Economy & Market
Monsoon Forecast Augurs Well for Rural Demand
The Indian Meteorological Department's (IMD) second-stage forecast of 'normal' South-West monsoon (June-September 2018), augurs well for cement demand in rural areas. IMD has retained the forecast a normal monsoon at 97 per cent of long term average (LTA) for 2018 season retaining its first-stage forecast released in April 2018. India has seen a 95 per cent actual rainfall last year. Monsoon of between 96-104 per cent of LTA is considered to be normal. The forecast has a model error of 4 per cent on both sides.
If this forecast plays out as predicted, then FY19 (2018-19) will see the third consecutive year of normal monsoon bolstering agricultural income and boosting demand for cement for rural housing.
In the short run, rainfall is likely to be 101 per cent in July and 94 per cent in August, indicating good distribution for sowing and marginally below normal rainfall during harvesting. Geographically, both the critical regions-Central India and South Peninsula (due to high rain dependency)-are expected to receive normal rainfall, according to the forecast.
"Normal monsoon forecast is welcome for the agriculture sector, especially when international food prices are also stablising after persistent decline since mid-2014. This combination of normal monsoon with stabilising international prices at the margin should be supportive of farm incomes," says
Kapil Gupta, analyst from Edelweiss Securities.
The spatial distribution is important as it determines the availability of water for specific crops. Crops such as cotton, oilseeds and pulses in particular are dependent on monsoon in peninsular India covering states like Maharashtra, Telengana, Andhra Pradesh, Tamil Nadu and Karnataka. Madhya Pradesh too is dependent on the SouthWest monsoon.
Spatially, rainfall is likely to be well distributed, although temporally rainfall is likely to be marginally below normal in August, which is not much of a concern. Central India and South Peninsula are expected to receive good rainfall at 99 per cent and 95 per cent of LTA, respectively. "This is critical because both the regions are heavily rain dependent and grow oilseeds, pulses, etc., of which India is a net importer," says Gupta.
"The July and August forecast means sowing and harvesting will by and large progress timely. From the inflation perspective as well, normal spatial and reasonable temporal rainfall distribution should result in benign food inflation," Gupta adds.
The forecast indicates good tidings for the kharif crop. The kharif crop accounts for about 50 per cent of farm production while around 65 per cent of the production is rain dependent. The northern states have access to irrigation and hence crops like rice are well protected to an extent.
"For FY19, our base case, given a normal monsoon, is that agricultural growth will be 3 per cent - the same as in the previous fiscal. As for GDP growth during the fiscal, CRISIL's forecast is at 7.5 per cent, up from 6.6 per cent in fiscal 2018," rating agency CRISIL said in April 2018, following the first IMD forecast.
A normal monsoon is crucial to push economic growth, which slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the goods and services tax (GST), both of which impacted private consumption demand as well as exports.
Normal monsoon generally heralds good
times for farmers and accelerates activity in rural economy, increasing demand for all agriculture related inputs and equipment, besides boosting demand for rural housing. But it cannot be taken for granted as the whole activity is nuanced by several interventions.
In this context, what CARE Ratings highlights these nuances when it said, "Rainfall per se is important, but in the last two years good monsoon has led to high production while prices have come down sharply affecting farm incomes. This has to be supplemented with effective MSPs which include ensuring availability of this price to the farmers."
- BS SRINIVASALU REDDY