IMD's first monsoon estimate is good news: But, here's why it's not yet time to celebrate - Firstpost
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IMD's first monsoon estimate is good news: But, here's why it's not yet time to celebrate

  Updated: Apr 13, 2016 15:20 IST

#Economy   #IMD   #Inflation   #Kharif crops   #Monsoon forecast   #NREGA   #Pulses  

The recent forecast of the IMD is important as it gives some indication of what the south west monsoon is likely to be. As the IMD has observed, the El Niño conditions have withdrawn meaning thereby that the rains will be normal. The model shows that monsoon will be 106% of the normal or long term average (which is reckoned at 89 cms). This is good news for the economy because we had droughts in several parts of the country in 2014 and 2015 on this score with both of them being classified as drought years. It should be pointed out that the monsoon has a strong bearing on the growth prospects of the economy and is completely out of the purview of any policy being fully exogenous to the system.



Further the IMD model says that there is 94% probability of the monsoon being normal to excess which indicates the level of certainty of this event. The next forecast would be in June which is also the time when the monsoon is supposed to officially arrive and one will have some idea of this occurrence. In the past it has been observed that the second forecast is always better than the first, in the sense that the projections of monsoon improve. Therefore there is reason to be sanguine about the rainfall this year which will provide support directly to the kharif crop which roughly constitutes half of the agri output and also contributes to the water retention that is used by the rabi crop. Given the low levels of water in the reservoirs in Maharashtra and other adjoining regions this will be comforting though one will have to wait for another 3 months before drawing firm conclusions.

How important is the monsoon in India? There are two reasons for the monsoon being critical the first is that roughly 70% of kharif crops are dependent on rainfall as irrigation is concentrated in the northern states and crops like rice. Coarse cereals, pulses and oilseeds which grow in the interiors are largely supported by the rains. Any shortfall can create problems on supplies and prices. Second, the reservoirs which provide water for household purpose besides farming need to be filled up or else there would be shortage in the coming months. As the rivers of the south are more rainfall dependent these two issues become critical.

From the economic standpoint a good monsoon, which is a prerequisite for a good crop, means two things. The first is higher income for farmers which are normally spent in the post-harvest season on consumer goods and automobiles. Good sowing also goes along with the sale of tractors. Hence this gap which has been left in last two years will be filled this time in case the rainfall is normal. Also industry will in turn look to receive some stimulus once this demand fructifies. The second pertains to inflation which will tend to get moderated once the harvest is normal as the supply issues are addressed.

There are secondary benefits for the government in particular too in case the monsoon is normal. The NREGA programme will be less stressed as farmers would become self-sufficient. In the last two years these outlays had to be increased to provide for employment support which was through the budget. This could enable the government to spend more on infrastructure as it is working with the constraint of adhering to a firm fiscal deficit number. Further a good monsoon would lower the incidence of financial distress among farmers and hence the chances of loan waivers will reduce this time. Also hopefully there will less farmer indebtedness and suicides.

Is it time to cheer? Not really because these are only expectations of the rainfall which has to get translated into positive outcome. Water is one of the inputs that go into production and the overall prospects depend on other factors as well. Even an overall normal rainfall number could be misleading as there are other considerations. First is the arrival of monsoon in various parts of the country. The schedule is critical as it affects the sowing pattern. Second is the progress where crops growth gets affected and hence volatility in rainfall though resulting in normal number could hinder crop prospects. Third is the departure of the rains as a delay can damage the crops.

Even if all three conditions are met, the spread across the meteorological zones is important. Out of the 36 zones there are 8-10 which are vulnerable as they are in the interiors or rain shadow areas. This affects prospects of crops like maize, bajra, pulses and soybean besides cotton. This last factor has been responsible for inflation in the past as specific failure of crops like pulses or damage due to excess rains in case of onions had pushed up food inflation and come in the way of monetary policy.

Hence while this first estimate is very good news we need to see how the other factors work as they all go into the final prospects of kharif output and hence income growth, demand, support from government and finally inflation. And one never can tell how these would work out at this juncture as no one has control over the flow of winds and cloud formation.

The writer is a Chief Economist with CARE Ratings. His views are personal

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