Why farm growth held up as key sectors decelerated

India's farm sector is projected to grow 3.8% in 2024-25, driven by good monsoon and higher cereal output, despite overall GDP growth slowing to 6.4%.

New Delhi: India’s farm economy, which employs nearly half the population, is forecast to outperform other key sectors during 2024-25 but the expansion is partly due to a so-called base effect, analysts said on Wednesday, following the release of full-year official estimates of gross domestic product (GDP) a day earlier.

Agriculture and its sub-sectors are projected to grow 3.8% against a target of 4% on the back of a good monsoon (Representative photo)

Agriculture and its sub-sectors are projected to grow 3.8% against a target of 4% on the back of a good monsoon, easing of export restrictions and higher output of cereals, the statistics showed.

By contrast, manufacturing and mining decelerated, pulling down overall GDP growth to 6.4% in the current fiscal against 8.2% in the previous year. This is the slowest GDP expansion in four years.

Sectorally, growth in Asia’s third-largest economy has been supported by a pick-up in agricultural production, cattle rearing and fisheries, which contribute about 17% to GDP.

“The main reason for better growth in the farm sector is last summer’s robust monsoon and output. However, a base effect was at play since agriculture grew just 1.4% in 2023-24,” said Abhishek Agrawal of Comtrade.

The base effect refers to a statistical outcome that makes an economic value, such as GDP or inflation, appear high if it had been compared to a previous corresponding period when the value was too low and vice-versa.

The monsoon rains in 2024 were 8% above normal, driving up rice output to an estimated 120 million or 6% higher than in the same period in the previous year. Corn output went up by a projected 10.3% at 25 million tonne from a year ago.

The monsoon rains are vital because nearly half of the country’s net-sown area doesn’t have access to irrigation.

Economists pointed to weak investments amid reduced government capital expenditure as the primary reason for a decelerating economy, coupled with global uncertainties.

“Agricultural growth benefited from the lifting of export bans on commodities such as cereals and onions,” said Sunil Singh, the Haryana-based MD of Kaithal Farmer Producer Organisation.

According to DK Joshi, chief economist, Crisil Ltd, a growth boost in agriculture was expected because of a healthy kharif or summer output, which was 5.7% higher on-year.

“Rabi or winter sowing was up 0.5% on-year as per the latest available data, as water reservoir levels remain healthy due to the good rains this fiscal, which augurs well for the sector,” he said.

Yet, the sector needs higher productivity in major crops, such as wheat, maize and pulses, to sustain growth. Better production led to stronger growth even though output per acre remains flat, said Ravinder Uppal, a former agronomist with the Punjab Agricultural University.