Agri growth in FY25 should be well above 3%, says MPC's Shashanka Bhide

Shashanka Bhide is one of the three external members on the Reserve Bank of India’s Monetary Policy Committee.

India's agricultural sector may grow at more than 3 percent in 2024-25, Shashanka Bhide, one of the three external members on the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), has said.

"With a favourable monsoon, the key sub-sectors of agriculture and allied sectors should catch up with their long-term growth trend, besides the recovery from the dip we have seen this year. This would be a growth of well above 3 percent in 2024-25," Bhide told Moneycontrol following the release of the minutes of the February 6-8 meeting of the MPC on February 22.

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"Revival of consumption growth would be crucial for sustaining overall growth. The projected GDP growth reflects the revival of agriculture on the back of a good monsoon," he added, referring to the Indian central bank's GDP growth forecast of 7 percent for 2024-25.

Per the statistics ministry's first advance estimate of growth, released on January 5, the 'agriculture, livestock, forestry, and fishing' industry is seen to be growing just 1.8 percent in 2023-24 — the lowest in eight years — due to the unseasonal and uneven rain caused by El Nino. Yet, the headline GDP growth rate is seen to be rising to 7.3 percent from 7.2 percent in 2022-23.

The statistics ministry will release its second advance estimate of GDP growth for 2023-24 on February 29, with economists predicting it may be lowered by 40 basis points to 6.9 percent. One basis point is a hundredth of a percentage point.

Recovery concerns remain

In the minutes of the February 6-8 meeting, Bhide noted growth had not slowed down in the current financial year despite a number of adverse factors: unfavourable monsoons, weak external demand, risks to global supply chains from geopolitical conflicts, and high interest rates. Offsetting these have been moderating retail inflation, falling global commodity prices, and the government's focus on capital expenditure.

However, he remains worried by the unequal manner in which growth has recovered.

"I am concerned about the unevenness of growth even in sectors registering high growth, for instance, in manufacturing. Part of the reason for uneven growth would also be the weak consumption and external demand," he said, adding that risks from the global economy due to geopolitical conflicts "have not disappeared".

"The resilience of growth would depend on managing the supply side in the face of such disruptions," he asserted.

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As for the agricultural sector in the long run, Bhide thinks any major policy initiatives would "increasingly require a lens of climate change implications and perspectives," and added that "measures to offset its negative impact would be necessary".

On the whole, prospects seem to be bright for the Indian economy, particularly with the billions of dollars of foreign money that is set to come into Indian government debt once these bonds are included in JPMorgan's global indices starting June 2024.

"Any sudden inflows causing exchange rate volatility may lead to RBI interventions. However, the expectation from higher inflows is that they would also spur economic activity," Bhide explained.

Inflation and rates

At the MPC meeting on February 8, Bhide voted along with the majority to retain the policy repo rate at 6.5 percent for the sixth meeting in a row. However, fellow external member Jayanth Varma wanted to begin the rate cut cycle starting with a 25-basis-point reduction, while Ashima Goyal thinks the RBI's Consumer Price Index (CPI) inflation forecast of 4.5 percent for 2024-25 "gives room to cut".

Bhide, though, is keeping his cards close to the chest.

"At this juncture, we need to achieve an inflation trajectory that is likely to be sustained. That would also help support growth," Bhide told Moneycontrol.

Data released on February 12 showed that India's headline retail inflation rate had cooled to a three-month low of 5.1 percent in January. However, it has now spent 52 consecutive months above the targeted 4 percent. It is no surprise, then, that the RBI is keen to hammer on the need to bring inflation down to the target on a durable basis.

Core inflation, meanwhile, has fallen sharply, hitting an over-four-year low of 3.6 percent in January, after having been as high as 6.1 percent a year ago.

"Monetary policy measures are one set of factors that have helped moderate core inflation. Decline in commodity prices (impacting input costs) is another. Monetary policy measures have also helped lower inflation expectations, and not so much demand," Bhide explained.