Economic Survey 2018-19: Growth slowest in five years due to low food inflation

Agriculture sector contracted in fourth quarter; farmers produced less, spent less on consumption

By Richard Mahapatra
Published: Thursday 04 July 2019

Photo: Wikimedia CommonsThe 2018-19 financial year reported a 6.8 per cent economic growth, lower than the five-year average of 7.5 per cent, according to the Economic Survey.

This dip is majorly due to low agricultural growth — in fact, a contraction in the fourth quarter. Low food inflation made farmers produce less and spend less on consumption. This led to an overall dip in economic activities, the survey noted.

Acreage for the rabi crop was marginally lower than last year, which affected agricultural performance. “The contraction in food prices may have contributed to inducing farmers to produce less,” read the survey.

In the last quarter of 2018-19, the agriculture and allied sector shrunk by 0.3 per cent. Overall, there has been a dip in consumption across sectors. But what stands out is the dip in private consumption. The latter accounts for close to 60 per cent in the economy’s GDP.

The dip in gross domestic product happened due to low private consumption in the last two quarters of the fiscal year. “This could have been due to low farm incomes in rural areas arising from low food prices and also due to the stress in non-banking financial companies, which affected lending,” the survey added.

The 2018-19 fiscal reported near zero consumer food inflation. For five months consecutively the food inflation was negative.

“This is reflected in the decline of nominal growth rate of gross value added (GVA) in agriculture to 4 per cent in 2018-19 from 7 per cent in 2017-18. Share of agriculture sector in total GVA has been consistently falling and now stands at 16.1 per cent in 2018-19,” read the survey.

According to the Ministry of Agriculture & Farmers Welfare, food grain production in 2018-19 was 283.4 million tonnes compared to 285 mt in 2017-18.

Within the agriculture sector, the food grain as a component has reported less contribution to GVA. Its share has reduced to 10 per cent in 2017-18 from 12.1 per cent in 2013-14. But, the livestock component has increased to 4.9 per cent (at current prices) from 4.1 per cent.

During campaigns for the recently held General Elections that voted the National Democratic Alliance led back to power, Prime Minister Narendra Modi had reported low food inflation as an achievement.

Now, the Economic Survey, as a pre-condition to economic growth, read: “The performance of consumption will be crucial in deciding the growth path of the economy. Pick up in food prices should help increase rural incomes and spending capacity and in turn rural consumption demand.”

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