UPL Ltd Management Discussions.

Global economic overview

The global economy grew by 3.6% in 2018 compared with 3.8% in 2017, against a backdrop of the failure of Brexit negotiations, tightened financial conditions, geopolitical tensions and higher crude oil prices. Global growth is estimated at 3.3% in 2019.

(Source: World Economic Outlook).

Global economic growth over six years

Year 2015 2016 2017(E) 2018(E) 2019 (P)
Real GDP growth (%) 3.2 3.1 3.8 3.6 3.3

(Source: World Economic Outlook, January 2019) E: Estimated; P: Projected

Indian economic overview

After growing at 7.2% in 2017-18, the Indian economy slowed down to 6.8% in 2018-19 (as per the May 2019 estimate of CSO). The principal developments during the year comprised 8.6% increase in per capita income, decline in the national inflation, steady interest rates, and weaker consumer sentiment in the second half of the financial year following a large non-banking financial institution announcing its inability to meet dues. India is now the sixth largest economy (eleventh largest in 2013-14) that reported an FDI of US$ 239 billion in the last five years. The country also reported a 23-notch jump to a record 77th position in the World Bank’s report on the Ease of Doing Business that captured the performance of 190 countries reporting an improvement in six of 10 parameters. India’s global-rank for ‘getting credit’ as per World Bank’s Ease of Doing Business Index improved from 44 in 2016 to 22 in 2018.

Relevant government initiatives

Increasing MSP: The Government fixed MSPs of 22 mandated kharif and rabi crops and FRP for sugarcane. The Central government committed to provide farmers with a 50% return over the cost of production for all mandated crops, strengthening the rural economy.

Pradhan Mantri Kisan Samman Nidhi: A scheme announced by the Central Government promising an annual assured income of H6,000 (US$ 84.5) for any farmer who owns ?2 hectares of farmland. However, the newly elected government has removed cap on landholding size. The revised Scheme is now expected to cover around 2 crore more farmers, increasing the coverage of PM-KISAN to around 14.5 crore beneficiaries, with an estimated expenditure by the Central Government of H87,217.50 crore for the year 2019-20.

Direct Benefit Transfer: The

Direct Benefit Transfer initiative re-engineered the cash disbursement process in welfare schemes through simpler and faster flow of information/ funds to ensure accurate targeting of beneficiaries, removing duplication and reducing fraud. In 2018-19 alone, this scheme is estimated to have transferred more than H314,465 crore and the gains to have accrued since scheme implementation is estimated at more than H120,000 crore.

PM- AASHA: The price deficiency scheme for farmers (PM- AASHA) was pared down to H1,400 crore for FY2019 and H1,500 crore for FY2020. A new H3,000 per month pension scheme for unorganised workers with a monthly income ?H15,000 has a modest outlay of more than H500 crore.

The fiscal deficit for FY2019 is revised to 3.4% of the GDP against 3.3% budgeted earlier. For FY2020 too, the deficit will remain at the same level in relation to the GDP as in FY2019 while the 3% FRMB goal is now left to be achieved in FY2021.

Targeted income support scheme: A targeted income support scheme (an approximation of the universal basic scheme flagged by many) is, however, being seen as more efficacious in addressing the distress in the farming sector and rural India, than the farm loan waivers being implemented by various State Governments.

Other schemes and sops: The sops for the farm sector do not end at the basic minimum income. In a move to provide supplementary income, the Central Government also focused on allied agricultural activities by extending credit provisions and giving more credence to the animal husbandry and the fisheries sectors.

In addition to announcing an outlay of H750 crore and setting up of Rashtriya Kamdhenu Aayog to enhance the production and productivity of cows, it also extended interest subvention to farmers pursuing animal husbandry and fisheries through Kisan Credit Card scheme, with an additional 3% for timely repayment. With over 40 million accounts, an extension of KCC is expected to provide further access to formal finance. Moreover, by raising the duration of interest subvention of 2% for farmers hit by natural calamities from one year to the entire period of loan duration and also raising the subvention limit to 5%, it has shown that it can be farmer-friendly.

(Source: Financial Express, Live Mint, Economic Times, Reuters, PIB, Union Budget, World Bank, Times Now, dbtbharat.gov.in)


Assuming no major global and domestic political shocks, India’s markets are expected to perform better in 2019.

