New Delhi: Every year, the monsoon forecast is a keenly awaited ritual. This year, it is even more so.
That’s not surprising, given last year’s drought, following the worst monsoon since 1972. Any setback to this year’s monsoon would affect agriculture production, especially the kharif (summer) crop. Though India has sufficient food stocks to tide over any immediate crisis, circumstances could change rapidly and dramatically. Not only would this contribute to inflationary pressures, it would also affect rural incomes and thereby consumption demand—significant because it this buoyant rural demand that offset the shock of the immediate aftermath of the global meltdown that resulted in a fall in consumer confidence in urban India and exports.
This year’s forecast, as reported in Mint on 16 March, will include a drought warning as part of a larger effort to usher in transparency and benefit policy planners. The preliminary forecast is due in the middle of April and the detailed one in May.
Graphic: Yogesh Kumar / Mint
The enhanced interest in this year’s forecast is because of the events of last year: there was a 23% shortfall in rainfall compared with the 50-year average that is considered normal. In fact, only one in three of the total 39 meteorological divisions registered normal rainfall last year; and water reservoirs were filled to only 60% of their capacity, a level that was nearly 10% less than the decade’s average.
The third quarter data for national income ended December revealed a decline of 2.8% in agriculture. However, these are advance estimates and a more realistic assessment would be a decline of about 3-4%. During the last drought in 2002-03, which was less severe than last year’s, agriculture output declined by 7.2%.
However, the presence of sufficient food stock in the system will provide the government with an option to contain any inflationary pressures. Interestingly, the two-digit-food-price-inflation phenomenon of the past 18 months is not symptomatic of a supply shortfall, because the food stock available with the government is well above mandated buffer norms. The prescribed buffer stock of wheat is 8.2 million tonnes (mt), while the actual is 23.1 mt, while for rice it is 11.8 mt and 24.4 mt, respectively.
Evidently, therefore, it is not shortage, but the lack of availability of foodgrains in the market that has resulted in food price inflation, prompting analysts to conclude that this points to an administrative failure of the Congress-led United Progressive Alliance in managing inflation.
In this backdrop, the success or failure of the annual south-west monsoon will be all the more critical. The next few weeks will give the first indications how this macro-wager goes down.
This is the third in a five-part series on the macro-risks India faces.?Part 4 will look at oil prices. To see this and the series so far, go to www.livemint.com/macro-risksindia