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Business News/ Industry / Monsoon blues
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Monsoon blues

Indian farmersand policymakersfret as the monsoon runs dry after bringing three weeks of bountiful rain in June. A second successive year of deficient rain could have a cascading effect across the Indian economy and stifle a nascent economic recovery

The progress of planting, particularly rice, the main kharif crop, will depend on rains in July and August. Photo: Pradeep Gaur/MintPremium
The progress of planting, particularly rice, the main kharif crop, will depend on rains in July and August. Photo: Pradeep Gaur/Mint

New Delhi: Damoder Ughade grows soyabean and cotton on six acres of unirrigated farmland in Wardha district of Maharashtra. This year, he finished sowing by the third week of June, helped by plentiful monsoon rain. Now, it’s been more than two weeks since it last rained, and Ughade is worried.

One more week without rain could damage Ughade’s crops. If the crops perish, he would have to sow them again. That’s not an easy option for the small farmer.

“I could not repay last year’s loan of 1.2 lakh from banks and moneylenders. And this year, banks are yet to give me a loan," said Ughade, 50.

Across India, millions of farmers are in a situation similar to Ughade’s. They finished planting their crops by the third week last month, helped by rainfall that was 16% in excess of the long-period average. Then the weather turned dry—bad news for farmers in a country where half the crop area is rain-fed.

They have had adequate warning. The India Meteorological Department (IMD) in April forecast below-average monsoon rainfall for the second successive year in 2015, and in June, downgraded the outlook to deficient, at 88% of the 50-year average.

The monsoon is considered below normal when the rainfall range between 90% and 96% of the long-period average and is considered deficient if it falls below 90%.

If the forecast were to prove correct, it would be a harsh blow to agriculture in a country where the June-September south-west monsoon brings 70% of the yearly rainfall and two-thirds of the population depends directly or indirectly on farming for their livelihood.

It’s not just farmers who are anxious. From politicians to policymakers, corporate executives and economists to stock market analysts, everyone with a stake in the economy is fretful.

Rural incomes and consumer demand in the world’s second-most populous nation depend on how bountiful, or meagre, the monsoon rains are. The monsoon influences food prices and inflation which, in turn, holds the key to interest rates. Corporate earnings and the stock markets dance to the monsoon’s tune.

The stakes have become larger this year after unseasonal rainfall and hailstorms destroyed 19 million hectares of winter crops across 15 states, piling more misery on farmers struggling after last year’s monsoon deficit. Smaller price increases for farm produce procured by the government for the subsidized public distribution system have also squeezed rural buying power.

The government should focus its efforts on minimizing rural distress, said Pronab Sen, chairman of the National Statistical Commission.

“Government needs to prepare farmers for low rainfall and provide inputs for short-duration crops. It needs to make available higher quantity of foodgrains through the public distribution system. If farmers are saved from getting indebted, then simply implementing the rural job guarantee scheme efficiently should be enough to take care of a drought-like situation," he added.

The job guarantee scheme offers 100 days of employment to at least one member of every rural household for at least 100 days in a year.

The government’s weather forecaster isn’t holding out much comfort on the monsoon front.

“Monsoon rainfall is expected to be below normal in July as well as August. While a low pressure system has caused rain in the last few days, we are expecting the negative impact of El Niño to intensify," said D.S. Pai, head of the long-range forecasting division at IMD.

El Niño is a weather phenomenon that leads to warming of waters in the Pacific Ocean, triggering atmospheric changes that affect rainfall in India and create drought-like conditions. In its latest update, the Australian Bureau of Meteorology said El Niño is likely to strengthen.

Helped by plentiful rainfall until 25 June, sowing of rain-fed crops such as pulses, oilseeds, cotton and coarse grains had been completed in 40% of the kharif, or summer crop, area by 10 July. But the progress of planting, particularly rice, the main kharif crop, will depend on rains in July and August.

In the week between 25 June and 1 July, and that from 2 July to 9 July, the rainfall deficit was 14% and 50%, respectively. July and August together account for 62% of the monsoon rainfall and much of the planting of crops takes place in these two months.

Farmers can only hope that IMD has got it wrong. The past shows that IMD isn’t infallible. The difference between actual and forecast rainfall was more than 10% in 1994, 1997, 1999, 2002, 2004, and 2007. In 2002, particularly, the government forecaster’s credibility was dealt a blow by a severe drought that it didn’t see coming.

In April 2014, ahead of the south-west monsoon, IMD projected that rainfall would be 5% below the long-period average, which was revised to a 7% shortfall by June. Eventually, rainfall turned out to be 12% below the long-period average—the worst in five years, reviving memories of the 22% shortfall in 2009 that precipitated drought.

What has added an interesting twist this year is that Skymet Weather Services Pvt. Ltd, a company that has been publishing monsoon forecasts since 2012, has predicted normal rainfall and stuck to its prognosis, contrary to the call by IMD, which has improved its accuracy with the deployment of supercomputers in Pune and Delhi adoption of new meteorological models.

Last year, despite a massive rainfall deficit (43%) in June and flash floods in north India, a late surge in the monsoon in the key planting months of July and August and a surplus in September came to the rescue of farmers.

It helped fend off drought and, in fact, boosted the prospects of winter crops such as wheat and rapeseed, which are grown in irrigated areas fed by reservoirs. India’s foodgrains output fell only by 5% to 251 million tonnes in 2014-15 over the previous year.

To be sure, the farm sector accounts for only around 16% of India’s national income and is unlikely to make a big dent in the country’s overall economic growth if food production drops because of a poor monsoon. In 2014-15, while growth in farm output was a negligible 0.2% against 3.7% a year ago, overall economic growth rose to 7.3% from 6.9%.

