Weak monsoons may impede GDP growth, up inflation in India
August 10, 2009
Dry skies are now threatening what has so far been the most resilient and countercyclical pillar of the nation’s private sector—farming. Weak monsoons this year is likely to dent the economic growth of India and also spark inflation.
According to CRISIL’s report, weak monsoons have emerged as a macroeconomic risk for growth as well as inflation. Scanty rainfall till the first week of August has raised spectre of droughts in India, said the agency. Several states in India are facing a drought-like situation which will definitely erode the GDP and the food inflation will continue to grow.
The extent of damage will only be ascertained after assessing the actual rainfall till the end of August. A 64% deficiency in rainfall between 30th July and 5th August has raised the overall deficiency to 25%. This has raised concerns on the impact on the agriculture sector. Similarly, the Indian Meteorological Department (IMD) has also cut its seasonal monsoon forecast, following scanty rainfall in the last couple of days.
According to IMD, rainfall in the June-September season is expected to be 87% of the long-period average (LPA) compared to 93% which was estimated on 24th June. The overall rainfall this year has been 25% below the LPA. Out of 36 meteorological sub-divisions, the overall rainfall between 1st June and 5th August was excess or normal in the 11 meteorological sub-divisions and deficient in 23 and scanty in 2 meteorological sub-divisions, IMD added.
While the overall national agriculture is not at the same risk level as it was in 2002, some states definitely face a grim situation. This will definitely shave off some part of the GDP. As food inflation continues, sufficient stocks of rice will help in keeping control over the prices. However, the prices of pulses and coarse cereals which are primarily rain-fed crops, and for which, no buffer stock exists, could remain firm. The performance of monsoon in next few weeks will be quite critical, the ratings agency said.
Dharmakirti Joshi, principal economist, CRISIL said, "DRIP scores which is based on data till 5th August show that Uttar Pradesh, Madhya Pradesh, Maharashtra, Andhra Pradesh, Bihar and West Bengal have been badly hit because of poor rainfall. These six states account for 47% of the total kharif food grain production and 46% of the total kharif rice production in India. Most of these states not only have high incidence of rural poverty but also has high dependence on agriculture. This is likely to translate into higher burden on the exchequer to provide relief to these states".
CRISIL measures the impact of rainfall using an index named Deficient Rainfall Impact Parameter (DRIP) based on the premise that both availability of irrigation and the level of precipitation affect crop production. Punjab and Haryana too have suffered from scanty rainfall but surprisingly have low DRIP scores, thanks to the irrigation buffer. The crop loss in the region may not be significant, but the cost of irrigation is likely to shoot up, and without doubt, escalate the input subsidy, Joshi said.
Talking about specific crops, Joshi said, according to CRISIL research data, rice is the most acutely impacted crop due to water scarcity. Poor rainfall has led to a sharp reduction in the area under rice cultivation, coupled with lower area under cultivation. This is likely to hold back rice production in the country.
According to CRISIL, crops like coarse cereals and pulses are in a weak position. Area under some of the coarse cereals and pulses has expanded this year due to attractive prices as well as substitution of rice area by these relatively resilient crops.
However, whether this increased area under crops leads to higher production will actually depend on the performance of monsoon in the weeks to come from now. But the indication so far is not quite promising, the report added.