Global brokerage firm BofA Securities is of the view that domestic rural demand is bottoming out and the outlook for rural income in FY23 has brightened due to expectations of a normal monsoon in 2022 and elevated food prices.
BofA Securities expects Kharif income to grow by 10.1 percent year-on-year (YoY) in FY23 atop 9.5 percent YoY in FY22. It believes net rabi income may grow by 12 percent YoY in the ongoing season versus 3 percent YoY last year.
"India's meteorological department (IMD) forecasts 2022 South-West monsoon to be normal at 99 percent of LPA (long period average). Expectations of a normal monsoon and elevated food prices have brightened the outlook for rural income in rabi and Kharif season for FY23," said BofA Securities.
"Normal to good monsoon rains in the last three years have aided kharif food grain production, up 2.8 percent YoY on an average. Assuming, a normal monsoon in 2022 facilitates output, we see Kharif food grain production up 2.5 percent YoY. This comes atop a 1.5 percent YoY increase in rabi food grain output. Over a period of time, the share of crops in agriculture GVA has come off, from 67 percent in FY11 to 55 percent in FY21, accordingly, non-crops (forestry, logging, livestock, fishing etc.) have risen in importance, thus making farm incomes more diverse and less vulnerable to rain shock," BofA Securities added.
The brokerage firm underscored elevated food prices bode well for farm income. Rising farm costs make a valid case for setting MSPs higher.
"We await MSP for key crops in June and expect the upcoming MSP growth rate to be higher than that of FY22. However, we do highlight that a sharper increase in MSPs is unlikely to exert serious pressure on inflation as for most crops, current trading prices are anyway much higher than the MSP. This has encouraged the farmers to sell their produce directly in 'mandis' and thus procurement by government agencies has been coming off. Overall, rural income growth despite elevated costs is looking up for the ongoing rabi and upcoming Kharif season," said BofA Securities.
After declining by 0.5 percent YoY in early FY22, non-agri wage growth has started to improve, up 4.2 percent YoY in the second half of FY22. Within non-agri segments, contraction is limited to two sectors, while the remaining 11 sectors are seeing above average growth rate, said the brokerage.
As de-growth is rather concentrated, we expect overall non-agri wage growth to improve in FY23. Channel checks by our equity strategy and autos team share similar undertones. We take stock of various high-frequency indicators of rural demand, most of which have been turning up recently, the brokerage firm added.
Disclaimer: The views and recommendations made above are of the broking company and not of MintGenie.