Farm output growth slows down in Q3

The gross value added (GVA) growth of agriculture and allied sector contracted 0.8% in the December quarter from 1.6% growth seen in the previous quarter, according to official data released on Thursday.

This is the first time in 19 quarters, that farm GVA saw a decline. The growth rate was 5.2% in the year-ago period.

In FY23, agriculture GVA growth stood at 4.7%, while in the first quarter of the current financial year it was recorded at 3.5%.

Farm and related sector is projected to grow 0.7% in FY24, according to the second advance estimates released on Thursday. This would be the slowest expansion in eight years and lower than the 1.8% growth projected in the first advance estimate.

The Indian economy, grew 8.4% during the October-December quarter of FY24, far ahead of expectations, propelled by robust growth in the manufacturing and construction sectors, according to the ministry of statistics and programme implementation.

The decline in agriculture output was due to poor monsoon last year following the El Nino phenomenon that led to a 33% rainfall deficit from 1 January to 29 February.

“Farm output has grown at a low rate for these reasons. Kharif output has fallen, to begin with. Second, rabi prospects are mixed. While wheat is to be okay pulses will decline. Third allied activities are affected by erratic rains. Hence output has been affected. Horticulture too was affected in post-monsoon months," said Madan Sabnavis, chief economist at Bank of Baroda.

First crop advance estimates show a 4.6% decrease in major kharif crop production for the 2023-24 season to 148.5 million tonne. Although the rabi sowing season ended on 23 February with a slight increase in total acreage, there are concerns over a 6.5% decline in cereal cultivation.

“While agriculture may see some moderation if the rabi output does not offset the Kharif shortfall, value added in agriculture will decline. Inland fish production has shown rapid growth from 2014-15 to 2022-23 and reached 13.1 million tonnes in 2022-23," as per a report by SBI research. The share of the fisheries sector constitutes about 1.07% of the total national GVA and 6.86% of agricultural GVA. This might support the agri and allied sector growth in FY24.

“Agricultural GVA growth of 0.7% in the FY24 will impact rural consumption demand, which is already reflected in overall consumption growth of 3.0% in FY24. A longer period of low agriculture growth may translate to weaker consumption demand in the economy,” said Devendra Kumar Pant, chief economist at India Ratings. “The economic growth presently is driven more by government investment. Unless consumption demand, especially rural demand, doesn’t revive it will be difficult for the economy to attain a sustained period of high economic growth.”

According to the Reserve Bank of India, India’s economic growth is likely to slow down further to 6% in January-March, with full-year growth projected at 7%.

"Lower farm sector growth is in line with the uneven monsoon performance and muted kharif production in FY24," said Sakshi Gupta, principal economist at HDFC Bank. "Agriculture growth could improve in FY25 with the expectation of a normal monsoon."