Mumbai: Stating the deficient rainfall situation is similar to that of the 2009 drought, ratings agency Crisil today said the shortfall will have an adverse impact on headline inflation and push it beyond estimates.
The agency’s research wing said wholesale price index-based inflation, one of the key factors used by the Reserve Bank in its policy making, will go beyond its estimate of 7 percent due to the scarcity in rains and the resultant price escalation on food items.
“The rainfall pattern so far this year is similar to that seen in 2009 which was an all-India drought year. This has raised the spectrum of drought in the country this year,” the research note said.
The report further said, as a result, “food inflation, which is already high, will face further pressure due to the poor rainfall. The prices of pulses and coarse cereals, which are rain-fed crops and for which no buffer stocks exist, could flare up as a result”.
However, the agency did not offer a revised inflation estimate.
Additionally, prices of oil seeds are also expected to rise because of lack of adequate sowing due to lower acreage, it said.
Ever since the start of the current monsoon season, and the weakness in precipitation thereof, it is being widely feared that it may have an impact on the inflation, RBI’s guiding factor in determining monetary policy.
An uptick in inflation will only end up compounding the economic woes as the RBI will not relent to the demands from the industry to lower its elevated policy rates, citing inflation.
The RBI is expected to come out with the first quarter review of the monetary policy on 31 July.
As per the latest revised data of 18 July, overall monsoon has been 21.9 percent below the long period average. Though the Met department today said the monsoons will pick up from next week.
Agricultural production in Gujarat, Rajasthan, Maharashtra, Karnataka and Madhya Pradesh is likely to be hit the most by poor rainfall, it said, adding that the deficient rainfall impact parameter (DRIP) system developed in 2002 was used to come to this conclusion.
Of the lot, Rajasthan and MP have high rural poverty and higher dependence on agriculture, it said, noting that providing relief to these states will translate into a higher burden on the exchequer.
On the crops front, coarse cereals (jowar, bajra) oilseeds (groundnuts, soyabean) and pulses (tur) have been impacted the most by deficient rains, the report said.
For most of these crops, the DRIP score is higher than that in 2009, it added.