The India Meteorological Department’s forecast of a “below-normal” monsoon may not entirely wash away hopes of a rebound in the broader economy this fiscal. “It is too early to assess the impact of the weak monsoon on the farm sector growth.
The distribution of rainfall is far more important than the output as it is necessary to evaluate the regions that are affected by weak monsoons,” the country’s chief statistician TCA Anant said.
The economy is expected to post a partial recovery in FY15 and expand at six per cent after registering less than five per cent GDP growth for two consecutive financial years. In FY14, economic growth is pegged at 4.9 per cent, with farm sector estimated to clock a growth of 4.6 per cent on the back of a normal monsoon and bumper harvest.
However, the IMD on Thursday predicted below normal monsoon this year, with rainfall projected to be 95 per cent due to the impact of the El Nino.
According to Anant, in regions that have alternative irrigation solutions, a below normal monsoon may not have much impact. But poor rains would hit crop production in areas that have hydro reservoirs and depend on monsoon for irrigation. “We will have to wait and watch and also see the position of hydro reservoirs,” he said.
Most analysts agree and said there could be some impact of the El Nino but it may be minimal and leaving growth prospects largely unchanged. “We are in a better position today with more accurate and timely forecasts. Producers can look at alternate irrigation options or change farming strategies,” said NR Bhanumurthy, a professor at NIPFP. He however, warned that a weak monsoon could have an impact on prices of commodities including sugar, pulses and edible oil and the government should work out an effective import strategy soon.
Bank of America Merrill Lynch, in a recent report, maintained a bearish outlook on rural demand. “Farmers typically benefit from a slightly bad crop that accords pricing power. If El Nino occurs by summer, it will drive rain clouds away and impact the June-September monsoon. If it stretches to the fall, India will mercifully escape,” the report said.
However, over the past few months, a number of international agencies as well as private analysts have become confident about India’s economic revival this fiscal but have warned that a weak monsoon could play a spoiler. “Slower-than-expected recovery in the US and the Eurozone and/or a severe failure of monsoons in 2-3 years could also lower growth below our forecast,” said a recent research report by Crisil.
The Reserve Bank of India too had warned that the possible effects of El Nino on the monsoon could add an additional element of uncertainty for future harvests.