The negative impact of drought was further driven home by RBI, which in its annual report said that deficient monsoon and the possible adverse effect on agriculture would not only put pressure on food prices, but will also challenge the governments fiscal situation.
The pressure on the fiscal situation could only increase if drought related policy response involves further expansion in government expenditure, and the additional costs associated with possible import of essential commodities to improve domestic supply conditions, the RBI said. It also exhorted government to tighten up supply side of food to ward off any inflationary pressure.
Given the fact that food prices remain high, despite low overall WPI inflation, and that all CPI indices exhibit little moderation in inflation, the supply side of food management would assume critical significance for the government, the Bank said.
On agricultural growth prospects, the bank said it can only be assessed after taking into account the output impact of deficient monsoon.
Meanwhile, finance minister Pranab Mukherjee, said that around 252 out of the more than 600 districts in the country have been declared drought-hit, which makes it one of the worst drought in this decade. The last big drought in 2002 impacted eight states and lesser number of districts.
Meanwhile, monsoon rains continued to remain largely unsatisfactory despite some late progress during the later half of last week.
According to the India Meteorological Department (IMD), the southwest monsoon was around 5% below normal for the week ending August 26. This was the second consecutive week of almost normal rains, after a prolonged dry spell in the first half of August.
Rainfall since June 1, the beginning of the monsoon season, was 25% below normal, improving slightly from a deficit of 26% a week earlier.
In the week to Aug. 26, rainfall was less than half of normal in the soybean-producing central region and 91% short of average in the cane producing region of western Uttar Pradesh.
Total rainfall so far this monsoon season is more than 20% below normal in 23 of 36 metrological subdivisions.