Covid-19's impact on India's agricultural sector

06 July 2020 4 min. read
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The agricultural value chain in India has been adversely affected by the Covid-19 crisis and the resultant lockdown. Grant Thornton has laid out the challenges and offered recommendations.

Agriculture remains a central pillar of the Indian economy. The sector serves the food consumption needs of the whole country, while also placing among the top exporters of agricultural produce in the world. The sector has been facing its share of challenges in recent years, but few have been as severe as the domestic and international travel restrictions during Covid-19.

Grant Thornton breaks the challenges down into two distinct categories: Labour scarcity and exports. Northern Indian states of Punjab and Haryana are among India’s agricultural powerhouses, although farming work in these states is mostly carried out by migrant labour from East India.

Agriculture in India

When India’s nationwide lockdown was announced in March, the knee-jerk reaction was a mass exodus of migrant labour back to rural hometowns, as workers moved to wait out the lockdown while at home. The harvesting process, which usually starts in mid-April, was thrown completely off balance, resulting in major liquidity issues. The June crop is among those that has been particularly hard hit, according to Grant Thornton.

The researcher also point out that the labour scarcity has also affected the supporting infrastructure around India’s agriculture sector. For instance, storage units and milk processing plants are understaffed. Shackled operations in the manufacturing sector have affected the development of irrigation equipment in India, with irrigation-relation manufacturing currently operating at 30% of its potential capacity.

Then there is the transportation sector. Movement across state borders has been heavily restricted, which has blocked the movement of crops and consequently their sale. Add to this a lack of machine repairs mechanics and other such support staff, and one gets the picture of a sector in trouble.

Tackling labour issues

Grant Thornton recommends a number of measures to mitigate labour scarcity issues. For starters, the available labour should be put to use. Workers should be given unemployment allowances, while district authorities should deploy the available labour to the most critical areas, given how crucial the current harvesting season is.

Agricultural value chain in India

In the medium to long term, Grant Thornton urges the government to set up a specialised committee that will look to the machinisation of farming in India, to reduce reliance on manual labour. Using machinery for critical sowing and harvesting operations can minimise similar risks in the future.

Outside of these domestic woes, the experts point out the range of export challenges unfolding. Lockdowns in major economies across the globe have caused delays and backlogs in supply chains. Currently, around half a million tonnes of Indian rice is locked up in the supply chains, while perishable crops are not being transported at all for fear of deterioration in delayed transit.

Global exports are facing transport and logistics problems, more stringent customs restrictions, as well as a shortage of containers and shipping vessels. India’s agricultural experts of nearly $40 billion are being severely affected in this scenario.

For the near term, Grant Thornton suggests emergency measures such as opening up lines of credit for exports, a cut in air freight charges, and a focus on essential goods. In the long term, the firm suggests that the government develops more robust export infrastructure, changes policies to allow for a bigger focus on processed foods and reduces the government buffer volumes.

Recent weeks have seen restrictions across the globe being lifted gradually. Economic activity in India is also up and running, while travel restrictions are being imposed in real time to try and strategically contain the virus. These new conditions might help the agriculture sector get back to its feet, although the sector has lost crucial sowing and harvesting weeks to the lockdown.