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Opinion | There is reason to worry about the monsoon this year

Not only has the frequency of El Niño risen, this global phenomenon is also impacting rains more often

At 96%, the India Meteorological Department (IMD) has predicted a “near-normal" monsoon in 2019. In contrast, private weather forecaster Skymet, citing an El Niño possibility, has a damp prognosis: “Below-normal" rains at 93% of the long-period average (LPA).

It’s a “near-normal" season if rainfall is 96-104% of the LPA.

El Niño conditions occur as temperatures rise in the equatorial region of the Pacific Ocean, which impacts global weather. In India, it generally leads to lower rainfall.

The IMD has predicted a near-normal monsoon seven times in the past 10 years, but those calls were correct only on three occasions. Of the balance four, two were below-normal, one deficient, and one saw a deluge.

To be sure, a near-normal forecast is encouraging. However, for agriculture, apart from the quantum, the temporal and spatial distribution of rains are equally important.

A normal, well-distributed monsoon creates upsides to growth and keeps food inflation in check. Unevenly-distributed rains, even if normal, can hurt agricultural production.

El Niño has been hitting rains over and over. The IMD is working on the assumption of weak El Niño conditions in 2019. However, Skymet and several international forecasts predict a slow start to the monsoon because of El Niño. April and May are crucial to any change in these conditions. But in the past, El Niño conditions have had unpredictable and uneven impact on monsoon, with even a year of weak intensity wreaking havoc.

Of the past three droughts that India had faced, two (2002 and 2009) had seen moderate El Niño conditions, whereas one (2006) was a weak El Niño year.

What’s worth noting is that El Niño is impacting the Indian monsoon more than before. Since 1991, six of the nine times that El Niño occurred, the Indian monsoon was affected. Mathematically, that’s tantamount to an impact probability of over 65%.

A closer look also reveals two interesting developments: One, the frequency of El Niño has increased—it has occurred six times since 2000. Two, Indian monsoons suffered in all but one of these years, taking the probability of impact to over 80% in recent times. This is the reason why the upcoming monsoon deserves a close watch.

There are regional as well as temporal dimensions to it. Agriculture needs timely and well-distributed, as well as the right amount of precipitation, for a healthy output because of inadequate irrigation.

Incidentally, three of the past 10 years that saw near-normal rains also recorded good distribution, which is also what the IMD expects for 2019. Good distribution is critical this year because the past two seasons didn’t just see below-normal rains (95% of LPA in 2017 and 91% in 2018), but also skewed distribution. In 2017, the temporal dimension was affected as rains weakened in August. However, in 2018, regional rains were skewed, with 33% sub-divisions facing deficiency.

During fiscal years 2017-18 and 2018-19, the steepest declines in nominal growth in agriculture—a proxy for farm prices—were in Madhya Pradesh, Maharashtra, Odisha, Bihar, Telangana, Punjab and Karnataka. However, their real gross value added (GVA) growth also declined, indicating overall loss of income.

Severe rainfall deficiency in some states and sub-regions affected agricultural output. It was a double whammy for farmers because in some of these states, crop prices also fell rapidly, weighed down by a supply glut at the all-India level, reducing their incomes.

Insufficient water reservoir storage levels is another challenge in some of these states, and well-distributed rains are necessary to mitigate this. The Central Water Commission’s latest data on water storage suggests all-India levels are 104% higher than average. But masking this are conditions in Gujarat, Maharashtra, Andhra Pradesh and Telangana, where storage levels have dipped to 30-85% below normal.

Yet, the problem is not so much in states such as Bihar and Punjab, which have good irrigation cover, better procurement of foodgrain, and lesser dependence on reservoirs. The worry is in regions where irrigation coverage is low and several sub-regions have experienced not one but consecutive years of rainfall shortage.

So, what does this mean for the economy? Over fiscals 2017-18 and 2018-19, growth in real GVA of agriculture rose at an average 4.7%, or twice as fast as the preceding three fiscals. This culled food prices. So, despite higher real growth, nominal growth in agriculture GVA fell to 7.6% from 10%, indicating a fall in farm prices and, as a result, farmer margins. Naturally, food inflation mirrored this, sliding to 2.1% during fiscals 2017-19 from 7.8% in the preceding three fiscals.

The past three fiscals have seen the price effect overtaking the output effect in determining farm income. The situation is worsened by a sharp rise in input costs. Therefore, if rains are inadequate this year and hurt output, the consequent rise in food prices could offset some of the income loss of farmers. But that could also push headline inflation above the Reserve Bank of India’s medium term target of 4%.

Ergo, cautious optimism would be par for the course.

Dharmakirti Joshi & Dipti Deshpande are, respectively, chief economist and senior economist at CRISIL Ltd. These are the authors’ personal views

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