Commodity Analysis

Progress of rains less than ideal

Aditi Nayar | Updated on January 17, 2018 Published on July 03, 2016

Low ground water levels have led to sluggish start to sowing of most kharif crops

Pay Commission payouts may be a welcome shower of salary, but monsoon showers matter most for the economy. Why so? The proportion of the country’s working population dependent on agriculture was at 38 per cent in 2011-12 — and this, even as the share of agriculture in the Indian economy stood at a modest 15 per cent in 2014-15. With the assurance of irrigation available for less than half of the net sown area, the volume of rainfall, particularly during the monsoon period of June to September, remains vital for irrigating crops.

Even though the non-crop sectors have gained significance in driving the rural economy, the volume of rainfall is key for various activities, including drinking water for the populace and livestock. Moreover, storage levels in reservoirs affect the generation of hydroelectricity.

As a result, the whims of monsoon rain retain a fair bit of influence on the purchasing power of rural India.

Unsteady start

After the distressing deficits of 12 per cent and 14 per cent, respectively, in 2014 and 2015, the India Meteorological Department’s (IMD) forecast that monsoon rainfall will be 6 per cent higher than the long period average (LPA) in 2016 brought cheer to the farm economy as well as the producers of goods and services catering to the rural sector.

Monsoon has been unsteady in the first month of the season, as cautioned by the IMD.

Overall, the volume of rainfall in June 2016 was 11 per cent below the norm, with some regional variations.

Positive outlook

However, the IMD has projected rainfall over the country to exceed the LPA by 7 per cent and 4 per cent, respectively, during July and August 2016, thereby making up for the June deficit. Precipitation in September 2016 would still need to exceed the LPA by as much as 24 per cent to validate the IMD’s forecast for the 2016 monsoon.

The dreaded “El Nino” conditions over the equatorial Pacific Ocean have weakened and the expectation of the more beneficial “La Nina” conditions being established as the monsoon progresses augurs well for heavier rainfall towards the end of the season.

However, the expected temporal distribution in 2016, i.e. a deficit in June followed by excess rainfall in the ensuing three months, particularly in September, is admittedly less than ideal. This is particularly so in the prevailing scenario of low groundwater and reservoir levels, which have led to a sluggish start to the sowing of most kharif crops. Heavy rainfall in September, when the crops are closer to maturity, may be somewhat counter-productive for the standing kharif crop.

Contrasting trends

The expected turnaround in the performance of agriculture is likely to reinvigorate rural demand in the second half of this fiscal. Nevertheless, some selective indicators are likely to see a contrasting trend. For instance, lower demand for pumping ground water for irrigation would dampen the pace of growth of diesel consumption.

Food inflation is expected to dip as the monsoon progresses, taking a cue from improved kharif acreages, as well as lower prices of perishables following a decline in temperatures, even if their output is not correlated with the monsoon. A favourable monsoon may also benefit the fiscal health of the Central and State Governments, particularly if demand for work under the MGNREGA eases and less funds are required for activities such as drought relief.

While the monsoon may turn out to be favourable in 2016, a concerted effort is required to reduce the vulnerability to variations in rainfall. Augmenting the storage of rainwater and reducing run-off; switching to less water-intensive crops; expediently completing pending irrigation projects and adopting more efficient methods of irrigation — these would ease India’s dependence on monsoon.

The writer is Senior Economist, ICRA

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