Revived Monsoon Promises Relief for Economy

Fwd Email, moneycontrol.com and IMD, cumulative till July/28

India’s monsoon rainfall was 38% above normal in the past week, the highest weekly downpour in the current June-September season.

Total monsoon rainfall since June 1 was 16% below normal in the middle of July but a sharp revival in the past week has narrowed the seasonal deficit to only 5%.India’s June-September monsoon rains are a key factor for global commodities markets as they influence output of various crops in India, which is among the world’s leading producers and consumers of wheat, rice, sugar and edible oils.

How does above normal rain in July help Indian farms?

Farmers in India, the world’s biggest edible oil importer and Asia’s leading oilmeal exporter, plant soybean in the rainy months of July and August, with harvests starting from October.

Heavy rains in the third week of July boost soil moisture, help growth and improve yields of summer crops such as rice, corn, cane and oilseeds. Rains in August are also important. Last year, a long dry patch in August hurt the soybean and rice crops.

Rain water is particularly important in India as just 40 percent of the farms have irrigation facilities, with the rest depending on rainfall for planting crops in July.

The monsoons account for 75-90 percent of total annual rainfall. Total rainfall since June 1, the start of the four-month rainy season, is just 5 percent below normal and distributed evenly across main crop regions.

Are there other risks for India’s farm output?

Yes, floods.

While rainfall at this stage is important for crop maturity, there is also a risk of floods in some parts of India if the current uptrend in monsoon rains continue.

Weather officials say the surge in monsoon rains is due to developing La Nina conditions, which bring heavy rains in South Asia and can also increase the risk of floods.

On average, 3.725 million hectares of crop area are damaged annually in India due to floods.

How does good rainfall in India impact global markets?

India is the world’s biggest consumer and second-largest producer of sugar. Last year, the worst drought in 37 years made India a large importer of the sweetener, helping lift New York raw sugar futures to their highest in 29 years.

Good rainfall and higher planting this year will boost global supplies and moderate prices.

India also overtook China as the top importer of vegetable oils after last year’s crop loss. However, the revival in the monsoon should pave the way for higher domestic supply and lower dependence on imports.

Does the monsoon impact other sectors?

The farm sector’s share in the Indian economy is 14.5% but it is also a key source of income for villagers, who account for two-thirds of India’s billion-plus population.

Good monsoon rains help raise farm incomes, which help demand for fuel, cars, motorcycles and consumer goods. Poor rainfall increases rural distress, boosting government spending on subsidies and welfare schemes.

How does the monsoon impact the energy sector?

Monsoon rains replenish reservoirs and increase the levels of groundwater, which provides water for drinking, irrigation and generation of hydropower.

However, if lower rainfall leads to drinking water scarcity, the government can reduce water supply to power plants or farms and provide more water to households.

This year, India’s main water reservoirs filled up slowly to 19% of capacity, rising 2 percentage points in the week to July 22. India’s 81 main reservoirs normally fill up to 29% from 25% in the course of the week at this time of the year.

Good rainfall also reduces demand for diesel, which is used to pump water from wells for irrigation when rainfall is scanty.

Will above-normal rains help tame inflation?

Yes. Adequate rainfall in the remaining monsoon months will see food production increase, leading to higher supplies and calming prices.

Inflation has run into double digits for five consecutive months and has been rising after last year’s monsoon delivered the weakest rainfall in nearly four decades.

India’s opposition stalled parliament for the second straight day on Wednesday over rising prices, attacking the federal government on what has emerged as a major policy challenge.

How will the monsoon influence India’s farm policy?

If adequate rainfall increases cane output, India is likely to impose a tax on sugar imports. The government may also allow sugar exports if production rises.

India may also lift the ban on exports of wheat and common varieties of rice if farm output increases.

Does poor monsoon have a political fallout?

Since more than 60% of Indian voters reside in villages, the ruling party faces a difficult time if bad rainfall reduces rural incomes.

When the monsoon fails, farmers often demand higher rates for their produce and put pressure on elected leaders to waive loan repayment and electricity charges. Last year, farmers in Uttar Pradesh, demanding a higher price for cane, burnt imported raw sugar and forced the local government to bar processing of imported raws by millers. Protests also disrupted parliament.

Post your Valuable Comments below:

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s