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Monsoon boost to economy

Monsoon boost to economy
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First Published: Sat, Apr 24 2010. 01 15 AM IST

Graphic: Ahmed Raza Khan/Mint
Graphic: Ahmed Raza Khan/Mint
Updated: Sat, Apr 24 2010. 03 51 PM IST
New Delhi: In what should be a welcome relief to policy planners, the India Meteorological Department (IMD) has forecast a normal monsoon.
The forecast had been keenly awaited given the context of the drought of last year and double-digit food inflation prevailing over the last 17 months. Though IMD did not indicate the onset, spread and monthly rainfall distribution of the monsoon, it points to a consensus among weather agencies—local and international—of a slim chance of drought.
“Last year, we’d indicated monsoon to be 96% of the normal. That was an indicator of a weak monsoon spell. 98% is two percentage points more and in rainfall terms a significant, positive difference,” said Ajit Tyagi, director general of IMD.
This year IMD, in its first rainfall forecast for the monsoon months of June to September, has said that rainfall will be “normal”, or 98% of the 50-year average.
Listen to an explainer podcast on how a monsoon is formed and what makes a monsoon succeed and fail
The June-September monsoon generates nearly 80% of the annual rainfall over the country and is vital for the economy, being the main source of water for agriculture, which generates about 17% of India’s gross domestic product. Other than the 60% of the country’s workforce that depends on agriculture, the rains are also important for traders dealing in food and cash crops as any shortfall can inject volatility in the markets.
Graphic: Ahmed Raza Khan/Mint
IMD will update the forecast towards the end of June, when it will also put the estimated rainfall for July and August, during which most of India gets its maximum rainfall, and also gauge how the monsoon will progress over broad geographical divisions such as north-west, north-east, south and central India.
Abhijit Sen, member, Planning Commission, who is in charge of agriculture, said, “The likelihood is that there will be an early monsoon due to the (high) temperature. But the problem with an early monsoon is that it peters out soon like last year. If the monsoon becomes normal, then I expect agricultural output growth by 5-6%.”
The drought of 2009, when the rains were 33% lower than their long-term average, had affected crop yields and farm incomes, and stoked food price inflation. This worsened after the government hiked fuel prices. Inflation stood at 9.9% in March.
Last year’s drought also forced India to import a record five million tonnes of sugar and become the world’s top edible oil importer as it shipped in more oils than China. The sowing of rice, India’s key summer crop, was down by 20% and water levels in reservoirs were down to 60% of their 10-year average during the monsoon months.
The agency defines normal rainfall as when the country, between June and September, gets an average of 89cm of rain, called the long period average (LPA), or a 50-year average of rainfall. Anything between 85.4-92.5cm (or 96-104% of LPA) is classified “near normal”, as this year’s forecast says. Rains less than 90% are called droughts. Importantly though, IMD’s forecast models have an in-built error range of 5%.
To be sure, the April forecast is yet to prove its dependability and is at best an initial indicator. Since 2007, when it was first introduced as part of a new forecasting approach introduced by IMD, it has only once—in 2008—accurately anticipated the monsoon performance.
Last year too, the weather agency on 17 April said that the monsoon would be 96% of the normal, then downgraded it to 93% in late June and finally had to register a 23% deficit in rainfall by September-end.
“There is a lot more confidence this time. Last year’s El Nino conditions began to manifest only in late June, and none of the models picked it up. This time all models indicate a weakening of El Nino conditions by June, so chances of a normal monsoon are much higher,” said D.S. Pai, director (forecasting) at IMD, Pune.
Two key meteorological phenomena, such as a weakening El Nino and a positive Indian Ocean Dipole, both relating to temperature swings caused by excessive heating or cooling of the waters in the Eastern Pacific and Indian Ocean, were favourable for a good monsoon.
“Both of these indicators manifest only during the monsoon months, but early indicators from ours as well as international weather models show these factors developing favourably,” said Tyagi.
At the same time, weathermen say only twice in a century has the Indian monsoon failed in consecutive years.
“It’s extremely rare to have two monsoon failures back-to-back and usually normal rainfall follows a drought,” added Tyagi.
Data from the weather office shows that out of the roughly 20 droughts India has suffered since 1901, 17 were followed by near-normal rainfall.
Independent experts and economic planners say that several uncertainties still remain about the performance of the monsoon and that the June update would be vital.
“I don’t see any adverse meteorological conditions that could hit the monsoon,” said Madhavan Rajeevan, former IMD director and weather expert with the Indian Space Research Organisation. “But a weak El Nino only means that it ceases to be a predictive factor for performance of the monsoon. There have been droughts during El Nino neutral conditions in the past.”
Samiran Chakraborty, head of India research at Standard Chartered Bank, said, “They (IMD) have made it amply clear that El Nino condition may persist till the early part of the season. Pre-monsoon rainfall is already down 36% from normal. If on the top of it El Nino persists, it would be difficult to take a call on the monsoon. One would be slightly cautious in such a scenario.”
A better monsoon is expected to have a positive impact on the price situation. With inflation already near 10%, the Reserve Bank of India (RBI) has tightened its key policy rates by 50 basis points since March. However, economists believe the pace of monetary tightening will not change with the mere forecast of a normal monsoon. “The pace of tightening will depend on incoming data rather than forecasts. We expect RBI to hike key policy rates by another 25 basis points in its June monetary policy review,” Chakraborty added.
The 30-share Bombay Stock Exchange index gained 120.21 points, or 0.68%, to close at 17,694.20 on hopes of a normal monsoon. The official annual monsoon rain forecast came after the market hours.
jacob.k@livemint.com
Reuters contributed to this story.
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First Published: Sat, Apr 24 2010. 01 15 AM IST