Erratic monsoons signal farm distress, sowing down in five states

Rural India faces double whammy, with lower growth in output, decline in its terms of trade

The BSE-CMIE-UMich Index of Consumer Sentiment seems to be stabilising at a little over 97 (base: 100 in September-December 2015) in July. If the index settles below 98 for the month, it would be lower than its level a year ago. Sentiments have been subdued. 

  

During June and July, the most important factor influencing consumer sentiments is the progress of the southwest monsoon. Monsoons impact farmers directly and, they impact the rest of the economy as well. 

  

Last year, monsoons turned out to be good after a gap of two years. At the end of July 2016, monsoons were 0.42 per cent higher than the normal. Kharif sowing had progressed well. It was 6.3 per cent higher than in the previous year and most pulses, oilseeds and some cereals had done very well. Expectations were positive. As a result, the index of consumer sentiments in rural India increased by about 2 per cent between May and July 2016. It went on to grow even more in August. This increase was significant because it came after four consecutive months of decline in rural consumer sentiments. 

  

During the same period, sentiments in urban India had moved in the opposite direction. They were evidently adversely affected by Raghuram Rajan announcing his decision to quit as RBI Governor in June and the eruption of serious unrest in Kashmir following the violent death of Burhan Wani in early July. The index of consumer sentiments in urban India had declined by 4 per cent in June (when the rural index increased by 2.2 per cent). It recovered partially in July only to fall again, by 3.8 per cent in August. 

  

This year, the monsoons have been erratic so far. The India Meteorological Department projected normal monsoons in 2017.  

The southwest monsoon hit Kerala on time and progressed well in the first two weeks but, it lost momentum pretty soon thereafter. By the end of June, the cumulative precipitation was below the long period average. Rains have alternated from being good in one week to being poor in another. During the week of July 12, rains were 19 per cent below normal. Then, they recovered by 11.4 per cent in the week ended July 19. 

  

By the end of the seventh week of this monsoon season, the cumulative precipitation was 1.5 per cent above normal. But, the temporal and spatial distribution has left many areas vulnerable this year. 

  

In the east, West Bengal and Jharkhand have received very poor rains and in the south, Kerala, Tamil Nadu and Karnataka have seen big deficits. Bihar and Odisha have seen mostly poor rains although there was good precipitation in the second half of July. 

  

Sowings are down in Maharashtra, Karnataka Tamil Nadu, Andhra Pradesh and Madhya Pradesh. By the end of the kharif sowing season, it is likely that the overall sowing would be about one per cent less than it was last year. Most of the fall is expected in oilseeds and pulses. 

  

This year, rural India faces a double whammy. It faces prospects of a lower-than-expected growth in output and it faces a deterioration in its terms of trade. Wholesale food inflation has turned negative since May this year. Many crops still fetch prices below their minimum support prices. 

  

Rural India is not very happy about the way the monsoon season is panning out and the way prices of its commodities are moving relative to other commodities.  The unhappiness can be seen in the BSE-CMIE-UMich consumer sentiment indices. 

  

The index of consumer sentiments for rural India shrank by over eight per cent during the first eight weeks of the current monsoon season. In comparison it had fallen by only one per cent in the corresponding period of 2016. While the expectations index was flat during these 8 weeks last year, this year it fell by 8.1 per cent. 

  

Urban India has offset part of the negative effects of rural India. The urban index of consumer sentiments grew by 3.5 per cent during the first eight monsoon weeks. This compares well against the negative trend in consumer sentiments in rural India and is also much better than last year's flat growth. Nevertheless, urban India's consumer sentiments are much lower than that of rural India. 

  

The fall in rural consumer sentiments this kharif season foretells farm distress, again. 

 

Every Tuesday, Business Standard brings you CMIE’s Consumer Sentiments Index and Unemployment Rate, the only weekly estimates of such data. The sample size is bigger than that surveyed by the National Sample Survey Organisation. To read earlier reports on the weekly numbers, click on the dates:

November 21, November 28, December 4, December 11, December 18, December 25, January 1, January 8, January 15 , January 22, January 29, February 4 , February 12, February 19, February 27, March 5, March 13, March 19, March 26, April 02, April 10, April 17, April 23, May 1, May 8, May 15, May 21, May 28, June 4, June 11, June 18, June 25, July 2, July 10, July 16

Methodology

Consumer sentiment indices and unemployment rate are generated from CMIE's Consumer Pyramids survey machinery. The weekly estimates are based on a sample size of about 6,500 households and about 17,000 individuals who are more than 14 years of age. The sample changes every week but repeats after 16 weeks with a scheduled replenishment and enhancement every year. The overall sample size run over a wave of 16 weeks is 158,624 households. The sample design is of multi-stratrification to select primary sampling units and simple random selection of the ultimate sampling units, which are the households.

The Consumer Sentiment index is based on responses to five questions on the lines of the Surveys of Consumers conducted by University of Michigan in the US. The five questions seek a household's views on its well-being compared to a year earlier, its expectation of its well-being a year later, its view regarding the economic conditions in the coming one year, its view regarding the general trend of the economy over the next five years, and finally its view whether this is a good time to buy consumer durables.

The unemployment rate is computed on a current daily basis. A person is considered unemployed if she states that she is unemployed, is willing to work and is actively looking for a job. Labour force is the sum of all unemployed and employed persons above the age of 14 years. The unemployment rate is the ratio of the unemployed to the total labour force.

All estimations are made using Thomas Lumley's R package, survey. For full details on methodology, please visit CMIE India Unemployment data and CMIE India Consumer Sentiment.

The creation of these indices and their public dissemination is supported by BSE. University of Michigan is a partner in the creation of the consumer sentiment indices.