New Delhi: India will receive an above-normal monsoon this year, ending the run of two back-to-back poor ones.
The rains, expected to set in on 7 June when the monsoon makes landfall in Kerala, will dampen inflationary expectations and bring relief to the agrarian economy reeling under rural distress—caused by a combination of the droughts as well as a collapse in global commodity prices.
In its second forecast, the India Meteorological Department (IMD) said the odds overwhelmingly favoured an above-normal monsoon—106% of the long period average (LPA).
The monsoon is considered normal when the rainfall is 96-104% of the LPA and is considered above normal when it is 105-110% of the LPA.
IMD has also forecast 107% of normal rainfall in July and 104% in August, good news for rain-fed Kharif (or monsoon) crops such as rice, coarse grains, soyabean, pulses and cotton.
Further, in what will come as a relief to drought-hit swathes of India, the monsoon is expected to be well-distributed across the country, with IMD projecting 108% rainfall in the northwest region and 113% in central and peninsular India. However, rainfall is expected to be 94% of the 50-year average in the nation’s northeast region.
“After it hits Kerala, the pace of progression of monsoon (across the country) will be speedy,” said L.S Rathore, director general, IMD. “The second half of June is expected to receive more rainfall than the first half, and due to a La Nina situation, more rains are likely during September.”
La Nina refers to a phenomenon that results in cooler-than-normal temperatures in parts of the Pacific Ocean that is usually associated with plentiful rains in India.
Soumya Kanti Ghosh, chief economic adviser at the State Bank of India, said that historically, it has been seen that if there are two consecutive monsoon failures, agricultural growth picks up significantly when the rains revive. This happened in 2001 and 2002.
“I expect agriculture to grow around 5% in 2016-17, which will add around 50 basis points to overall GDP,” he added.
The monsoon season is crucial, with its onset marking the beginning of the sowing season for monsoon crops in the country.
India receives 80% of its annual rainfall in this period and more than half the country’s farmland is rain-fed.
The south-west monsoon recorded a deficit of 12% in 2014 and 14% in 2015, leading to a protracted period of drought and rural distress.
A good monsoon will revive farm incomes and boost rural spending.
“For the fast-moving consumer goods sector, the consumption story is of moving people from un-branded into branded (products) and this will happen when they have disposable money in their hands after their basic necessities like food are taken care of,” said Vivek Karve, chief financial officer, Marico Ltd.
A good monsoon will also replenish severely depleted major reservoirs, easing the drinking water crisis in several parts of the country. Water storage in 91 major reservoirs of the country for the week ended 26 May was just 17% of the total storage capacity.
“IMD’s forecast will come as a big relief to both farmers and the government. Not only will it boost Kharif sowing operations, the drinking water situation will also ease,” said T. Haque, director of Delhi-based Council for Social Development and former head of Commission for Agricultural Costs and Prices.
Though retail inflation remained under check last year despite a deficit rainfall, it has started inching up again.
Consumer price index-based retail inflation quickened in April to 5.39% and food prices rose by 6.23%, mainly on account of a sharp increase in the prices of pulses, sugar, meat and fish.
A good monsoon will ensure a good crop, keeping downward pressure on the overall inflation level in the economy.
The government has already set an ambitious target of producing a record 270.1 million tonnes (mt) of foodgrains in the crop year beginning June. The government’s target for 2016-17 is 7% higher than the 252.23 mt of production estimated for 2015-16.
The Reserve Bank of India (RBI) has set the retail inflation target at 5% for March 2017. If the pace of price rise remains within the comfort level of the central bank, it is expected to cut interest rates further, helping revive demand in the economy. RBI is scheduled to review its monetary policy on 7 June and is widely expected to keep policy rates unchanged.