New Delhi: India’s annual monsoon rains, key to farm output and economic growth, are expected to be better than previously forecast, raising prospects of good harvests and possibly helping to cool double digit food inflation.
The monsoon rains, which deliver 75-90% of the country’s rainfall, were expected at 102% of the long-term average, government officials said on Friday, raising an earlier forecast of 98%.
Bountiful rains despite slow progress of the June-September monsoon will help Prime Minister Manmohan Singh tame food prices, which rose 16.90% in the year to 12 June.
Any drop in food inflation will also cool down headline inflation, easing pressure on the central bank to raise rates.
The Reserve Bank of India (RBI) is expected to hike rates by at least 25 basis points in its July policy review after it raised rates twice, by a total of 50 basis points, since mid-March to cool prices.
Following a meeting of a panel of ministers on food on Friday, agriculture secretary PK Basu said the country was heading for a normal monsoon, after last year’s driest spell in nearly four decades.
“Good news is that monsoon rains will be 102% of long-term average,” Basu told reporters.
In April, the Meteorological Department said this year’s monsoon rains would be 98% of the average between 1941 and 1990.
Rains between 98% and 104% are considered normal, according to the department’s classification.
Analysts said the improved forecast would help prices drop.
“Pre-monsoon showers have improved the forecast. The higher forecast will cool down high food prices in short run,” said Veeresh Hiremath, a senior analyst with Hyderabad-based Karvy Comtrade.
As part of efforts to bolster domestic supplies and cool prices, the ministerial panel on food also decided to free 5 million tonnes of wheat for open market sale.
Hiremath said if July and August rains were good, acreage and output would go up.
Last year’s poor rains ravaged rice, sugarcane and oilseed fields, hitting output and forcing the government to drop an import tax on sugar.
Large imports by India helped benchmark New York sugar futures touch a 29-year peak early this year.