The IMD's monsoon forecast though very preliminary evokes mixed emotions. At 93% of normal, it's less than the 96% level considered nor mal but higher than last year's 88% fig ure. Further fore casts will come in until monsoon arrives in June, but the fact that it is slated to be lower than normal would be a concern especially if this number deteriorates.
For the kharif crop, sown in June and harvested September-end onwards, it's imperative that monsoon arrives on time as it affects the sowing pattern. A delayed monsoon can lead to switching of crops from, say, rice to coarse cereals. Further, progress and withdrawal of rains are important for final output.
The monsoon is important as the kharif crop, dependent on SW monsoon, accounts for around 50% of farm output. Irrigation coverage in states such as Rajasthan (36%), MP (37%) and Maharashtra (19%) is limited and hence the timeliness and adequacy of rainfall important.
Haryana, UP and Punjab had deficient monsoon last year, yet managed well due to the availability of irrigation facilities. Further, crops like bajra, maize, groundnut, tur, moong, urad and soybean have limited access to irrigation and are monsoon-dependent. Pulses and oilseeds are particularly vulnerable as we supplement consumption through imports - this would tend to rise if there's a shortfall.
The macro impact of a lessthan-normal monsoon can be felt in three areas beyond the lower output numbers.
First, while agriculture's share in GDP has come down over the years, the farming community contributes to consumer-durable goods production including tractors and two-wheelers. It's critical for providing demand — typically during the harvest-cum-festival season post September. In the last two years, with this demand fading, industrial growth has been affected. Second, it's been observed that lesser monsoon in certain geographies can affect specific crops that can spike overall food inflation.While the overall number may be satisfactory, the spread across these crops is important. Further, the unseasonal rains of 2015 or its late withdrawal in 2013 led to crop damage - excessive rain at the wrong time negatively impacts prices. A forecast cannot capture this.
Third, monetary policy's been directed at the CPI inflation number. Hence any increase would have a bearing on RBI's interest rate action. The RBI has currently taken a flexible stance by lowering rates twice this calendar year. But with food inflation the main driver of inflation in the CPI index, an adverse monsoon would tend to pressure this component and can delay rate cuts.
It's too early for alarm. But state governments have to closely monitor trends and take remedial action on irrigation, especially where there is high monsoon dependency .
For the kharif crop, sown in June and harvested September-end onwards, it's imperative that monsoon arrives on time as it affects the sowing pattern. A delayed monsoon can lead to switching of crops from, say, rice to coarse cereals. Further, progress and withdrawal of rains are important for final output.
The monsoon is important as the kharif crop, dependent on SW monsoon, accounts for around 50% of farm output. Irrigation coverage in states such as Rajasthan (36%), MP (37%) and Maharashtra (19%) is limited and hence the timeliness and adequacy of rainfall important.
Haryana, UP and Punjab had deficient monsoon last year, yet managed well due to the availability of irrigation facilities. Further, crops like bajra, maize, groundnut, tur, moong, urad and soybean have limited access to irrigation and are monsoon-dependent. Pulses and oilseeds are particularly vulnerable as we supplement consumption through imports - this would tend to rise if there's a shortfall.
The macro impact of a lessthan-normal monsoon can be felt in three areas beyond the lower output numbers.
First, while agriculture's share in GDP has come down over the years, the farming community contributes to consumer-durable goods production including tractors and two-wheelers. It's critical for providing demand — typically during the harvest-cum-festival season post September. In the last two years, with this demand fading, industrial growth has been affected. Second, it's been observed that lesser monsoon in certain geographies can affect specific crops that can spike overall food inflation.While the overall number may be satisfactory, the spread across these crops is important. Further, the unseasonal rains of 2015 or its late withdrawal in 2013 led to crop damage - excessive rain at the wrong time negatively impacts prices. A forecast cannot capture this.
Third, monetary policy's been directed at the CPI inflation number. Hence any increase would have a bearing on RBI's interest rate action. The RBI has currently taken a flexible stance by lowering rates twice this calendar year. But with food inflation the main driver of inflation in the CPI index, an adverse monsoon would tend to pressure this component and can delay rate cuts.
It's too early for alarm. But state governments have to closely monitor trends and take remedial action on irrigation, especially where there is high monsoon dependency .
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