The monsoon season for India starting June looked positive leading to an increased sowing for the months of June and July. However, the fears of a deficit monsoon came true with the rainfall falling below IMD’s initial forecast of 88 percent of the long term average in August. The country is witnessing one of the driest years as it received only 658.9 mm of rainfall against normal rainfall of 768.9 mm as of Sept 8.
-The maximum deficit was seen in the Southern peninsular region which witnessed 22 percent lesser rains from its long term average. This area includes, Telangana, N.I Karnataka, S.I Karnataka, Coastal Karnataka, Maharashtra, Kerala, Tamil Nadu, Pondicherry, Konkan and Goa.
-Central and north India, comprising areas of Madhya Pradesh, East Uttar Pradesh, Haryana and Punjab received only 683mm rainfall from normal level of 812mm. Although the region has deficit to scanty rains, well-developed irrigation facilities will keep agricultural production on course.
-With monsoon being in its last month, it is to be seen if the retreating Southwest monsoon from parts of northwest India will provide some relief to the agricultural output.
-The Rabi sowing which begins after the kharif harvest can be affected if unseasonal rainfall takes place as it is damaging for rice.
With the monsoon being at a deficit of 14 percent from its LPA, and patchy rains likely to harm the Rice crop, farmers are being advised to take contingency steps. The sowing for pulses has increased substantially from last year, almost at its normal average. Rice crop which is vulnerable to unseasonal rains has witnessed only a marginal increase from last year so far.
-Cotton and jute have witnessed lower area under cultivation this year as these standing crops get adversely affected by dry weather conditions and need periodic rainfall.
-Area sown under pulses is increasing significantly as farmers plant short duration pulses that will give good harvest even under drought-like situations. Hence, the area sown is likely to grow further and cross its normal mark if the current monsoon situation persists.
-Coarse cereals area has also increased as the country prepares for a dry season. The area increased from 170 lakh hectares to 180 lakh hectares, and will grow close to its normal as the monsoons end.
-The total area sown is higher than last year.
Inflation across crops
Inflation indices for the month of July do not reflect well the deficit in monsoon the country is facing. With the exception of pulses, price increase for all other major food categories was fairly subdued. However, with the country facing a drought like situation the precise impact on output prospects for various crops needs to be tracked as it will have a bearing on the final inflation numbers.
Minimum Support Prices
The Government of India announces its Minimum Support Price (MSP) for the Kharif crops at the start of the season.
The MSP set by the government has been rising in order to provide incentive to the farmers to produce various crops. The average increase in the MSP for the kharif crops has been between 1-4 percent which is lower than what it used to be in the past. To this extent, the impact of such prices on inflation would remain low.
At the beginning of the last month of monsoon season, the agricultural scenario does look fairly stable though the outcome for specific crops could be affected by the dry weather conditions. The area under cultivation has been higher this year for almost all crops so far. The overall inflationary impact would be muted.
Under these conditions, CPI inflation would range around 5 percent once the base effect wears off from September onwards. This should provide some comfort to the RBI which may consider a cut in interest rates.