Delayed, deficient monsoon may affect Indian economy

By: | Updated: June 3, 2015 9:17 AM

The silver lining: Food stocks, IMD’s record

India monsoonIndia’s foodgrain production dropped 5% to 251.1 million tonnes in 2014-15 thanks to a 12% drop in seasonal monsoon showers from the normal levels. (Reuters)

Even as the monsoon’s arrival over the Kerala coast was delayed, the India Meteorological Department (IMD) on Tuesday revised downward its forecast of seasonal shower for this year to 88% of a long-period average (LPA) — the same as last year — from its April prediction of 93%. This compounded worries of farmers, already stressed by a plunge in commodity prices for over one year and consequent drop in income and low-wage spiral, and also cast a shadow over farm sector growth, which, in any case, was just 0.2% in 2014-15, compared with 3.7% a year earlier.

The RBI, which released its bi-monthly monetary policy earlier in the day, had already termed a likely poor monsoon to be biggest uncertainty facing the economy. While the central bank revised its retail inflation forecast 6% from 5.8% earlier for January 2016, analysts said administrative steps like release of buffer food stocks and modest hikes in the minimum support prices of summer crops could keep food inflation from rising sharply.

The Modi government, which witnessed slowing inflation until now due to the commodity price crash, will face its first major challenge on inflation now.


What compounds the concerns is a 66% chance of deficient monsoon rains, which the IMD defines as below 90% of the LPA of 89 centimetres of showers recorded between 1951 and 2000, compared with that of 33% forecast in April.

Even chances of an El Nino effect, which had caused the worst drought in 37 years in 2009 and affected rainfall last year, are pegged at 90% now, while the El Nino situation was considered weak in April. However, according to an earlier Crisil report, only two out seven times in the past did an El Niño develop into a monsoon failure.

“I have to say this with a heavy heart that as per our revised forecast, India will receive 88% of rainfall of the LPA plus or minus 4%,” earth sciences minister Harsh Vardhan said. The weather office gives another 27% chances for a below-normal monsoon season. Rainfall is likely to be 92% of the LPA in July and 90% during August, both with a model margin of 9 %, the Met department said.

Chief economic adviser Arvind Subramanian said: “Last year as well the monsoon was not very good and through government policy we managed to contain inflation and we intend to do that this time around should the monsoon be as bad as some people fear. We don’t know how it is going to pan out but I think the government will certainly act to contain the inflation risk.”

Cutting the benchmark lending rate by 25 basis points on Tuesday, Reserve Bank of India governor Raghuram Rajan said: “There have been El Nino incidents in the past with reasonable rainfall, and poor rainfall which has not led to a fall in production, and a fall in production which has not led to inflation. So each path of this sequence is fraught with uncertainty.” Rajan said in 2000 to 2003, when the monsoon rains were below par, the impact on inflation was very limited, partly due to the government actions.


India’s foodgrain production dropped 5% to 251.1 million tonnes in 2014-15 thanks to a 12% drop in seasonal monsoon showers from the normal levels.

While the RBI revised its GDP growth forecast for the current fiscal to 7.6% from 7.8% projected in April, Crisil revised its estimate to 7.4% from 7.9% and said agriculture growth would be 1.5% on a weak base of 0.2% in FY15. “However, we stick to our forecast of 5.8% for CPI inflation in FY16, despite the weaker outlook on monsoon because we expect proactive action from the government such as release of foodgrain buffer stock, crackdown on hoarding, lower transportation losses, and imports to contain food inflation,” Crisil said.

Analysts said the government can reduce the import duties on all food products across the board and augment supplies. Given the IMD’s poor track record of long-period forecasts, some analysts sought to wait at least until July to gauge specific impact on farm production. In 2009, the worst drought year in 37 years, the Met department’s first forecast was 96% of LPA. The second forecast in June predicted rains at 93% of LPA, while the actual rainfall was only 79.2% of the LPA. Even last year, the IMD’s initial forecast was that rainfall would be 95% of the LPA, which was revised down to 93% in June and finally to 88% by the end of the season.

Agriculture ministry officials said the country is adequately prepared to tackle any drought-like situations, as contingency plans have been prepared for over 500 vulnerable districts and official granaries are brimming with food stocks.

Sources said the government could explore options of implementing special scheme for the rejuvenation of perennial horticulture crops under the National Horticulture Mission and recommending the rescheduling of crops loans and providing interest subvention on rescheduled loans in drought affected areas.

Last year, the government offered diesel subsidy to affected farmers for “providing protective irrigation to standing crops in the rainfall deficit areas” and enhancement of seed subsidy under various central schemes to “partially recompense the farmer for the expenditure in resowing and/or purchasing drought-tolerant variety of seeds”.

The Centre would boost supplies of inputs like seeds and fertiliser, and states may be asked to initiate appropriate measures and prepare for location-specific strategy, said the officials.

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