Monsoon prediction augurs well for farm sector growth, to boost consumption: Ind Ra

New Delhi | India Ratings and Research (Ind-Ra) on Wednesday said IMD's prediction of slightly above-than-normal monsoon in 2025 would push farm sector growth which along with monetary easing will help India withstand the adverse impact of reciprocal tariffs.

The India Meteorological Department (IMD) has predicted that the seasonal rainfall over the country as a whole is likely to be 105 per cent of Long Period Average (LPA) with a margin of (+/-) 5 per cent. The LPA of the season rainfall over the country as a whole for the period 1971-2020 is 87 cm.

Ind-Ra said the IMD forecast is good news for not only farmers but also the economy in general. However, a lot would depend on how it is spread over space and time.

If the spread is close to normal without any significant weather shocks due to climate change/shock, India may see another year of reasonable agriculture gross value addition (GVA) growth of around 4 per cent.

"This augurs well for consumption growth in the economy. We already had two good crops - Kharif 2024 and Rabi 2024, and the expectation of another two good crops in FY26 along with inflation under control (closer to RBI's target of 4 per cent) and monetary easing has the potential for the Indian economy to withstand the adverse impact of reciprocal tariffs," Ind-Ra Chief Economist and Head Public Finance, Devendra Kumar Pant, said.

Increased irrigation, a higher share of non-crop in agricultural value added and higher food grain production in the Rabi season have reduced the vulnerability of the agriculture sector to the vagaries of monsoon, Ind-Ra said.

Ind-Ra opines that much would depend on the spatial and geographical spread of rainfall over the monsoon months - June to September.

While the proportion of agriculture in the real GVA declined to 14.5 per cent in FY25 from 18.5 per cent in FY12, it has remained the principal contributor to employment in the Indian economy (cultivators and agricultural labourers).

The proportion of employment from the agriculture sector increased to 46.1 per cent in FY24 from 44.1 per cent in FY18.

Ind-ra said the increasing proportion of employment from agriculture at a time when its share in the real GVA is declining has implications for consumption demand growth in general and rural areas in particular.

"Higher irrigated area and improved availability of crucial agricultural inputs such as certified/high-yielding variety seeds, fertiliser and institutional credit have helped the Indian economy to improve its resilience towards weather shocks," Ind-Ra said.