAL CONSUMPTION

By Ruma Dubey

For us city dwellers, where pulses and vegetables means going to the market and getting it, what could probably be the significance of rabi and kharif crops? Do they even mean anything to us?

Well, if it does not mean much, it should! Because it is these crops which will decide all the economic data which we track sitting in the comfort of our homes/offices. And it is these crops which will decide the swing of the stock market.

Kharif crops are sown during April-July, and harvested by October, with the most important Kharif crop being paddy. On the other hand, Rabi or winter crops, are sown between October to February and harvested by June. And the most important rabi crop is wheat.

Naturally, based on the timeline, we will now wait and see how the kharif crops have fared. And there is good news on this front. As per data put out by the National Collateral Management Services Ltd (NCML), kharif foodgrain production is likely to increase by 7.71% at 134.53 million tonnes (mt). This is against the earlier estimate of 135 mt by NCML.  It has put out a Press Release stating that area under rice and its production is set to rise by about %%, production of coarse cereals ragi, jowar and bajra could increase by 30%, oilseeds output may increase by 16.47% and groundnut production is expected to  increase 50%. On the other hand, production of cash crops such as sugarcane and cotton are likely to witness a drop. Just as good monsoon means a bountiful harvest, too much rain also affects production, which is what we could see in sugarcane and cotton.

This bodes well for not just the agriculture sector but for the economy as a whole. A rich harvest with normal monsoon means that prices will stabilize butt this time around, higher fuel costs could mean that food which gets to our table would only get costly. Also the higher minimum support price (MSP) which is essential to protect the farmer also would mean higher food inflation. The Cabinet Committee on Economic Affairs (CCEA) in July approved increasing the MSP of kharif crops for 2013-14 crop year (July-June). The MSP of paddy, which constitutes more than 60% of the kharif crop in the country, has seen a Rs 60 increase at Rs 1,310 a quintal for common variety while for grade there has been a Rs 65 increase to Rs 1,345 per quintal. Cotton prices for medium staple variety increased by Rs 100 to Rs 3,700 per quintal and Rs 4,000 per quintal for long staple.MSP of almost all the crops has been hiked, across the board.

Forget us urban people; we are anyway destined to pay more for all basics of life. But a good monsoon and a rich harvest means more money in the hands of the farmers and with over 60% of India living in villages, surely it would mean consumerism will once again pick up. The stock market, which is always a few steps ahead of us, has already taken into account this kharif season news.

Yes, rural consumers today hold the key to the Indian economy and this means, those at the bottom of the pyramid, will show a very strong consumption.  If one may recollect, there was a report put out in August 2012, which showed how rural consumption had outpaced urban consumption. Crisil and NSSO had indicated that consumption expenditure in rural India between 2009-10 and 2011-12 stood at Rs 3,75,000 crore as against Rs 2,99,400 crore by urban India. Apart from the harvest, social schemes like Mahatma Gandhi National Rural Employment Guarantee Scheme and others have provided employment to farmers during lean periods, helping them supplement this agriculture earnings. And what did come as an eye-opener was that more than half of India’s stock of consumer durables and two-wheelers are now in rural India. Bikes, trucks, tractors and cars will see a spike up in demand. Also, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care and hot beverages.

Every company, in the FMCG, auto, consumer durables, are all targeting aggressive marketing drive in rural India. And a rich harvest will surely means richer harvest for these companies. And this in turn means good fortune for those in the stock markets too. FIIs might be on a selling spree but we, those in the know of where the true money will now come in, should take a well informed long term buying decision.

Thus it is not just the farmers who should be happy, we all should be happy and thank the Gods for a bountiful harvest!