India Rainfall Update
States accounting for c.55% of total crop production have received surplus/normal rainfall, but inadequate rainfall in pulse-growing states is a concern; reservoir levels, crop sowing yet to respond, says Standard Chartered Bank report
Domestic factors are likely to shape India’s economic growth prospects amid global economic and political uncertainty. Hence, monsoon performance has gained importance in FY17 (year ending March 2017). A normal monsoon, after a gap of two years, will likely boost agricultural production and thus rural demand (c.50% of total consumption). A rise in agricultural growth to 3-4% from 1.1% in FY16 could add 30-45bps to GDP growth, according to Standard Chartered Bank estimates.
According to it “Rainfall deficiency had narrowed to 16% of the long-period average (LPA) on 27 June from 25% on 16 June. In an encouraging sign, rains have covered the southern and northwestern regions, which contribute c.55% of crop output. However, crop sowing and reservoir levels have yet to respond. Reservoir levels in the country as a whole have dropped to their lowest in four years, and sowing is down c.24% y/y (as of 24 June). Interestingly, the southern region, which has the worst reservoir deficiency, has witnessed surplus rainfall recently”.
It believes the monsoon’s impact on food inflation will likely be primarily via pulses. Distribution of rainfall in pulse-growing states is uneven, with pockets of significant deficiency. Pulses are highly sensitive to rains, as only c.16% of pulse-growing areas have access to irrigation facilities. With pulse inflation sticky at c.34% in the past 12 months, a better monsoon would reduce price pressure in pulses and in turn food inflation. We will therefore closely monitor rain performance in pulse-growing states. While June could still end with a marginal rainfall deficit, if rainfall remains adequate as forecast in July and August, it could provide much-needed support for growth and inflation. Close to 60% of rainfall and crop sowing happens in July and August.
|Figure 1: Monsoon performance in the next two months will be crucial|
|Source: Indian Meteorological Department , Standard Chartered Research|