Will it increase GDP, or MSP?

"The Indian economy is set for a strong revival on the back of agriculture and allied sectors that are boosting the rural sector, finance minister Nirmala Sitharaman said." "Activities related to the rural economy, including tractor sales, agricultural tool sales and logistics relate to the food sector among others were 'all up and about', she said." But, "Can a high growth in agriculture boost demand?" asked Roshan Kishore. The government calculates real growth in output by adjusting against inflation, whereas purchasing power, which drives demand, depends on nominal growth at current prices. The two do not vary in tandem, and prices of fruits and vegetables are much more volatile than those of cereals. "Indian farmers have planted 79.9 million hectares with summer crops so far, according to the Ministry of Agriculture & Farmers' Welfare, up 18.3% from last year as robust monsoon rains spurred sowing in the world's leading producer of farm goods," reported Reuters. "A bumper crop this year might create a glut in agricultural markets," wrote Kishore, which will lead to a fall in prices. Worth noting that farmers have increased acreage for rice, corn, pulses and soybeans all of which are covered by the government's minimum support price (MSP) policy which guarantees a floor against a sharp fall in prices. Vegetables are not covered by MSP and so planting is dependent on last year's sales and profits, which is why farmers have reduced output of potatoes and tomatoes, leading to a rise in retail prices. Will the government have the money to buy all that extra production? The government is to spend an extra Rs 1.49 trillion providing free foodgrains to poor people rendered unemployed by the coronavirus pandemic. This will add to debts of the Food Corporation of India which are already at Rs 3.3 trillion and are not counted in the government's fiscal deficit, which, together with extra borrowing by states, is expected to be at least 12% of our gross domestic product (GDP) this financial year. Free food releases money which is then spent buying other necessities, thus boosting demand. If the government does not buy all the extra production at MSP rates we could see a rash of farmers' suicides and it may prove difficult to conceal true numbers, as it has been doing since 2015. In an effort to increase revenue, center and state governments have increased taxes on petrol and diesel exponentially which have added to costs of running tractors and pumps, all of which use diesel. Increase in cost of diesel and a lack of farm labor have led to increased mechanisation of planting this year. If this becomes a permanent feature there will be a huge surplus of unemployed farm labor. And more subsidies. Good monsoon will surely increase agricultural output. Whether that supports economic growth or leads to an increase in fiscal deficit and farmer suicides remains to be seen. When you are up the creek without a paddle you must seek any port in a storm. Is this a poisoned chalice, and will we sink or swim? A trillion dollar question.