Record production of rabi crops push up agri growth to 3-year high in Q4

Record production of the main rabi crops — wheat and mustard — has led to a 12-quarter high growth rate of 5.5 per cent in agriculture and allied activities in the fourth quarter (Q4) of 2022–23 (FY23), compared with an upwardly revised 4.7 per cent in the third quarter (Q3).

The three-year record gross value added (GVA) growth in agriculture and allied activities came in despite a high base of 4.1 per cent in Q4 of the previous year, 2021–22 (FY22).

The growth for the major part of the primary sector was higher than 4.3 per cent for Q4FY23, as projected by the Second Advance Estimates.

Part of the reason for higher growth is the Revised Estimates of rabi production in the Third Advance Estimates of agriculture, which belied fears of unseasonal rains having caused damage to crops, particularly wheat.

The Third Advance Estimates showed that wheat production in the rabi season was expected to be a record 112.74 million tonnes (mt), which would be 5.5 per cent higher than last year’s production on the back of a sharp rise in acreage and higher yields. February’s Second Advance Estimates pegged it at 112.18 mt.

The production of mustard, the main oilseed grown during the rabi season, was projected at a record 12.49 mt, which is 4.43 per cent more than last year’s.

However, the Third Advance Estimates showed that the production of chana (gram), which is the biggest among the pulses grown in the country, would be 13.54 mt in FY23, which is the same as last year’s.

“The 5.5 per cent Q4 agriculture GVA growth came on a high base effect of 4.1 per cent a year ago. This was unlike Q3. This meant that while heatwaves destroyed wheat crops in Q4FY22, there was no such impact this time around,” said Devendra Pant, chief economist, India Ratings & Research.

Before this, agriculture and allied activities growth was higher at 6.8 per cent in Q4 of 2019–20. At that time, it was the major contributor, along with the government-induced public administration, defence, and services, to producing 3.7 per cent GVA growth in a sluggish economy.

This time, construction, trade, hospitality, and transport services too played a role in jacking up GVA growth to 6.5 per cent in Q4FY23, notwithstanding slowing down public administration, defence, and services sectors.

The Q4 growth in agriculture and allied activities, along with revised Q3 growth, produced a reasonable 4 per cent growth for the sector for FY23, regardless of dismal performance in the first (Q1) and second (Q2) quarters. The growth rate had stood at 3.5 per cent in FY22.

The Q3 growth in this sector was revised upwards to 4.7 per cent — a full 1 percentage point up from what was disclosed in February.

Meanwhile, the deflators in agriculture and allied activities fell from 5.1 per cent in Q3FY23 to 4.8 per cent in Q4.

Deflators are used to convert current prices into constant prices and represent the rate of inflation. Deflators were as high as 11.1 per cent in Q2 and 11.9 per cent in Q1.

While 4.8 per cent is not such a bad number for farmers, it is a reasonable inflation rate for customers too. However, deflators are mostly taken from wholesale prices rather than consumer prices. The effect of wholesale prices on consumer prices came with a lag.

The Consumer Price Index-based inflation rate for food items has already started coming down in March and April to 4.79 per cent and 3.84 per cent, respectively.