Rainfall during the monsoon season assumes greater significance since around 70% of sowing takes place during this season.
Paddy, soybean along with some other oilseeds are major kharif crops sown during the onset of monsoon, for harvesting in September-October season.
The significance of the monsoon rainfall and its even distribution can be gauged from the fact that most agri and economy related policy decisions are estimated based on the monsoon rainfall and changed according to its actual receipt.
Meanwhile, Sonal Verma, an analyst with Nomura, said: “India’s monsoon season (June-September) has begun on a weak note. So far in June (1-26) rains are currently tracking 16% below the long period average (LPA). Spatial distribution of rains has been uneven, crop sowing is delayed and reservoir levels are worryingly low. Production of pulses, oilseeds, coarse cereals and cotton could be at risk, if rains don’t improve.”
She added even as June rains have disappointed, we are not worried, as July rains matter more (for crop output) and they are forecast to improve. Assuming rains recover in July, we expect kharif (summer crop) production growth to rise to 3.2% y-o-y in 2016 (versus -3.2% in 2015). This, coupled with a weak base, should push up agriculture growth to 3.6% in FY17 from 1.2% in FY16, adding 30 basis points (bps) to headline gross domestic product (GDP) growth.
Region-wise, Central India (30% below normal) and North East India (-24%) have witnessed the highest rain deficiency. Bigger states reporting deficient or scanty rainfall, such as Gujarat, Madhya Pradesh, Maharashtra and Rajasthan, have a higher share in the production of pulses, oilseeds, coarse cereals and cotton, which could be at risk, if rains don’t improve.
With monsoon rains slow to start, sowing has taken a hit. Total sown area stood at 11.7% of normal sowing area as on June 24, lower than 15.4% in 2015. Reservoir levels (at 15% of the live storage capacity) are at worryingly low levels.
Food price inflation rose sharply in May, but it has moderated in June. Going forward, although good rains are a positive for production, they do not guarantee low food price inflation. Despite that, food price inflation is expected to ease from current levels owing to relatively stable rural wage growth and favourable base effect in Q4 2016, Normura said in a report.
India received deficit monsoon rainfall during the last two seasons, resulting in lower kharif and rabi crops output which ultimately resulted in rising food inflation in the last few months.