Erratic monsoon raises inflation worries in India

Poor monsoon showers are threatening India's nascent economic recovery and could make food even more expensive in a country where more than half of the population depends on rain for farming.

The weather pattern, which usually begins its four-month journey from the southern state of Kerala on June 1, stalled for three weeks after bringing higher-than-average rains in the first half of last month. The monsoon has now revived, but the delay and poor precipitation will hurt the sowing of crops such as rice, cotton and soybeans.

This could further boost food prices, which have already pushed India's retail inflation above the central bank's 6 per cent upper limit. The monsoon's progress in the coming weeks holds the key to farm incomes and rural demand at a time when manufacturing and services sectors have suffered due to the coronavirus pandemic. Agriculture accounts for about 18 per cent of India's economy.

"The progress of monsoon during July-August is critical as it has a significant bearing on sowing and crop yields for the year," Barclays Plc's economist Rahul Bajoria said in a note. Weak sowing, coupled with uneven monsoon, could affect crop yields and farm output, "posing upside risks to inflation," he said.

The monsoon irrigates more than half of India's farmland and shapes the livelihood of millions. The nation is the world's second-biggest producer of rice, wheat and sugar and the top importer of palm oil. A lack of rain could lower production and lead to higher imports of commodities.

Total rainfall has been 6 per cent below normal this monsoon season, affecting regions with poor irrigation facilities. Sowing of crops including rice, cotton, corn and pulses has slumped about 12 per cent from a year earlier, according to the farm ministry. July tends to be the wettest month.

Rainfall distribution has been uneven. Northwestern areas have got 15 per cent less precipitation than usual so far and it was 10 per cent weaker in central regions, where a sizable crop is grown, according to India Meteorological Department. There's also deficient moisture in eastern regions, though the southern peninsula received 20 per cent more rain.

Watching progress

With the Reserve Bank of India's Monetary Policy Committee set to review interest rates next month, any further setback in the monsoon's progress could affect the central bank's outlook on economic growth and inflation, which it sees easing in the coming months.

Dilip Patidar, a farmer in the central state of Madhya Pradesh, said he was "desperately waiting" for showers to prevent a loss in yields at his 6 hectares (14.8 acres) farmland where he has planted soybeans, peanuts and corn.

The weather office still predicts normal rain for the entire season so it may be too early to talk about the impact on production, according to Prerana Desai, head of research at Samunnati Financial Intermediation and Services Pvt.

"Sowing window is still there for most of the crops," Desai said. "Still, food prices in India will be strong in the coming months due to higher global prices and the delay in rains." (Bloomberg)