Patchy rains send inflation jitters, but not everyone's alarmed

For instance, Crisil Research said though there is stress in a couple of states and crops, there is no big reason for alarm

As the southwest monsoon enters its second break phase, concerns have started emanating in various quarters that uneven rains will impact final kharif output, and thereby food inflation, particularly among oilseeds and pulses, in the coming months.

The fears have gained more traction as the monsoon has now entered its final phase with just a month left before the rains start retreating from the mainland. Bloomberg reported that volatile and below-normal monsoon rainfall may create challenges for inflation and economic growth in rural areas over the medium-term, quoting Barclays Plc’s Chief India Economist Rahul Bajoria 

“The nation is facing an 8 per cent monsoon rainfall deficit, which will impact future sowing and harvesting seasons, pressuring consumer prices and squeezing the agriculture sector,” Rahul Bajoria said in a Bloomberg Television interview Monday. “I think it is more of a slightly medium-term impact that kicks in, where the government will have to think about mitigating steps for rural incomes, which tend to depend on farming activity quite a bit,” Bajoria said.  

Inflation broke above the Reserve Bank of India’s 2-6 per cent target range in May and June before slipping back, while the central bank has maintained its lower-for-longer stance to nurse the economy’s recovery from the pandemic.

The central bank sees inflation at 5.7 per cent in the financial year to March 2022, viewing the current surge in inflation as temporary. To mitigate the impact of rainfall shortage, the government may have to scale up relief measures such as rations and cash transfers, according to Bajoria.

“They may also have to think from a geographical standpoint, which are the crops getting more impacted and take mitigating steps to try and contain inflation,” Bajoria said.

For example, clothing inflation might pick up because of low cotton harvests. Barclays in a report said that after a brief burst in mid-July, rainfall has remained weak over the first three weeks of August and regional distribution is starting to worsen, which could affect crop yields.

“With rainfall progress remaining lackluster, reservoir levels are starting to dip. According to the Central Water Commission (CWC), as of 19 August, storage in 130 key reservoirs stood at 66.7 per cent of total capacity. This amounts to 96 per cent of the available capacity a year ago and 99 per cent of the 10-year average for this point in the season. The reservoir levels are critical for irrigation, power and drinking-water supply in the country,” the Barclays report said.

However, not everyone seem to be looking at the scenario pessimistically. Crisil Research in a report said that though reservoir levels are below par, and there is stress in a couple of states and crops, there is no big reason for alarm.

“With sowing on course, we see agriculture grow 3 per cent on-year this fiscal, over a healthy base of 3.6 per cent growth in fiscal 2021,” CRISIL said.

On inflation, CRISIL said that while the government has already taken steps to tackle inflation by reducing import tariff for edible oil and pulses, the overall domestic sowing data augurs well for prices too.

“Sowing of oilseeds – a leading contributor to high retail inflation – has already exceeded normal levels. Pulses have exceeded last year’s level and reached normal,” it said.

Data showed that as on August 20, around 104.4 million hectares was sown under kharif crops, which was only marginally below the 106 million hectares covered during the same period last year.

“Cropping trends remain weak for cotton (-8.3 per cent year-on-year), coarse cereals (- 1.6 per cent y-o-y), oil seeds (-1.1 percent y-o-y) and rice (-1.1 percent y-o-y); sowing of pulses (+1.7 per cent y-o-y) and sugar cane (+1.4 per cent) has surpassed prior-year levels. However, given the erratic monsoon rainfall this season, crop yields could suffer,” Barclays said in its report.