Home / Markets / Mark To Market /  Rains are yet to pick up, so why is no one worried?

The monsoon in India has been a damp squib so far. The rainfall deficit over 1 June to 6 September stood at 9% of the long-period average (from 1961 to 2010). August has been particularly disappointing with nearly 24% below normal rainfall.

As such, water reservoir levels aren’t high enough. Data published on 2 September from the Central Water Commission shows live storage available in 130 reservoirs in India stands at almost 65% of their total live storage capacity. The live storage available is 80% of the live storage of the corresponding period of last year and 94% of storage of the average of last ten years.

India’s farm sector depends heavily on the timely arrival and spread of rainfall during the monsoon season. By extension, the rural economy’s income and, therefore, demand too is guided by rains. Experts are not too anxious yet on the rainfall, saying that there are some comforting factors.

Not alarming yet
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Not alarming yet

While rainfall distribution in 2021 has been patchy, economists say it has been largely supportive with most of the key foodgrain-producing states getting the normal amount. Crop sowing for the kharif season has been remarkable too.

Further, the India Meteorological Department (IMD) has said rainfall in September is most likely to be above normal (more than 110% of the long-period average).

“The surplus rainfall in September is expected to lower the full season (June to September) deficit to 4.8% from 9% deficit currently," wrote Gaura Sen Gupta, an economist at IDFC First Bank, in a report on 2 September. Encouragingly, this month has begun well.

To be sure, in 2021, we are far better placed versus the drought scenarios seen in some of the years in the past decade.

“As per our irrigation coverage and agri GVA (gross value added) weighted rainfall indicator, India’s rain deficit is only 3% below normal and is much better than the drought year (CY14 and 15) deficits of 17-18%," analysts from JM Financial Institutional Securities Ltd said in a 1 September report.

The report added, “The irregular pattern of rainfall in July-August ’21, however, impacted agri-related investments including tractor sales but the overall growth trend is likely to revert back, as our checks suggest."

What about food inflation? JM Financial analysts point out, “Going forward, barring any extreme climatic shock, food inflation is expected to be contained in mid-single digits in 2HFY22, primarily due to the subdued outlook on cereal and vegetable inflation."

Nevertheless, how the September rainfall shapes up needs to be monitored closely. Any adverse outcome would impact farm output, Capital Economics said in its India Economics Update.

“Production of monsoon crops (kharif) has steadily declined as a share of total agricultural output, from 60% in 1990 to under 50% now. Agriculture’s share in GDP (gross domestic product) has also fallen, from 30% in 1990 to 15% now," said the firm.

The upshot is that the health of farms would be determined by not just the southwest monsoon, but also the northeast winds.

“While both spatial distribution of rainfall and sowing trend indicate limited impact on kharif sowing, there could be a risk to rabi crops if reservoir levels dip further. Good reservoir levels are essential for rabi crops, which are mostly reliant on irrigation facilities," pointed out the IDFC report.

As such, India’s rural economy prospects may well hinge on how wet September is.

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