Dear Reader,

One of the weak links in India’s consumption story has been rural consumption, primarily due to income stress. Rural demand has been under the weather as a result. Even in the current quarter, consumer companies have pointed to signs of a recovery in demand and voiced hopes that this will strengthen and continue. But, on several occasions in the past these hopes have been dashed. While the watch continues to see if this time will be different, there is good news building on one front.

Agricultural income is one of the key sources of rural income, with others such as work in local industry and in construction projects being key contributors. Agricultural income has been under pressure for a few years now due to erratic weather hurting output. That puts pressure on farm wages as well and the relatively high inflation levels have hurt real wages even more.

As the monsoon enters August, the picture is looking much better than in June when rains were delayed. This week’s edition of our weekly tracker Monsoon Watch shows that July, a crucial monsoon month from agriculture’s standpoint, ended with a good showing. Cumulative rainfall was 7 percent above the long period average with normal rainfall received in 30 of the 36 subdivisions tracked by IMD with six reporting deficient. However, these 6 subdivisions account for 17 percent of the area and are located in the northwest and eastern parts of the country. The area under cultivation has risen by 2.9 percent over a year ago as of July 26, driven by higher acreage of rice, pulses and oilseeds. If the monsoon continues to play a supportive role for agriculture in August and September, that will mean even better tidings for the rural economy.

An India Ratings report on the monsoon has, based on the current monsoon data, forecast lower food inflation and also points to agriculture growth to increase by 4.3 percent in FY25 compared to the low 1.4 percent it achieved in FY24. While the kharif crop’s dependency on monsoon has been declining, the rabi crop remains dependent on it. While the main kharif crop is paddy, wheat occupies the main position in the rabi season.

The Ind-Ra report noted that rice sowing is up by 5.3 percent as of August 2, as the monsoon picked up and is down only 0.1 percent below normal for rice. Earlier, sowing activity was subdued because of less than normal rainfall in rice-producing states. Rainfall for pulses and oilseeds was 15 percent and 16.5 percent higher than normal, it said, leading to higher area under sowing.

Of course, in agriculture one has to hold one's horses till the crop gets harvested and safely makes its way to the warehouses or the market. But, as things stand, it appears that the agriculture sector should be in better shape in FY25 and if the rabi season too turns out to be a productive one, then this pillar of rural income should regain its sheen. There is one event to watch out for and that is if real rural wages trend up, which depends on wage levels and inflation. Inflation has plateaued and a base effect will even see it dip temporarily but if it stays down durably then real wage growth too could get some support.

If the agriculture sector turns healthy, it can support the economy as well. As this article points out, the RBI surveys indicate that the Indian economy slowed in Q1 and while services and construction sectors are expected to do well, the industrial outlook is looking dull. A shoulder to the wheel from agriculture may be welcome in FY25.

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