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With kharif crop yields dropping, foodgrain output pegged to hit a four-year low and rabi crop sowing significantly lagging last year’s levels by mid-December, rating agency ICRA on Tuesday warned of a further slowdown in farm sector growth in the second half of the year which could weaken rural demand and increase food price pressures.
“Amid delayed harvesting of paddy in some states, the cumulative rabi sowing trailed the year-ago levels by 5.1% as on Dec 15, 2023, with crops like rice (-9.7%), wheat (-6.4%) and pulses (-8.2%) recording a steep lag over the year-ago levels. This is likely to exert upward pressure on prices,” ICRA noted in a report on the farm sector.
GVA growth from the agriculture sector may slip below 1% in the last two quarters of this year, from 1.2% in Q2, dragging the full year’s growth under the 2% mark, compared with a 4% uptick in 2022-23, the firm’s economists reckoned. The weak prospects for rabi crop output amid the El Nino effects, casts a shadow on rural sentiments and consumption demand going forward.
The first advance estimates of kharif production suggest foodgrain production declined to a four-year low of 148.6 million tonne, a sharp 4.6% lower than last year’s final estimates, with all kharif crops’ output declining. Even crops that clocked an increase in their sown areas this year are expected to see a dip in output, including sugarcane (-11.4%), rice (-3.8%) and coarse cereals (-6.5%). “Notably, the decline in the output of most crops is larger than the fall in their area sown, reflecting a contraction in yields,” they noted.
By December 15, about 77% of the total area sown in 2022, had been covered for the rabi crop. “In order to reach last year’s total area sown, rabi sowing needs to exceed the year-ago level by 23% in the remainder of the season, entailing an additional area of 16.3 million hectare… This seems unlikely based on the historical trends as well as sub-par reservoir levels,” the economists underlined.
A weaker rural economy also prompted the rating firm to add ‘downside risks’ to its forecast of a 0-2% growth in tractor sales for the year, after they declined 3.7% in the first half and 0.5% through October and November.
The uneven monsoon also dragged down wholesale despatches of motorcycles in Q2 by 2.9%, and though festive and wedding season demand has led to an uptick in the past two months, its sustenance remains to be seen amid rural demand concerns. ICRA expects motorcycle volumes to grow 6%-9% this year, compared with 13.9% in 2022-23.
