|
Southwest monsoon: report card
The Southwest monsoon this year was 14% below the Long Period Average (LPA);worse than the 12% deficiency forecast by the India Meteorological Department (IMD).According to the IMD, rainfall from June 1 to September 30, was 760.6 mm of rainfall, as against a normal average of 887.5 mm. Northwest India suffered a shortfall of 17%, while rains in Central India were 16% below the LPA. Rainfall in the South Peninsula declined 15%, while the North and Northeast India had the best rainfall, clocking a shortfall of just 8%.Rainfall was normal or in excess in 51% of the districts and deficient in 49%. Due to the uneven spread of the rainfall, areas in the northwest of the country, Uttar Pradesh, Maharashtra, and Odisha face drought-like conditions.
"We are satisfied that our Long Range Forecast have turned out as per our prediction. This was for the first time that we made a prediction of more than 10 per cent deficiency," IMD Director General Laxman Singh Rathore said.
Water availability
It must be noted that India had a poor monsoon last year too. Experts say that such back to back droughts occur about once in 18 years. Indeed, the last one was back all the way in 1987-88.
This year's poor monsoon means that water stored in reservoirs too are low, with possible impact for the next season of crops. "The total storage capacity of these 91 reservoirs is 157.799 bcm which is about 62 per cent of the total storage capacity of 253.388 bcm which is estimated to have been created in the country," said a statement released by the Central Water Commission. Over the last decade, the average storage at monsoon's end was 77%. The storage situation is particularly worrisome in the southern states where the Commission estimates levels at 34 per cent of total capacity. (Businessline October 1, 2015)
The predominantly rain fed agricultural areas in east Madhya Pradesh, east UP, Bihar, central Maharashtra, Telangana, coastal and north interior Karnataka, and Konkan coast suffered the greatest deficiency in rainfall.
Impact on agriculture
The big question is how this deficient monsoon will affect agriculture. An interesting observation is that even while overall rainfall has been deficient, many districts have witnessed normal rainfall. Another factor is that the first month of the monsoon witnessed good rains. The monsoon then played truant and again revived in September with many areas receiving 23% to 68% higher than normal rainfall.The resultant moisture in the groundwill be important for a good rabi crop. (Business Standard October 1, 2015)
Actually in many areas agriculture may not be seriously affected. In fact the area for kharif crop has increased by 1.3% this year, led by pulses, whose area grew 12%. However due to the severe drought in U.P. and Maharashtra, sugar production is likely to decline 5% this year to 27 mt, according to the Indian Sugar Mills Association. Early estimates of the Agriculture ministry show that the previous year's food grain production of 126.3mt., will decline 2% to 124mt.
'The longest dry spell this season was in the Marathwada region of Maharashtra. Despite abundant rains in June, which supported sowing, a prolonged dry spell that began in early July increased rainfall deficiency in this region to 54%. This is believed to have damaged sown crops such as pulses, soybean, and cotton. For UP and Maharashtra, it was a double-whammy with two consecutive years of sub-par rains. Last year the high rainfall deficiency in these led to highest DRIP(Deficient Rainfall Impact Parameter, a measure developed by Crisil to estimate crop damage) scores. Together, Maharashtra, UP, and Karnataka, account for close to 30% of India's kharif food grain production'. (Moneycontrol Oct 10, 2015)
Impact on prices
Already prices of pulses have surged while onion prices are also climbing. However, the government has been taking steps to keep prices in check. It has authorised robust action against hoarders and kept a lid on guaranteed prices for rice. It has announced plans to invest Rs. 50,000 crores in irrigation over five years and has initiated action to develop a national market for agricultural products. Further, international food prices are also low, leaving room for imports if necessary.The short and medium term action already taken is expected to keep prices under control.
Rural consumption
With two back to back droughts, there is bound to be a drop in rural demand. Evidence of this can be found in slowing demand for two wheelers and tractors. About two thirds of Indian households rely heavily on farm incomes.
"Farm incomes have been hit by four factors:
Deficient rains in 2014 trimmed agricultural GDP growth to 0.2% in fiscal 2015 Unseasonal rains damaged the winter crop this year Poor rains in 2015 and Lower export prices for agricultural exports
In addition to farm income, cultivators also rely on wage income and more so if they are marginal farmers-owning less than a hectare of land. With the sharp slide in rural wages, the off farm income will also moderate,"writes Dharmakirti Joshi, Chief economist, CRISIL.(Quartz September 16, 2015)
How will this affect the economy?
About a third of the families engaged in agriculturelook to farm incomes as a supplement to their other incomes. Such income is less than half of their monthly expenses, according to a Ministry of Statistics survey.This means that the drought will have limited impact on spending, even though in the badly hit areas there could be a monsoon induced spending contraction. Today agriculture contributes just 18% to the national GDP, down from about 50% in an earlier era. "Rural consumption is unlikely to meet the same fate as it did about a decade ago,"according to analysts Sunil Kumar Sinha and Devendra Kumar Pant. (Bloomberg September 21, 2015)
Two back-to-back bad monsoons would have crippled India a generation ago. That's not likely now, with agriculture accounting for only 18% of GDP. However, that's not really a cause for relief for the economy. An economy that is struggling to shake out of its slumber and gather growth momentum, ideally needs both rural consumption and urban consumption to show healthy uptrends. Rural consumption is unlikely to oblige this year.
When you run, you need all four limbs to power you forward. The four limbs for our economy are urban consumption, rural consumption, government spending and corporate capex. As of now, only government spending is looking promising, and there is a lot of hope that urban consumption will come to life, with the Pay Commission report putting a lot more money into Government employee pockets, and benign inflation burning less of a hole in everybody's pockets. The other two limbs - rural consumption and corporate capex are unlikely to contribute in a meaningful way for the next 6-12 months. How fast can a runner move with two limbs out of four not contributing anything significant? Not very fast. Will two out of four be enough to pull the economy out of its prolonged slow growth phase? Or do we have to wait for next year's monsoon, which will hopefully be good, and which will hopefully bring rural consumption into the growth party, for the economy to finally show some solid growth? Have this year's bad monsoons effectively delayed a strong recovery by another year? That's the big question that is worrying market experts.
Share your thoughts and perspectives
Do you have any observations or insights or perspectives to share on this issue? Did this help you understand the topic better? Do you disagree with some of the observations? Please post your comments in the box below ..... it's YOUR forum !
Share this article
|
