Forecast of good monsoon set to boost rural economy

After two consecutive droughts, good monsoon forecast has brought smiles on the faces of farmers. These are musical words for everyone to hear. Will all stakeholders take proper advantage of the opportunity? Will inclusive growth accelerate forward? Will there indeed be wealth creation at the bottom of the pyramid? Read onrn
Forecast of good monsoon set to boost rural economy

The weather bureau has forecasted that this year rainfall will be surplus, well distributed and better than normal. After two consecutive droughts, this news has brought smiles on the faces of farmers, who look toward heaven and pray that the forecast would indeed be true. Many farmers are in debt due to past crop failures. Most rural households, mainly dependent upon agriculture, are passing through very tiring and desperate times. Good rains will stimulate rural demand, post good harvests, and be a boost to the economy. For the farmers, the proceeds from good crop seasons will be used to return borrowings; retrieve land, house or jewellery pledged with money lenders. As the hopes surge and rural households become positive, the benefits of this change are bound to be felt throughout the country.

Good Monsoon – Good News!

A normal monsoon will surely be good. But how good? Will the rains be evenly spread? Arrive at the right time and end on time or the average could be of few weeks of heavy rains and the rest period of scanty rainfall. IMD predicts India to get 106 per cent rainfall of long term average in 2016 and Skymet supports this forecast with an error margin of plus/minus 4 per cent. If cotton crop gets even rainfall from June to September, a bountiful crop may result – assuming the crop is protected from sucking and chewing pests, especially the white fly. Pre-monsoon rains during May and June will fill up the ready ploughed fields with water for transplanting rice in Punjab, Haryana, UP, Chhattisgarh, Karnataka, AP, Orissa, Tamil Nadu and the North Eastern States. A good paddy crop means more food for the growing population. Thus, it is hoped that the geographical spread of the monsoon will be evenly spread across all States. And if the Rabi season, post-October – December, sees some winter rains then the farmers will cheer.

Monsoon impacts many factors & variables

Many factors determine the impact of monsoon. In the last 30 years, monsoon was normal in 23. Even during normal years, there were States or districts that suffered a drought, where rainfall was less than normal by 20 per cent or more. The ripples affect so many variables in the economy:

ï‚·Monsoon directly impacts foodgrains output, which varies proportionately when it is more or less than normal. Foodgrains output is at 252.7 million tonnes in 2015-16, as against 265 million tonnes in 2014-15. Pulses crop will be impacted positively.

ï‚·Vegetables are more resilient, but a good monsoon year can lead to better quality, higher produce and meet export demand for fruits and vegetables. Vegetable output is at 162.9 million tonnes; fruit output is at 89 million tonnes.

ï‚·Wholesale food inflation, which has seen crossing of double figures, during bad monsoon years, is presently since last two years below 5 per cent and expected to remain that way or even reduce further, as per RBI. It was 3.4 in March 2016. This is enabling reduction in interest rates.

ï‚·Agriculture share in GDP shows a positive though weak correlation with rainfall. Percentage change during 2005-06 in Agriculture GDP was 5.5 per cent, in 2010-11 it was 8.3 per cent, in 2013-14 it was 4 per cent and in 2015-16 the GDP change is 2 per cent.

ï‚·Rainfed areas (only 27 per cent of cultivable land is irrigated) in Rajasthan, Gujarat, MP, Eastern UP, Bihar, AP and Karnataka will have the ‘nallahs’, reservoirs and water bodies full of water. Irrigation projects and canals will once again flow of course. Hydropower projects in the hills will get a boost. Power outages will reduce.

ï‚·Optimists predict agriculture growth to touch 6 per cent in 2016-17 and national GDP to touch 8 per cent. Most farm futures, however, showed decline on the National Commodities and Derivatives Exchange. These include spices, sugar, mustard, soybean, crude palm, chana and rubber.

Good monsoon will have a favourable impact on many commercial sectors and these stocks have risen 1.85 to 10.53 per cent as well. This trend is expected to boost economic and business sentiment after a long phase of farm distress and overall slump in demand:

ï‚·Sales of two wheelers and motorcycles will rise since these are driven by rural demand. Bajaj, Hero, TVS, Honda – have their work to focus on rural cutout.

ï‚·When farmers have money, tractor sales will get a positive impetus. Mahindra’s stocks went up.

ï‚·Farm machinery segment will also look upwards. Escorts and VST Tillers’ stocks rose recently.

ï‚·Consumer good sales of FMCG usually rise in step with good monsoon on the back of rising rural demand. Dabur, P&G, HUL, Marico, ITC and many others can plan optimistic outputs this year.

ï‚·Agro input manufacturing companies, who are looking to forget 2015 as a very bad freak year, are shoring up their procurement and positioning of products. Large Indian crop protection companies, such as UPL, Rallis, Dhanuka, Indofil, Godrej Agrovet, Crystal, Coromandel, etc and MNCs such as Syngenta, Bayer, Monsanto, BASF, Adama etc. would look at a 10-12 per cent CAGR revenue increase this year, though individual performances may vary. Fertiliser companies such as Zuari, Chambal, Shriram, IFCI etc. will look to liquidating their stocks and achieving 100 per cent production capacity. Seed companies such as Pioneer, UPL, ProAgro, Monsanto, Syngenta, Kaveri, etc. are gearing up to provide certified seeds to farmers for the Kharif season.

ï‚·Irrigation companies such as Jain Drip Irrigation etc can hope to widen their penetration.

ï‚·Food & Beverage companies like Britannia, Pepsi, Coca Cola, Dabur, ITC, Anupam, etc are luring dealers to display their products and the publicity vans are on the road again.

ï‚·Telecom & Mobility, rural travel, cyber cafes, healthcare, entertainment, banking and micro financing, education, e-commerce and many other rural services are looking to expand their positive customer base.

Preparing to maximise potential from good monsoon

Government must prepare “how to maximise potential from good monsoon”, eminent scientist MS Swaminathan has stated. He advocated that the Government must take steps to prepare a Weather Code that comprises of strategies for mobilising good quality seeds, fertilisers, agrochemicals etc to make these accessible and affordable for farmers. Going further, the enforcement staff from Directorates of Agriculture, Plant Protection departments must gear up to ensure quality supplies of inputs are maintained to the farmers. Companies must educate against spurious and duplicate products. Universities must prepare for Agricultural Fairs which are the fountainhead for creating awareness about new technologies. Post-harvest segments such as storage facilities, cold storages and cold chains, rural transport logistics all need to be coordinated to benefit optimally from the monsoon.

IMD says EL Nino is receding by middle of the year. If La Nina (which boosts rains) follows El Nino, there will be problems of plenty. Excess rainfall can lead to flooding. Thus, flood control authorities must have their contingency plans ready. Chennai, Assam, etc. are examples of floods even during bad monsoon years. The Government must prepare a balanced strategy to derive maximum benefit from the IMD predictions and ensure that execution is not laced with political considerations, but with clear farmer focused initiatives. Centre-State coordination presents a key challenge to ensure best results from rural development schemes. Local self-governments at village levels need to perk up.

Experts predict further good monsoon years to follow 2016. These are musical words for everyone to hear. Will all stakeholders take proper advantage of the opportunity? Will the companies share the destiny of the sub-served? Will inclusive growth accelerate forward? Will corporates design business models for partnering the rural talent? Will there indeed be wealth creation at the bottom of the pyramid? Will India be a global leader? “The answers, dear friends, are blowing in the wind”.

Author: CK Sabharwal, MD, Crop Health Products

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