(Source: CSO, Fitch, Economic Times, Business Standard, IBEF, Business Today, India Today)

Indian agricultural sector overview

Agriculture is the primary source of livelihood for ~58% of India’s population. Gross value added by agriculture, forestry and fishing is estimated at H1,842,873 trillion in FY2018-19. The agriculture sector’s contribution to the Indian economy was higher (14.39%) than the global average (6.4%). India is the largest producer of spices, pulses, milk, tea, cashew and jute as well as the second- largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. India has the tenth-largest arable land resources in the world. It is also the largest producer, consumer and exporter of spices and spice products. With 20 agro-climatic regions, all 15 major climates in the world exist in India. The country also possesses 46 of the 60 soil types in the world.

In 2018-19, food grain production in India was estimated at 283.37 million tonnes compared to 277.49 million tonnes in the previous fiscal. Overall agri and processed food exports rose to H1.28 lakh crore in the financial year 2018-19 from H1.20 lakh crore in the 2017-18 fiscal. Agriculture storage capacity in India increased at 4% CAGR between 2014-17 to reach 131.8 million metric tonnes.

(Source: PR Newswire, IBEF, Statistics Times)

Key numbers

~70% of rural households depend primarily on agriculture and ~86% of India’s farmers are categorised as ‘small and marginal’, meaning they own less than 2 hectares - the size of two football fields.

The average monthly surplus available to a rural Indian home, whether a farm or non-farm household, was H1,413.

The growth in the agriculture, forestry and fishing sector’s GVA - a measure of income before produce is sold - was estimated at 3.8% in 2018-19, compared to 3.4% in 2017-18, according to the Central Government’s first advance estimate on national income for 2018-19. But the share of this sector in GVA declined 1.8 bps to 16.4% over five years to 2017-18 (first advance estimates).

Since April 2017, eight states have announced farm loan waivers worth H190,000 crore and the Central Government has increased the procurement price for kharif and rabi crops.

Over 45 years to 2015-16, the number of farms in India more than doubled from 71 million in 1970-71 to 145 million in 2015-16, while the average farm size more than halved from 2.28 hectares to 1.08 hectares.

An indication of the distress is an almost eight-fold rise in ‘agrarian riots’ between 2014 and 2016, which included conflict over land and water.

India’s food grain requirement for 2025 should be 300 million tonnes.

Despite these high levels of production, agricultural yield in India is lower than many other countries. India is the second-largest producer of paddy in the world after China, but, even though India’s paddy yield increased 2.5x over 56 years to 2017, its yield (3.8 tonnes per hectare) was ~18% lower than China’s in 2017. Brazil (6.2 tonnes per hectare) and the US (8.4 tonnes per hectare) too had higher yields.

Between 2014 and 2016, gross farm revenue reduced 6% despite subsidies for fertiliser, power and irrigation, which somewhat offset the price-depressing effect of market interventions.

(Source: Agriculture Census 2015-16, India Spend, Oxfam, Economic Survey 2017-18, Live Mint, National Crime Records Bureau, PRS Legislative Research, Organisation for Economic Cooperation and Development, Indian Council for Research on International Economic Relations)

Budget, 2019-20

All 22 crops were put under Minimum Support Price. The various pro-farmer policies led to the production of agricultural commodities in record quantities

However, the income of farmer families reduced

There has been a need to provide structured income support to the poor farmer families to buy fertilizers and seeds among others

The support is aimed to help farmers reduce their indebtedness and enable them to live a respectable life

To provide assured income to small and marginal farmers, the Government introduced a historic yojana Pradhan Mantri Kisan Samman

Nidhi (KISAN). Under the yojana, the eligible farmers, will get direct income support of H6000 per year.

The income support will be transferred directly to the account of the beneficiary farmer in three equal installments of H2000 each. It would be fully funded by the Government of India. The scheme is expected to benefit 12 crore farmer families.

Around H75,000 crore will be borne by the Centre every year. The first installment will be issued soon after preparing a list. H20,000 crore will be spent this financial year.

PM Kisan will provide assured supplementary income to vulnerable farmer families.

Besides this, farmers affected by natural calamities will be given 3% interest subvention on crop loans.

(Source: Ministry of Finance, Union Budget 2018-19, PRS)