Home / News / India /  Poor monsoon likely to hit crop output, amplify rural slowdown

The slowdown in the rural economy can intensify if monsoon rains continue to be weak and uneven in their spread. Successive years of below normal rains and credit crunch have already hit private consumption, reflective in the deceleration in sales of automobile and consumer goods.

As of 24 July, monsoon rains for the June-September season were 19% below normal. Deficient rains can hit demand prolonging consumption slowdown. “Lower rainfall could also pose headwinds to the rural economy which has been reeling under severe stress for a long time. This could result in lower private consumption growth and lower headline GDP growth in FY20," ICICI Securities Ltd said in a note.

The fear is that weak rainfall can hit crop output as Indian farmers are primarily dependent on rains for irrigation. This can not only weigh on rural income but can also stoke inflation. Large parts of top coarse cereals, pulses, fruits and vegetables producing states have received below normal rainfall till 24 July. Similarly three of the top five rice producing states—West Bengal, Odisha and Chhattisgarh—have received deficient rainfall till now.

Poor rains have weighed on sowing activity as crops have limited sowing windows. If rainfall and sowing trends do not gather pace in what is left of the season, food production most likely will take a hit. “This has significant implications for the economy. Below-normal rainfall could lead to lower food production and subsequently higher inflation," ICICI Securities adds.

According to Kotak Institutional Equities, food prices have perked up over the last week, though the reasons behind the price rise are unknown yet. “Vegetable prices increased 16.5% over last week while the prices of pulses increased 1.8%," Kotak said in a note on 26 July.

From a food security point of view the situation is not alarming yet. Technological advancements means India has been producing more than it consumption. Central government agencies are loaded with excess stock. “Central Pool continues to be in excess of the prescribed buffer stock norms. As on 1st July, 2018, the Central stock was 65 million tonnes against the norm of 41 million tonnes," points out Economic Survey 2018-19.

Even so, given that crops generate an overwhelming three-fifth of the agriculture gross value addition (GVA), weak rainfall and crop acreage trends do not bode well for rural income. “As per IMD projections, rainfall will likely see a revival toward the end of July. Any failure of Monsoon to show significant recovery by then would not only hit sowing but also productivity of the already sown crop," Elara Securities (India) Private Limited said in a note. “Amid continued distress in rural India, remedial measures such as swift distribution of high-yielding seeds, ramp-up in agriculture credit disbursement and payments under the PM Kisan scheme remain critical." Ends

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