Agri sector may grow 4%: CRISIL

GDP growth to rise to 7.9% in FY17

After two years of moderation, the country is likely to achieve four per cent of growth in the agriculture sector this year, following normal rainfall so far and expectation of a surplus monsoon during the rest of the period.

The southwest monsoon began slowly, with an overall rain deficiency of 12 per cent at the end of June. It has accelerated since and as of Monday, was only one per cent below normal. Data from the India Meteorological Department showed 28 of 36 sub-divisions, 73 per cent of the country's total area, have had excess to normal rain so far. It has been normal or above normal in all regions barring the east and northeast (the latter account for 16 per cent of total foodgrain production).

"We expect GDP (gross domestic product) growth to rise to 7.9 per cent in FY17, with agriculture growth at four per cent, assuming a normal monsoon. Rural consumption is expected to revive, pushing up private consumption. This, in turn, will raise capacity utilisation and kick-start the investment cycle by the end of this fiscal," said Dharmakirti Joshi, chief economist at ratings agency CRISIL.

Agricultural growth was 0.12 per cent last year. As of July 15, the total area sown was 55.97 million hectares, about 10 per cent above normal on that date, compared with 22 per cent below normal in the middle of June. Sowing has picked up pace for most crops in the past few weeks and is higher than last year (up two per cent), driven by foodgrain, especially pulses (up 39 per cent over a year).

Sub-normal monsoons took a toll on agricultural production in the past two financial years. In the third advance estimate for 2015, output was down two per cent in rice, 12 per cent in coarse cereals, 0.5 per cent in pulses, four per cent in sugarcane and six per cent in oilseeds. Agricultural GDP growth averaged 0.4 per cent in the past two years, much below the long-term trend of three per cent.

CRISIL estimates consumption-oriented sectors to gain, especially as rural demand soars. These include automobiles, particularly two-wheelers, and consumer durables.

"In a positive scenario of a good monsoon, backed by favourable temporal and spatial distribution, agriculture growth can surge to six per cent from a weak base of last year and, therefore, push up GDP growth above eight per cent. On inflation, we expect ample kharif production to boost supply and bring down food inflation. This will help offset sticky services inflation and higher crude oil prices. We expect consumer price inflation to average at five per cent this fiscal," said Joshi.

A similar study from CARE Ratings estimates the farm sector to perform well this year and help the economy in two ways, keeping prices in control and providing higher incomes to the farmers that could be spent on industrial goods and, hence, contribute to a revival in demand.

"The industries that would be affected by the kharif crop would be edible oils, sugar, textiles, other food products and packaging. From the point of view of consumer spending, the industries that tend to be related positively to the harvest are automobiles, including tractors, fertiliser, pesticides, consumer durable goods (including telecom) and services. There would also be less strain on the banking system in terms of generation of fresh non-performing assets in case the harvest is satisfactory," said Madan Sabnavis, chief economist, CARE Ratings.