Unseasonal rains and hailstorms in the last month have led to heavy crop damage and spurred fears of an adverse impact on inflation. Rains were 105% above normal during March, which has damaged 8.5 million hectares of rabi crops across 14 states, including in Haryana, Punjab, Rajasthan, Madhya Pradesh, UP and Maharashtra.
Within rabi crops, the maximum damage has been inflicted on wheat, oilseeds, pulses and fruits. According to agriculture minister
Radha Mohan Singh, wheat output is likely to decline by 4-5% in the ongoing rabi season. India had produced 95.85 mt of wheat in 2013-14.
Prime Minister Narendra Modi has announced a 50% increase in compensation to farmers for damage to their crop and the eligibility criterion for this was lowered from loss of 50% of potential crop to 33%.
Earlier, farmers could seek compensation of R4,500 a hectare, or R9,000 a hectare, or R12,000 a hectare, depending on the crop sown and the nature of land, only if they lost 50% of their crop because of natural calamities. Now, they will get R6,750, R13,500, or R18,000 a hectare, if the crop loss is at least 33%.
While on-the-ground prices were contained in March, the past four episodes of unseasonal rains suggest there are upside risks to food inflation, and therefore CPI inflation, in the next three months. A research note by Nomura says that the unseasonable rains could push CPI inflation close to 6% in Q2-2015, as against the brokerage’s current estimate of 5.2%.