Fading El Nino, Better Rabi Sowing To Lift Agri Value Addition In FY25, Says CEA Nageswaran

Value addition in the agricultural sector is expected to rebound in the next financial year and boost rural incomes, according to Chief Economic Adviser V. Anantha Nageswaran.

"(The) Agricultural sector in the first nine months of FY24 has been somewhat lacklustre due to erratic monsoon and with the kharif harvest being on the lower side," Nageswaran told the media on Thursday.

"But the good news is that rabi sowing is good compared to last year, and the predictions of the withdrawal of El Nino also make the case for a normal monsoon in the next calendar year and a good harvest year for kharif and rabi crops next year," he said.

The Indian economy's third-quarter growth surged past expectations to 8.4% in the three months through December 2024, with estimates for the entire financial year revised upward to 7.6% from 7.3%. However, the agriculture sector's growth rate contracted in the third quarter to 0.8%, compared with 1.6% growth in the preceding quarter.

The GDP numbers of the previous year also saw a slight downward revision from 7.2% to 7%, offering a slight base effect advantage. Meanwhile, GDP growth for the third quarter of FY23 was revised to 4.3% and the reading for Q2 of FY24 was revised to 8.1%.

However, the impact of this on the government's attempt to curb the fiscal deficit at 5.8% of the GDP in FY24 remains unascertained.

Nageswaran also noted that the strong performance makes the case to re-appraise their estimate of potential GDP growth in India closer to 7%, if not above, for FY25. The Reserve Bank of India's own growth projection for FY25 stands at 7%.

The International Monetary Fund (IMF) and Morgan Stanley forecast India to grow by 6.5% in FY25. Projections by the World Bank and Moody's stand at 6.4% and 6.3%, respectively.

"...we believe that given the prospects of normal monsoon, good rabi sowing, prospects for rural income growth, a pick-up in manufacturing and mining sector growth, and a pick-up in bank credit growth that has been unfolding—the Indian economy ticks many boxes in the right way continuing to growth at around 7%," Nageswaran said.

The CEA also noted that India's risks to growth from external quarters continue as uncertainty in merchandise trade remains. The World Trade Organisation has cut its projection for world trade growth in 2023 by more than half, to 0.8% from its earlier estimate of 1.7% in April. The global trade body projects 3.3% growth for 2024.

The slowdown in global trade was also visible amid a sequential decline in exports and imports seen in January 2024 in India, according to data from the Ministry of Commerce and Industry.

"Prolonged geo-political uncertainty and tightened financial conditions also pose a challenge to the growth outlook," Nageswaran noted before adding that "other repercussions in terms of global risk aversion may come if financial market exuberance in the developed world gives way to more realistic expectations of earnings growth."

He added that 2024 remains a year of elections, not just in India but in other parts of the world, and that unexpected outcomes add uncertainty to the macroeconomic policy framework and growth prospects.

Further, energy security and energy transition also continue to be an ongoing medium-term challenge, he said. "India has been able to handle quite well compared to others... There is a national grid and grid stability is being ensured even as the country continues to increase the share of non-fossil fuels in its overall installed capacity. Nonetheless, that is a medium-term challenge we face."

The factor gains relevance as India continues to bat for more equitable climate financing and looks to achieve net-zero status by 2070.