No silver lining in this monsoon cloud

July 4, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

India’s monsoon rains have been delayed and were already 30 percent deficient by the end of June. There are doubts whether rains will pick up during the rest of the season. August and September are likely to be dry which will damage crops and reduce farm incomes.

Rainfall was fairly normal in the last ten years except for 2002 and 2009 when actual precipitation was 79 percent and 77 percent of the normal. Apart from the total amount of rainfall, its timing and spacing can be critical.

The crops most dependent on monsoon are kharif crops — principally rice, pulses, oilseeds and sugar. In 2009, while total food grains production declined 7 percent, that of rice was down 11 percent. Spacing of rainfall can hit crops differently since they are grown in different regions.

Shortfall of rain in Gujarat and Andhra Pradesh hits the groundnut crop, in Maharashtra and Uttar Pradesh the gram crop, and so on. But shortfall of rain in Punjab and Haryana does not have an immediate impact on crops because more than 80 percent of the sown area is irrigated.

The India Meteorological Department (IMD) had predicted a normal monsoon in the current year at 98 percent of the long period average with a 5 percent error. However, it is possible that El Nino conditions may emerge in August and September which can parch Australia, Southeast Asia and India while flooding South America. With a cycle of 3-7 years, the chance of El Nino emerging this year has been assessed at 50:50.

The monsoon is still a critical factor in Indian agriculture which generates about 17 percent of the country’s GDP. When the monsoon is short by more than 5 percent, there is generally a drop in kharif production. On average, a 10 percent shortfall in monsoon causes a 7 percent drop in kharif output. This pushes up food and non-food agricultural prices besides slowing down GDP growth.

There are enough stocks of foodgrains which can be used to check foodgrain prices. But that is not possible in respect of fruits and vegetables which were the main sources of inflation in the last two years. Hence, a monsoon failure this year can increase food inflation.

The fall in agricultural production will impinge on FMCG industries, raising the costs of agricultural raw materials, shaving profit margins and knocking down the stock market.

The fall in agricultural production and industrial growth would naturally be reflected in GDP.  Broadly, a 10 percent shortfall in monsoons would pull down GDP growth by 0.8 percent.

Monsoon still counts for a lot. Apart from its importance for agricultural production, the monsoon affects replenishment of ground water, water levels in the reservoirs and consequently the generation of hydel power, as also the availability of drinking water. The Supreme Court had suggested a review of inter-linking of rivers which undoubtedly is costly but can still be a viable option. The immediate need, however, is to shift to crops like millets which are drought-resistant.

Full coverage of the monsoon here

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