While the Parliament’s monsoon session has been a washout, there has been a dramatic recovery in rainfall in August. To begin with, rainfall was significantly deficient during June-July 2012, the first two months of the monsoon season. In its second forecast, the Indian Meteorological Department had expected the country as a whole to receive below-normal rainfall (less than 94% of long period average). However, with the receding of the El Nino weather pattern, rainfall was better in August and possibly in September.
The increased rainfall in August and also to some extent in September (till date) in the current fiscal is not surprising as this has been the trend over the last couple of years (see Graph 1). Interestingly, the changing pattern in rainfall has also been pointed out by IMD. In particular, the suspected structural shift is likely to impact the kharif crops, especially rice. A study by IMD also reveals the fact that the monsoon will have fewer rainy days and its arrival will be delayed by 5-15 days in the next 100 years. This may eventually change the cropping pattern in India.
The monsoon has revived in most parts of the country from the second half of August. A closer look at Graph 2 shows that states that received heavy rainfall in the third week of August include Punjab, Haryana, Rajasthan and Delhi. Maharashtra, Gujarat and Karnataka are the only states to have received scanty rainfall. Subsequently, the departure from the LPA in the third week of August was only 2% as compared to the 29% departure in the month of June. However, on the downside, despite the rains, drought-like conditions continue to prevail (rainfall deviation of more than 10% from LPA) in key agricultural states like Punjab and Haryana. In particular, states like Gujarat, Maharashtra, Karnataka and Rajasthan, which are critically rainfall dependent, continue to have a high cumulative rainfall deficit. Additionally, on the flip side, fertiliser sales and area sown under major crops have declined significantly in the first quarter of the current fiscal. This may act as a dampener on agricultural growth going forward, with a concomitant decline in kharif output.
What are the implications of the deficiency in rainfall going forward? First, the impact of deficient rainfall on food prices is always felt with a lag. It is believed that food prices may go up in the next 2-3 months owing to poor rainfall in the first two months of the monsoon season. For example, on average the country imports 3 million tonnes of pulses as it produces 18 million tonnes and consumes 21 million tonnes. A drop in the production of pulses due to below-normal rainfall in June and July this year may result in an increase in both imports and prices of pulses. Coupled with this, there is still below-normal sowing coverage for pulses and coarse cereals among other crops, which will put pressure on the prices of these commodities.
Second, there is the financial impact of the drought. It may be noted that the central government has already announced a set of relief packages for the drought-affected states which includes a relief package of R2,000 crore, 50% diesel subsidy to the farmers to save standing kharif crops (the subsidy burden is to be shared equally between the states and the Centre), and removal of import duties on oil cakes to boost the fodder supply to livestock.
The agriculture ministry has also laid out a contingency plan for 320 districts in the states of Punjab, Haryana, Gujarat, Maharashtra and Karnataka. The empowered group of ministers approved the release of R450 crore for Maharashtra, Karnataka, Rajasthan and Haryana under the National Rural Drinking Water Programme. It has also been decided to provide R1,440 crore to drought-prone areas under the Integrated Watershed Management Programme.
As is well known, the fiscal position of the government in 2009-10 was far better than in the current financial year, thereby limiting the room for a drought relief package in case the situation so warrants. Additionally, the introduction of a farm debt waiver scheme amounting to R65,000 crore in 2008 helped address the farmers’ woes in the 2009 drought year. However, the scope for reintroducing the farm debt waiver scheme seems to be constrained in the current fiscal.
In the end, we believe that the overall agricultural growth in 2012-13 will now be better, and possibly there will be no de-growth. However, we also believe the price pressures may remain elevated because of an increase in global agricultural prices