Monsoon woes: Farm sector contracts in Q3, a first in 19 quarters

The growth stood at 5.2 per cent in the third quarter of 2022-23 which also played a part in pulling down agriculture and related sector's GVA

Agriculture and allied activities emerged as a notable exception to the ongoing economic recovery, as kharif production succumbed to uncertainties in the monsoon.

The gross value added (GVA) by the sector contracted for the first time in 19 quarters, recording a 0.8 per cent decline during October–December 2023–24, compared to the 1.6 per cent growth in the second quarter of the year.

The growth rate stood at 5.2 per cent in the third quarter of 2022–23, playing a role in the downturn of agriculture and related sectors’ GVA.

The farm and related sector is also projected to grow by just 0.7 per cent in 2023–24, according to the Second Advance Estimates. This would be the slowest expansion in eight years, with lower growth than the 1.8 per cent shown in the First Advance Estimates for 2023-24.

In fact, the projected growth is less than half of the 1.8 per cent shown in the First Advance Estimates for 2023-24.

The third quarter of a financial year is typically a kharif-crop period.

ICRA chief economist Aditi Nayar said that the total kharif area sown in the 2023 season stood at 110.7 million hectares as of September 29, 2023. This is marginally 0.2 per cent higher than the year-ago level. However, the underlying trends were unfavourable, with the area sown for several crops, such as pulses (minus 4.2 per cent), oilseeds (minus 1.6 per cent), and cotton (minus 3 per cent), witnessing a decline. This is attributed to the uneven and subpar monsoons (94 per cent of the long period average, or LPA) amid prevailing El Niño conditions.

Additionally, the large deficient rainfall in August 2023 (36 per cent below LPA), the lowest since 1901, likely led to a sharp decline in crop yields. This is reflected in the relatively unfavourable trends in their output compared to their area sown.

According to the First Advance Estimates of crop production for 2023-24, the output of all kharif crops is estimated to have declined by the end of October 2023 on a year-on-year basis. These include crops such as sugarcane (minus 11.4 per cent), rice (minus 3.8 per cent), and coarse cereals (minus 6.5 per cent), which had seen an uptick in their sown area.

Deflators, which broadly represent wholesale price inflation, stood at 4.6 per cent during the third quarter of 2023-24 against 6.3 per cent in the second quarter. This is a double whammy for the sector, as not only did GVA decline at constant prices, but deflators also decreased. This may have repercussions on income for farmers and intermediaries associated with the sector during the third quarter compared to the July-August period of 2023-24.