Agri-GVA Growth To Rise To Three-year High Amid Above-normal Monsoon Outlook

The rating agency Icra in a report has said that India's agriculture gross value added (GVA) growth is likely to increase to a three-year high of 3.5 per cent in FY2025, amid an above-normal monsoon outlook.

As per the India Meteorological Department's (IMD’s) forecast released on 15 May 2024, the South-west Monsoon is likely to set in over Kerala on 31 May 2024, earlier than the actual onset date of 8 June, seen in 2023; this would aid in the timely onset of kharif sowing.

Typically, 75 per cent of the overall kharif sowing gets completed by the end of July.

Thus, while the expected development of La Nina conditions during the later part of the season would augur favourably for the overall monsoon rainfall, the volume and dispersion of the same needs to be adequate in June-July 2024, to improve the prospects for output and farm cash flows, as well as the prices of food items.

Overall, the IMD’s forecast of an above-normal monsoon in 2024, combined with the development of La Nina conditions in the later part of the season is likely to improve the prospects for kharif crop output. Besides, it will replenish reservoir levels, which would augur well for the rabi crop season.

However, excessive rainfall concentrated during short periods, could hurt standing crops.

Consequently, Icra expects the GVA growth of agriculture, forestry and fishing to improve to 3.5 per cent in FY2025 from the 0.7 per cent predicted for FY2024. “We have placed the growth rate for the sector at 2.5% in H1 FY2025, similar to the levels seen in H1 of FY2023-24 (+2.6 per cent),” Icra mentioned.

After that, the growth will likely improve to 4.0 per cent in H2 FY2025, supported by a favourable base (-0.7 per cent expected in H2 FY2024).

The procurement of wheat in the ongoing RMS 2024-25 stood at 25.3 million tonne up to May 12, 2024, marginally lower than the levels seen in the corresponding period last year (25.7 million tonne up to May 12, 2023).

While procurement may exceed the levels seen in FY2024, it will be significantly lower than the levels seen during FY2018-22, the rating agency stated.

The market price for wheat in FY2025 has trended higher than the indicated MSP (Rs. 2,275/quintal) during March-May 2024 (up to May 26, 2024). This provides a lucrative option for farmers to sell directly in the open market, thereby auguring well for the overall rural farm sentiment.

Notwithstanding this, aggregate farm cash flows from the rabi harvest may remain subdued, owing to a decline in the output of most rabi crops estimated in the FY2024 SAE. “Going forward, the farm cash flows are likely to improve in the upcoming kharif season, amid favourable monsoon outlook,” it added.