Farm and allied sector growth would likely remain “muted” at 1% in the current fiscal despite a recent pick-up in rainfall and could even hit zero if seasonal showers fail to recover by August end, thanks mainly to an unfavourably high base of 4.7% in the 2013-14 fiscal, according to a Crisil Research report.
Consequently, there is a 60% probability of overall economic expansion touching 5.5% in 2014-15 and a 40% chance of it hitting as low as 5.2%, depending upon the farm sector perfomance, the report said. The recently-released economic survey forecast GDP growth of 5.4-5.9% in 2014-15, compared with 4.7% a year before. The survey, however, warned that weak monsoon rains could keep growth closer to 5.4%.
Seasonal showers were trailing the benchmark average by 24% until July 25, picking up pace since July 10 when the deficit was 43%, according to the data by the India Meteorological Department. The deficit is still worse than 19% in 2009, when the country witnessed the worst drought in 37 years, and 22% in 2012 (when the rainfall recovered by the end of the season in September). However, unlike 2009, inflation could remain “capped”, as the crops affected by poor rainfall in the kharif (jowar, bajra, tur, groundnut) have only 4.3% weight in the Consumer Price Index. This is because the government has raised the minimum support prices of grain crops only modestly, and has indicated that it would offload excess grain stock and provide credit lines to states wishing to import oilseeds, prices of which are, in any case 30% lower in the global market than last year.
“We believe all this, and the favourable base-effect of last year, will curb cereal and pulses inflation. However, a complete monsoon failure could lead to sharp price increases of pulses and coarse cereals, which are rain-fed crops and for which no buffer stocks exist. Apart from this, the major headwind to inflation, we believe, could come from the prices of fruit and vegetables. To control this will be the bigger challenge for the government,” the report said.
Moreover, although sowing up to July 25 was trailing last year’s level by 27%, the situation is unlikely to be as dire as in 2009. The report said even in three of the last five fiscals — 2009, 2010 and 2012 — sowing was well behind schedule same time of the year, but in both 2010 and 2012, it recovered fully with the rains. Therefore, the odds of a rebound in sowing are still favourable, at 2 in 3.
The report said coarse cereals, oilseeds, cotton and pulses are twice continued…