During 2003 and 2010, agriculture GDP had expanded by an average of 8.5% following years of poor rainfall, points out a report
With the India Meteorological Department (IMD) prediction of an above normal monsoon, the agricultural gross domestic product (GDP) is most likely to witness a robust performance in current fiscal and may even touch 7%-8% mark, says State Bank of India (SBI) in its Ecowrap report.
SBI in the report says, "We have only one concern though. India’s dry regions tend to start running short of water at this time of year - but this year’s drought is particularly severe (10 of the country’s 29 states) because poor monsoons across much of the country in both 2014 and 2015 have left dams and reservoirs with unusually low water levels. The Government has taken a number of steps, like sending a water train, to relieve a parched region but we believe there are three industry categories namely, food products and beverages, textiles and paper and paper products will get affected most from this water crisis. Our internal estimate suggests that these three industry segments may push down IIP-Manufacturing growth by around 50-70 basis points (bps).
Parts of Maharashtra are reeling under drought-like conditions with key Indian reservoirs at a decadal low. A normal monsoon this year will boost agricultural productivity as well as farm income. Because of deficient monsoon rains in last two years, the country’s foodgrains production declined to 252 million tonne and 253 million tonne in 2014-15 and 2015-16 respectively from a record production of 265 million tonne in 2013-14, the report added.
After two successive years of below normal monsoon, the IMD has forecasted that this year’s monsoon will be around 106% of long period average (LPA). Interesting to note that since 1999 (when IMD predicted 108% rainfall), this is the highest ever rainfall projection by IMD. Several agencies from around the world, including the IMD, have hinted that this year monsoon could be better than previous years. The key reason being a waning El Nino: a meteorological phenomenon associated with the heating up of the Central Pacific and frequently responsible for drying up monsoon rains in India.
This time, even the private forecaster Skymet also predicted that the south-west monsoon is likely to remain ‘above normal’ at 105% of LPA, with a model error of ± 4%. In a month-wise prediction, Skymet stated that during June and July, the monsoon would be 90% and 105% of LPA while for the months of August and September, the cumulative rainfall would be 108% and 115% of LPA, respectively.
There is 94% probability that monsoon will be normal to excess this year. By and large, there will be fair distribution of monsoon across the country. But North-East India and South-East India, particularly Tamil Nadu, may get slightly less than normal rainfall. Though there is no need of worry regarding below normal rainfall in North East India, this is a slight concern for Tamil Nadu as it holds a share of about 7% of total rice production in the country. Drought-hit Marathwada is also likely to receive ‘good’ rainfall.
Since 1950, there have been 23 El Nino years and 22 La Nina years. This year is expected to be La Nina year and research suggests that monsoon rainfall over the country, as a whole was deficient or below normal during 65% of the El Nino years. However, during 71% of the years followed by El Nino years, monsoon was normal and above (=96 % of LPA). The latest forecast from the Monsoon Mission Coupled Climate Model indicates that El Nino conditions to weaken to moderate to weak levels during the first half of the monsoon season and El Niño -Southern Oscillation (ENSO) neutral conditions likely to get established thereafter.
An analysis of monsoon forecast (1st and 2nd stage) since 2008, indicates that only once IMD has increased its second stage forecast (2014), else the forecast was remained same or slightly less than the first. Even after a maximum decline of 3 percentage points in second stage forecast, which will be released in June 2016, going by historical trends, this year monsoon would still be dubbed as ‘normal’.
SBI in the Ecowrap report said, "We believe that the agricultural GDP is most likely to witness a robust performance in current fiscal and may even touch 7%-8% mark because of the IMD projections. This is given that there are instances where agri-GDP has in fact expanded in years of deficient rainfall (in 2003, and 2010 agri-GDP expanded by an average of 8.5% following years of poor rainfall). This may pull up GDP by as much as 50bps."
"We maintain that over a point of time as pulse prices decelerate, the pace of price increase will come down. This will mean we will be working on possibly a negative contribution of pulse prices in headline consumer price index (CPI), as a significant base effect will be involved, as we move progressively towards the second half of current fiscal. This will mean the Reserve Bank of India (RBI) will have more firepower to cut rates possibly by up to 50bps. Also, with central India being the home to pulses forecast, it received adequate rainfall in FY2017, and this will only strengthen our case," it concluded.