Higher ‘DRIP’ values of tur, jowar and maize suggest that pulses and coarse cereals will be the key stress points in the months ahead, says Parul Bhardwaj.
The Indian economy is a gamble on the monsoon: the importance of Lord Curzon’s remark assumes greater significance this year, given the macroeconomic challenges facing India. With inflation running at multi-year highs, normal monsoons are expected to provide the much-needed relief by easing the domestic supply-side pressures on food items. If, as expected, food prices do soften, they will reinforce the positive effects of oil and commodity prices, creating the opportunity to ease up on the monetary stance in the not-too-distant future.
Unlike last year, when the overall rainfall was 5 per cent above normal during June 1 to September 30, the rainfall during the same period this year is 2.1 per cent below normal. This year’s southwest monsoon caused several concerns early in the season, with large parts of southern and central India receiving significantly below-normal rainfall in the first half. However, in the last two weeks of July and through all of August, rainfall was relatively good in most parts of the country. States like Madhya Pradesh, Maharashtra and Karnataka continued to receive deficient rainfall though the quantum of rainfall has improved. Unfortunately, Bihar, Assam and Orissa bore the brunt of severe floods which destroyed the standing crop in several districts, not to mention annihilating the abundant livestock in the region.
The uneven distribution of rainfall has been a disheartening aspect of this year’s rainfall pattern. As mentioned earlier, rainfall has been deficient in the more vulnerable western and southern regions, which have only around 27 and 36 per cent area under irrigation, respectively, and hence, are more dependent on the monsoons. On the other hand, the well-irrigated northern region continued to receive excess rainfall. While excess rainfall did damage the standing crop in some regions, it improves the prospects of the rabi crop by replenishing the sub-soil moisture. During June 1 to September 30, out of the 36 meteorological sub-divisions, two received excess rainfall, 30 received normal rainfall, while four received deficient rains. The four rain-deficient sub-divisions (receiving 20-59 per cent below normal rainfall) were western Madhya Pradesh, Vidarbha, north-interior Karnataka and Marathwada.
Kharif sowing starts with the onset of June and the crop is harvested during September to October. Past experience has shown that July rainfall is critical since most sowing takes place by July, although late sowing continues well into August. The skewed pattern of rainfall, both geographically and temporally, resulted in almost 3 per cent lower sowing until September 19, 2008 compared to the last year.
Among the major kharif crops, only rice, soyabean and castor recorded relatively higher sowing area compared to the last year. Acreage under pulses, as a group, is 10.2 million hectares, down 16.4 per cent as compared with last year. The pulses acreage has declined significantly in Maharashtra, Andhra Pradesh and Karnataka. The output is anticipated to decline further because the crop growth in western Maharashtra and Marathwada is reported to be stunted, whereas crops in Karnataka are under attacks from pests.
| CROP-AGGREGATED ‘DRIP’ VALUES VIS-A-VIS DOMESTIC INFLATION Source: cso & crisil estimates | ||
| June 1 to Sept 30 | ||
WPI (June-Aug 08 avg) y-o-y%
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Oilseeds, on the other hand, have registered a 2.6 per cent growth in sown area as compared with last year, with soyabean recording a 9.3 per cent increase, mainly due to increase in plantings in Madhya Pradesh and Maharashtra in the wake of good rains in August and September. Coarse cereals as a group saw 6.4 per cent lower area under sowing this year vis-à-vis last year; jowar recorded the largest decline of 14.2 per cent due to a fall in its acreage in Tamil Nadu and Gujarat. Overall, pulses and coarse cereals have clearly emerged as the key pressure points this year as far as domestic production is concerned. Output of other kharif crops is expected to be normal.
| STATE-AGGREGATED ‘DRIP’ VALUES Source: IMD & Crisil estimates | ||
| States | 2008-09 DRIP | |
% deviation in rainfall
from normal
The shortfall in pulses and coarse cereals production will add to inflationary pressures. But good news comes from the oilseeds front, the prices of which have declined due to higher domestic production and a significant drop in international prices. Domestic oilseed prices have fallen since mid-July by around 4-6 per cent, and with an upward revision in global oilseed production for the current year by the United States Department of Agriculture (USDA), prices are expected to decline further.
To measure the impact of rainfall deficiency, CRISIL uses an index called Deficient Rainfall Impact Parameter (DRIP) developed in 2002-03. DRIP helps to assess the impact of monsoon performance on overall agricultural production as well as on specific states and crops. It is computed as a product of percentage deviation of rainfall and percentage un-irrigated area. DRIP is a better indicator than percentage deviation of rainfall from normal, as it captures the deficiency of rainfall (measured as deviation from normal) as well as the vulnerability of a region (measured as percentage un-irrigated area). A higher value of DRIP indicates greater adverse impact of rainfall deficiency. DRIP is computed for key crops at the state level. This is later aggregated to the state level, crop level and all-India level.
The state-aggregated DRIP provides a picture of the relative magnitude of the impact across states, taking all major crops into consideration. Based on the state-level DRIP, Madhya Pradesh is the worst affected state, followed by Maharashtra and Karnataka. The DRIP value of all the other states was zero, as there was no rainfall deficiency in these states. The results of DRIP are in line with our observation that southern and central regions of the country have been the worst-impacted by the monsoons this year.
To measure crop-aggregated DRIP, production levels of the crop in each of the major producing states are used as weights in combining the state-specific DRIP values for the crop. Jowar, tur and maize have high DRIP values indicating that they are the worst-impacted crops. Notably, these are the crops that experienced higher y-o-y inflation in August along with a lower reported sowing area till September 19, as compared with the same period last year. The higher DRIP value of tur, jowar and maize also lends credence to the proposition of pulses and coarse cereals emerging as the key stress points for the evolving inflationary situation in the economy.
This year, the national DRIP score predicts that agricultural GDP will grow by 2.5-3 per cent in 2008-09, which is about at trend and isn’t too bad, considering that growth last year was above trend. Overall, for much of the country and most of the crops, outlook is relatively benign this year.
The author is an economist with CRISIL Ltd. The views expresed are personal