Monsoon to boost agri income, output this year despite 5% deficit: A point by point explainer

The monsoon is now in its last stage with just a fortnight left before it finally recedes. The focus now is more on the withdrawal of the rains which starts normally from this point of time as adhering to a schedule is beneficial for the harvest. The monsoon began with a bang on the back of two drought-like seasons in 2014 and 2015. However given that the rainfall during June-July was very good, the outcome as of today could look a bit out of place given that the shortfall till mid-September has been 5%. Would this be a concern?

Not really, as there is reason for one to feel more positive about the impact for two sets of reasons. The first relates to the spread of this monsoon across various regions and the other is the area that is under cultivation. Both these factors provide comfort when a deeper analysis is done.

Of the 36 meteorological zones, 27 have witnessed normal to surplus rainfall. The balance 9 which are in deficit, have a silver lining. States like Haryana and Punjab are well irrigated and would not really be affected by the deficit in rainfall and hence output would continue to be normal. The north eastern states of Assam, Meghalaya, Tripura, Manipur and Mizoram are not major contributors to the agricultural production of the country and would hence not impact farm output directly.



Besides while there has been a deficit in these regions, the aggregate rainfall has been above 1000 mm, which though lower by their own standard normal, is higher than almost all other divisions in the country. The deficit regions are coastal Karnataka and Kerala followed by Gujarat which could have a bearing on cropping prospects. Hence, the overall impact would tend to be fairly positive.

Looking at the area under cultivation, the acreage under cereals, pulses and oilseeds are higher than that of last year. Hence even by assuming unchanged yield per hectare, overall production should be higher than last year for these crops which will further help to cool down prices.

In particular, tur and urad, which have witnessed a very high increase in prices last year, would become more affordable. In fact, the recent decline in prices of pulses can be attributed to dealers offloading the old stock in anticipation of higher flows this year.

A good kharif harvest helps not just prices but also enhances income of farmers which can contribute to the consumer spending cycle which we are banking on. The consumer goods industry in particular, has been doing well so far, and would accelerate if this story plays out as visualized. There is already an uptick in demand for tractors and two wheelers in the rural areas.

The concern would be in the area of cash crops like cotton, sugarcane and jute where acreage is down. Sugar in particular would be vulnerable where the government needs to take action through imports as prices have been increasing in the market. It may be recollected that the government has tried to lower the acreage under sugarcane production in 2015 due to the high consumption of water involved which has diverted production to crops like pulses and oil seeds where prices were higher last year.

Is there anything to watch out for? The withdrawal is important because at times a late withdrawal has damaged crops in the horticulture space. This was the case with onions and tomatoes which did create severe distortions in the markets. A stable withdrawal would help to keep production and prices stable. Second, as acreage of pulses has increased sharply ostensibly on the back of higher prices last year, there could be a crash in prices in case output is substantially higher.

Ideally the government should mop up excess tur by creating a buffer stock which will help in price stabilization. Third, sugar imports have to be reckoned in advance if production is lower. The season is October to September for sugar and if there is a sharp fall, it would have repercussions till next October. Fourth, there have been floods in several parts of the country and the resulting negative impact on specific crops would be known in September-October. Although this is not expected to be significant there could be pain points at the margin.

A facet of the monsoon that is less spoken about is the level of reservoirs in the country. This is critical as it provides a clue on the supplies that will be made available to the people during the course of the year. It may be recollected that in several parts of the country, the level had fallen to near nil especially in interior Maharashtra. Here the story has been generally good. As of the first week of September the reservoirs had 69% of total storage capacity which was 117% of that last year and 97% of the last ten years average. This is good news for both the people and cattle as it would lower the potential stress points.

On the whole we can be bullish of the monsoon and its direct effects on output and income. However, the efforts of the states must be relentless in the areas of irrigation and high yielding varieties of crops. The cycles in monsoon have become erratic with the El Niño having long lasting effects across the globe. A good monsoon gives the government the cushion to strengthen the farm economy by providing end to end solutions. We should not miss this opportunity.