Crop area higher than last year; deflationary trend to help
As the monsoon enters its withdrawal phase and with summer sowing all but over, the country’s grain production is expected to be lower than the levels witnessed in recent years when rainfall has been normal. However, given that official granaries are brimming with grain stocks and chances of a deflationary tendency more real than in recent memory, the impact of a second straight year of a deficient monsoon on the economy could be less than before.
Despite a persistent deficit in monsoon rains, at 12% over the last few days, the area under various crops has remained marginally higher than a year earlier. What is noteworthy is that the year-on-year rise in areas under various crops has been fairly broad-based. So instead of a rise in just the acreage of paddy, the area under some other crops such as pulses and oilseeds has also risen, albeit marginally.
Since the country usually imports one-fifth of its pulse and more than a half of its edible oil requirements annually, any fall in the output of these commodities domestically poses the risk of imported inflation. However, with global commodity prices remaining low, even such risks — a major driver of a 15.27% food inflation in the last major drought year of 2009-10 — seem to be limited this time around.
While wholesale price inflation has been in the negative zone since November last year, retail inflation dropped to a new low of 3.78% in July.
Even according to the gross value added deflator, inflation in industry and services was -0.7% and -0.6%, respectively, from a year before, while that in agriculture was 4.5%, as reflected in the latest GDP data for the first quarter of this fiscal. Such a scenario prompted chief economic adviser Arvind Subramanian to warn on Wednesday that the economy “appears to be in or close to deflation territory and far away from inflation territory”.
Although some analysts predict a fall in kharif production, the growth in agriculture and allied sectors is expected to be around 1.5% this fiscal, helped by a favourable base(the agriculture and allied sectors grew just 0.2% in 2014-15) and a likely good rabi harvest. The sector grew 1.9% in the first quarter of this fiscal, less than last year’s 2.6% before but higher than -1.4% recorded in the last quarter of 2014-15.
However, while consumers may be spared the damaging impact of a second straight year of a deficient monsoon, farmers may not be so lucky.
“The kharif crop situation doesn’t seem to be rosy. The crops have been damaged in some parts because of excessive or deficient rainfall. The government has to announce measures for protecting farmers’ income in those areas which have been impacted by erratic monsoon,” Ashok Gulati, chair professor (agriculture), Indian Council for Research on International Economic Relations, told FE. Farmers have been hit hard by unseasonal rains in the last rabi season and low commodity prices for over a year now.
“The impact of the monsoon on pushing up inflation is negligible as we are witnessing a deflationary trend, which would hit farmers’ income hard,” said Ajay Jakhar, chairman, Bharat Krishak Samaj. He added that the government must provide a price support mechanism to farmers for other crops besides rice and wheat. The country is already witnessing a glut in commodities such as sugar and cotton.
After hitting the Kerala coast, monsoon rains exceeded the long-period average by 16% in June before losing intensity. July recorded a deficit of 16% from the LPA, which is calculated on the basis of annual rainfall recorded between 1951 and 2000 (89 cm). Rainfall in August marked a huge 22% decline from the LPA, thus virtually negating the gains made in June.
Farm scientists say that the spread of rain in September would be crucial for the yield levels of kharif crops.
“The kharif output this year would be less than what we achieved in 2013-14,” said Trilochan Mohapatra, director, Indian Agricultural Research Institute, a premier institute under the ministry of agriculture.
In the 2014-15, kharif grain production dropped to 126.31 million tonnes from 128.69 million tonnes a year earlier due to an erratic monsoon.
Ramesh Chand, director, National Centre for Agricultural Economics and Policy Research, also indicated lower productivity of various kharif crops due to the uneven spread of the monsoon in certain parts of the country.
However, he ruled out any drastic fall in kharif production. “We should prepare ourselves for the forthcoming rabi season, which was hit by unseasonal hailstorm and rains last year,” Chand said.
The India Meteorological Department has maintained that this year’s monsoon would be 12% below the LPA.
Water reserves drop
The country’s water reserves were lower than a year earlier for five consecutive weeks through August 27, thanks to a drop in monsoon rains by 16% in July and 22% in August from the benchmark LPA.
According to the data compiled by the ministry of water resources, water storage across 91 reservoirs touched 92.92 billion cubic metres (bcm) up to September 3, compared with 111.26 bcm a year earlier and even lower than the normal 10-year average of 110.14 bcm. The storage level is just 59% of the total live capacity of these reservoirs, lower than that of 71% a year earlier.
The situation is alarming in the southern parts of the country, with storage level just 33% of the capacity, compared with the normal average of 75%. In Telangana, the reserves were 77% lower than normal, followed by Andhra Pradesh, Maharashtra and Karnataka, which recorded a drop of 63%, 41% and 40%, respectively, from the benchmark levels.