In a 6 July report, India Ratings & Research Pvt. Ltd said a reduction in rural spending in the event of a bad monsoon will be more a psychological outcome and less because of a sudden fall in affordability, because more than two-thirds of rural income now originates from non-agricultural activities.

“Companies having rural exposure could overcome this by innovating and shifting their goods/services to lower price points to offset the psychological barrier of perceived lower affordability," it said.

Nonetheless, normal rainfall is a crucial contributor for macroeconomic stability in a country where the government runs the largest food security programme in the world through public procurement of foodgrains. It’s also a key factor influencing the monetary policy of the Reserve Bank of India (RBI).

In June, after cutting the key policy rate by 25 basis points for the third time in a year, RBI governor Raghuram Rajan said the monsoon was the biggest uncertainty for the economy at this point of time; astute food management is needed to mitigate possible inflationary effects of a poor monsoon, he said.

Rajan has earlier cautioned that there were upside risks to inflation projections emanating from factors, including a possible intensification of El Niño conditions leading to a less-than-normal monsoon; large deviations in vegetable and fruit prices from their regular seasonal patterns, given unseasonal winter rains; geopolitical developments, leading to hardening of global commodity prices; and spillover from external developments through exchange rate and asset price channels.

Retail inflation, based on the Consumer Price Index, rose to an eight-month high of 5.4% in June, from 5.01% in May.

A pick up even in inflationary expectation as a result of poor rainfall could prevent the central bank from further rate cuts that are necessary to boost consumption and kickstart a stalled investment cycle.

Belying expectations of an industrial recovery, India’s factory output growth slowed to 2.7% in May as production of consumer goods contracted after a momentary pick-up in April, signalling that rural demand remains fragile.

Production of consumer durables shrank 3.9% in May after growing 1.3% in April—the first expansion since May last year. Production of consumer non-durables also contracted in May by 0.1% for the first time since October last year.

In 2009, the last drought year, the government prepared contingency plans and put in place relief measures in anticipation of a less-than-normal monsoon.

It ran awareness campaigns for farmers, provided them good-quality, short-duration seeds and other agricultural inputs, an additional diesel subsidy for protective irrigation to save standing crops and boosted spending on rural welfare programmes. In the absence of such measures, the impact of a deficient monsoon on farm production would have been much more severe.

This time, the National Democratic Alliance (NDA) government is taking no chances as it prepares for elections in key agrarian states this year and in the next. The government also has to disprove allegations by the opposition that it is “anti-farmer"—a tag it received for championing a bill to make it easier for big business to acquire farmland.

The NDA government has drawn up a detailed drought management plan by bringing all related ministries, such as agriculture, power, fertilizer, rural development and water resources, to work together with states to ensure that the impact of the rainfall deficit on agriculture and the broader economy is minimal. Additionally, the Union agriculture ministry has proposed subsidies on diesel, seeds and other farm inputs.

In a meeting as early as on 8 June, Prime Minister Narendra Modi asked officials to treat the deficit monsoon as an opportunity to improve irrigation facilities. That was not all. In the first week of July, the Union cabinet approved a 50,000 crore irrigation plan for the next five years. The goal is to provide all farmland assured irrigation and increase water-use efficiency in agriculture.

“An adverse monsoon situation can pull down production but last year’s experience shows that Indian agriculture is more resilient to weather woes than we seem to believe," said Ramesh Chand, director of the National Institute of Agricultural Economics and Policy Research, New Delhi, and a member of the national task force on agriculture.

“Despite the deficit monsoon in 2014 and unseasonal showers ahead of the winter harvest in 2015, production did not dip substantially. However, there were pockets of severe distress," he said.

“Also, even in a bad monsoon year, India will not have to import foodgrains due to large stocks of rice and wheat and the pressure on domestic prices will be minimal," adds Chand.

As on 1 June, the Food Corporation of India and state agencies held foodgrain stocks amounting to 56.8 million tonnes in rice and wheat, far more than the buffer stock norm of 41 million tonnes.

Ample stocks, therefore, mean food prices are unlikely to shoot up, but on the other side, a deficit monsoon will mean that farmers will feel the stress on their incomes and face the prospect of having to borrow more to spend on resowing, to provide irrigation with diesel pumpsets and due to lower yields.

IMD’s Pai points to one more silver lining.

“July and August definitely have a major impact on the monsoon. But we had very good rainfall activity in the pre-monsoon season, so there is good soil moisture available for the crops. Even if there is some rainfall in July and it is well-distributed, then we can manage. Most of our reservoirs are full. The situation is a lot better than last year," he said.

In farmer Ughade’s home state of Maharashtra, meaning, a worried state government is planning to use cloud seeding to ensure precipitation and provide life-saving water for crops if rains fail in August.

Farmers organizations say that direct assistance to farmers for resowing will be of more help than using expensive technologies such as cloud seeding. “Soyabean is a long-duration crop and if it doesn’t rain within the next seven days, farmers will have to go for resowing. That could reduce yields by as much as half," said Vijay Jawandhia, an activist with the Shetkari Sanghatana, a farmers group in Maharashtra.

“Resowing will increase farmers’ costs towards purchase of seeds and fertilizers and government can step in to reimburse farmers for this additional expenses. Also it needs to ensure power supply that is erratic now and ensure more work under the rural employment guarantee scheme to provide relief to farm households," Jawandhia added.

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Published: 17 Jul 2015, 01:01 AM IST
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