The uptick in India’s rural economy—with gross value added in agriculture, forestry and fishing registering an expansion of 4.6% in FY25—is good news for India’s growth story. Higher farm incomes from record levels of foodgrain production due to an above normal monsoon and robust prices have led to more demand for fast-moving consumer goods, two-wheelers, and tractors, which favourably impacts industrial production with a lag. Real wages were also up by 7% in FY25 and could grow by 6.5% this fiscal, although there could be downward pressures if there are adverse weather shocks, according to India Ratings. The bullish sentiments in the countryside are also reflected in the fact that three-quarters of rural households expect their incomes to increase in the next year, according to a bi-monthly survey conducted by the National Bank for Agriculture and Rural Development.
While these are definitely good tidings, much depends on the spatial and temporal progress of the southwest monsoon, which has had an early onset this year, but has stalled of late. An early revival is critical for the sowing of crops in the kharif or summer season, especially in the crucial months of June and July. The signs of vibrancy in the rural economy are reflected in high frequency indicators, although there could be contrary signals, like the declining growth of credit to agriculture in FY25. The caveat is also that while all agriculture is rural, rural is not wholly agricultural. FMCG data for FY25 indicates that big players are getting bigger in the rural areas. Faster growth in large, listed brands is observed in the countryside, while small and local brands have seen higher growth in the towns and cities. Tractor sales were also up 7.3% in FY25, according to the Tractor and Mechanisation Association, while two-wheeler sales—more than half of which are in rural areas—rose by 9.1%. Even this fiscal, tractor sales in April, the first month after the rabi harvest, were up by almost 8% on year. Leading companies like Mahindra & Mahindra also registered growth in domestic sales of 10% on year in May.
All of this clearly points to upbeat farm sentiments. While tractors typically are purchased by prosperous farmers with relatively larger landholdings, there are signs of growing mechanisation also among farmers with smaller land holdings. The proximate factors relate to the rising costs of maintaining oxen, and bullocks. The positive momentum of the farm economy is reflected also in official expectations that a growth of 5% is feasible—higher than the earlier long-term trend of 3%—and vital for the country becoming a developed nation by 2047. Union agriculture minister Shivraj Chouhan has also stated that as the nation aspires to soon become a $5 trillion economy, agriculture must contribute at least $1 trillion from the current level of $637 billion.
All of this entails prioritisation of reforms in this sector that support half the nation’s workforce and contributes 18% to GDP or the nation’s output of goods and services. The need is to step-up agri-R&D that will enable farmers to better cope with the vagaries of climate change. The policy imperative must be to ensure that agriculture does not remain hostage to the vagaries of the southwest monsoon by building more irrigation facilities, especially in peninsular India.