The farm and allied sector recorded a decent 4.1% expansion in the March quarter and remained a bright spot in the GDP data, despite intense heatwave curtailing the yield of wheat and the farm ministry slashing its cotton harvest forecast in the latest estimate released earlier this month.
However, a contraction in manufacturing in the fourth quarter of FY22, albeit marginal and on an inconducive base, doesn’t bode well for the promise of a quick and sharp turnaround in private capex. Growth in the manufacturing sector, hit by high input costs, tangled global supply chains and Covid-induced curbs on mobility in the initial months of the last quarter, sink to -0.2%, against 0.3% in the previous quarter.
Moreover, as Kunal Kundu, India economist at Societe Generale, said, manufacturing contracted as expected but “a stronger inventory build-up suggests weaker demand.”
The change in stocks, which continued to remain in the negative zone in FY21, rose sharply in FY22 and hit as much as Rs 51,450 crore in the March quarter.
The hike in interest rates, the relentless rise in commodity prices (brent crude oil has hit $120 per barrel), the persistence of supply-chain woes will pose downside risks to manufacturing prospects in the current fiscal.
Of course, some respite in the first quarter may come from the base effect (despite sharp year-on-year growth in Q1FY22, manufacturing was only marginally higher than in the same period of FY20).
As for agriculture, some analysts expect a marginal downward revision in the growth estimate for the March quarter later, considering the severe impact of erratic weather on crops in March and April.
However, going forward, the forecast of a normal monsoon, its advent over the Kerala coast ahead of schedule and the expectations of good geographical distribution have brightened hopes for another year of bumper harvest in the crop year starting July.