In what could come as a dampener for an already sluggish economy and a struggling corporate sector, the Indian Meteorological Department (IMD) said on Wednesday, there is a 35% chance the monsoon could be below normal at 93% of the long period average (LPA).
The more worrying part of the forecast is that it accords a fairly high probability of 33% to a ‘deficient’ monsoon implying rainfall could be below 90% of the LPA, calculated on the basis of the average annual rainfall (89 cm) recorded between 1951 and 2000. The IMD, which released its first forecast on Wednesday, put the chances of a normal monsoon at just 28%. The north-western and central parts of the country are expected to receive deficient rains this year; typically 70% of the total precipitation during the year occurs in the four months starting June.
“A normal monsoon is crucial to push economic growth this year, given weak investment climate, tepid export growth and fragile consumption. Our base case, given a normal monsoon, is that agricultural growth will be 3% — up from a weak base of 1.1% in fiscal 2015,” Crisil wrote in a report. Monsoon rains are crucial for agriculture as only 40% of India’s cultivable area is under irrigation and around 55% of the foodgrain production, mainly paddy and coarse grains, comes from the kharif or summer crop.
A less than normal monsoon could stymie the nascent recovery of the economy given that it comes on the back of a weak monsoon last year when rainfall was 88% of the LPA and states in the north-western regions like Punjab, Haryana, Rajasthan and western UP were impacted. More crucially, food inflation that has moderated meaningfully over the past year — from 9.7% in January 2014 down to 1.2% in November 2014 before rising to 6.1% in January 2015 — could go up again.
“A second straight year of weak monsoon will decrease the efficacy of India’s irrigation ecosystem and hit agricultural output and farmers adversely. The unseasonal rains since early March have already had a negative impact on many crops. According to our calculations, a deficient monsoon, if it comes true, will shave off 50 basis points from our GDP forecast of 7.9% for fiscal 2016,” Crisil observed.
In 2009, when the monsoon rainfall was 23% below the normal, the production of foodgrain dropped to 218 million tonne from 234 million tonne in the previous year, a decline of 6.8%. In 2014-15, the total production of foodgrain in the country was 257 million tonne slightly lower than in the previous year when it was 265 million tonne.
“The farmer could get hit and the government should fix the weather and crop insurance system,” Ashok Gulati, chair professor agriculture, Indian Council for Research on International Economic Relations, told FE.
Experts worry that the impact of the fall in agriculture output, and the consequent drop in farm incomes and rural demand, could spill over to the industry thanks to the higher cost of agricultural inputs. The government might be prompted to increase the minimum support prices (MSP) leading to prices of food turning volatile.
Crisil points out that CPI inflation, which gives agriculture-related products close to a 40% weight, could rise about 50 basis points above our current forecast of 5.8% for fiscal 2016. “That will mean the Reserve Bank of India’s inflation target of 6% by March 31, 2016, gets breached in the very first year of adoption of the new monetary policy framework. Also the RBI will have less leeway to continue its current easing cycle,” the agency noted.
On the impact of El Nino, the IMD statement said currently weak El Nino conditions prevailed in the pacific and these conditions were likely to persist during the south-west monsoon season. “The adverse impact of El Nino has been factored into the first forecast and recent unseasonal rains in northern regions have no impact on monsoon,” DS Pai, head of forecast division of IMD, said.
Recently, private weather forecasting agency Skymet had said that this year’s monsoon would be ‘normal’ at 102% of LPA. It said that June and July would see the strongest rainfall, which would gradually recede in August and September.
The monsoon rains during the June-September period also helps boosting the soil moisture for the rabi or winter crop. Earth sciences minister Harsh Vardhan said the Cabinet Secretariat and the Prime Minister’s office have been informed about the forecast so that they can gear up for future possibilities. The Met department’s next forecast, the more definitive one since it comes after the onset of monsoon, will be announced in the later part of June.