Normal monsoon forecast to boost farm sector

Updated: Apr 20, 2011, 09:19 AM IST

New Delhi: India on Tuesday forecast normal rains for the 2011 monsoon, strengthening the prospects of a plentiful farm output that could help bring relief to Asia`s third-largest economy in its battle with high prices.

Rainfall is likely to be 98 percent of the long-term average, Earth Sciences Minister Pawan Kumar Bansal told reporters, adding that the forecast would be reviewed in June when the monsoon, which irrigates 60 percent of Indian farms, arrives.

Prime Minister Manmohan Singh`s government, which was voted to power largely on rural support, has struggled with double-digit inflation for most of its second term.

A good monsoon would be able to do what repeated raising of Reserve Bank of India (RBI) rates has failed to do -- cool off inflation.

Good rains could not only help instil investor confidence in an economy projected to grow at about 9 percent in 2011/12 but also boost food output in one of the world`s top consumers and producers of a range of agricultural commodities, potentially helping Asian governments to battle food inflation.

"Normal monsoon will bring some optimism that food inflation can be contained with higher food grain production," said Harish Galipelli, vice-president of JRG Wealth Management.

"Kharif (summer sown) crop is bigger in the country, and a normal monsoon will help. But any deviation in the monsoon rains may not be good news for the economy."

A failed monsoon could force India into the international markets as a buyer, as happened in 2009 after initial forecasts had called for normal rains. That year, Indian purchases of sugar sent prices to a record high.

A normal monsoon means the country receives rainfall between 96-104 percent of a 50-year average of 89 centimetres during the four-month rainy season, according to the weather office classification.

Maybe not enough

Normal rains, however, may not help in the fight against inflation beyond generating positive sentiment. With agriculture accounting for only about 14.6 percent of GDP, its overall contribution to growth remains limited, some analysts said.

"It is too premature to make any prediction of the inflation trajectory just based on the monsoon forecast. What matters is not just the normal monsoon but also the geographical distribution of the rains," Rupa Rege Nitsure, chief economist of Bank of Baroda, told.

"Secondly with global warming and other environmental hazards, the credibility of the early forecast is not very high. So it is not correct to base any projection of growth or inflation on these forecasts alone. It is only a positive, feel-good factor for the time being."

The head of India`s meteorological department said the weather pattern La Nina, which brings more than usual rain, would remain neutral. "So long as La Nina condition remains neutral, there is no cause for worry," Ajit Tyagi said.

Earlier, the deputy head of the Indian Council of Agricultural Research said good rains were expected over southern and central regions, boosting prospects for rice and soybean crops, but lower rainfall in the western region could impact reservoirs.

Monsoon forecasting in India is carried out by government-run organisations and has significant political implications in a country where more than 60 percent of voters are in rural communities and form the bulk of the government`s support base.

The ruling Congress party, which is mired in a slew of corruption charges, is fighting state elections. Analysts say an unfavourable forecast was not likely because of its impact on the confidence of rural voters.

"At this juncture, the government has limited choice in announcing a bad monsoon, which may also lead to a spike in food prices," said S Raghuraman, a New Delhi-based independent commodities analyst.

Bad rainfall results put pressure on the government as farmers demand higher rates for produce and ask for waivers of loan repayment and electricity charges, hitting public finances.

The government subsidises key crop prices to contain inflation and ensure half a billion poor -- many of whom spend up to 60 percent of their incomes on food -- can afford to eat.

Monsoon rains also impact demand for gold in India, the world`s top consumer of the metal, as purchases get a boost when farming incomes rise amid high crop output. Rural areas account for about 70 percent of India`s annual gold consumption.

Other sectors of the trillion-dollar economy also benefit as farmers spend their cash on cars, motorcycles and consumer goods. Good rainfall also reduces demand for diesel, used to pump water from wells for irrigation when rainfall is scant.

Bureau Report