FY2024 agri GVA growth at 2.5%: ICRA

ICRA projects the Gross Value Added (GVA) growth of agriculture, forestry and fishing at ~2.5% in FY2024, if the monsoon is normal. The downside from a sub-par monsoon to FY2024 real GDP growth forecast of 6.0% is estimated at sub-50 basis points (bps).

While the Indian Meteorological Department (IMD) has forecast a normal monsoon at 96% +/- 5% of Long Period Average (LPA), the probability forecasts suggest a 51% chance of a below normal or deficient monsoon. The volume of rainfall, its timing and dispersion will crucially influence crop sowing and output, as well as prices. Since reservoir levels are healthy by historical standards, a mild delay or sub-par monsoon in June 2023 may not be very challenging.

The IMD’s Monsoon Mission Climate Forecast System (MMCFS) depicts that El Nino conditions are likely to develop during the monsoon season of 2023, after three years of La Nina conditions. As per the department, the impact of El Nino may be felt in the H2 of monsoon season i.e. August-September 2023. Nevertheless, while Indian Ocean Dipole (IOD) conditions are neutral over the Indian Ocean at present, the latest Climate models forecast indicates the development of positive IOD conditions during June-September 2023, which could be favourable for the South-West monsoon rainfall.

The reservoir storage stood at 42% of live capacity at Full Reservoir Level (FRL) as on April 6, 2023, well above the historical average of 34% recorded in the last 10 years on an average, which offers some insurance for a timely onset of kharif sowing activity, especially as El Nino conditions may develop only around the second half of the monsoon season.

While food inflation may soften in Q1 FY2024, supported by a high base (+7.8% in Q1 FY2023), the impact of a likely heatwave on the wheat crop and the consequent impact on wheat prices, along with the possibility of El Nino conditions in H2 of monsoon season could dampen the output of major crops, thereby posing a key upside risk to the food inflation trajectory over the next few quarters.

By the time the MPC meets at its next scheduled meeting in June 2023, the monsoon rains would be underway, giving a little more clarity into the likely outcome for the first half of the monsoon season. This information would feed into whether the MPC’s CPI inflation projection of 5.2% for FY2024 needs to be modified.