Inflation to stay sticky: pulses, cereals output seen down

It is official. The government expects the country's kharif output to fall to 117.18 million tonnes, 11.84 million tonnes lower than the target, due to the erratic monsoon.

Agriculture Minister Sharad Pawar has said he expects the short fall to be offset by the rabi output.

According to Met department data, the country's rainfall was 5 percent below the long period average as of 19 September, when as much as 95 percent of the rainy season is over.

"We believe this, coupled with poor distribution trends (temporal as well as spatial), will affect the summer (Kharif) crop output," Morgan Stanley said in a note.

Reuters

Kharif rice production is projected to be 85.59 million tonnes, lower than the target of 89 million tonnes.

This is unlikely to be trouble for the government as there is enough buffer. The case is the same with wheat too. Last year, wheat output had hit a record high of about 93 million tonnes.

However, the danger of an inflation spiral is clear and present.

Coarse cereals production is seen at 26.33 million tonnes compared with the targeted 33 million tonnes and that of pulses at 5.56 million tonnes (6.16 million tonnes), according to a report in the Business Line.

Oilseeds production is also likely to lower than the target-at 18.78 million tonnes vs 20.78 million tonnes.

However, Pawar expects "encouraging" soya bean production to offset the decline in groundnut.

"While the area under coverage was lower for rice, excess stock for rice will mean that the government will be able to prevent adverse impact on rice prices by offloading the inventory. However, lower area under coverage for pulses and coarse cereals is a key concern from food inflation perspective," Morgan Stanley said.

The rabi crop is likely to benefit from two aspects: one, due to the lingering moisture level in the soil due to the extended rains and the improvement in reservoir levels.

"We expect winter crop output (quarters ending March and June 2013) to be normal with improvements in rainfall since August having lifted water reservoir levels above normal levels," Morgan Stanley said.