Revised IMD forecast sees better monsoon in India as El Nino weakens

IMD upgrades forecast from 96% of LPA; normal rains might ease food inflation

Expectations of a normal monsoon were reinforced with the meteorological department raising its estimate of rainfall to 98 per cent of the long period average (LPA). Making its second stage monsoon forecast for 2017, the India Meteorological Department (IMD) on Tuesday upgraded its projection from the earlier 96 per cent forecast.

Seasonal rainfall is likely to be the lowest in northwest India at 96 per cent of the LPA. However, this may not have much effect, as 80 per cent of the area is irrigated. Central India is expected to receive 100 per cent of the LPA rainfall while the southern peninsula will receive 99 per cent. Northeast India is expected to receive 96 per cent of the LPA rainfall. 

The IMD’s forecasts are based on a model error of plus or minus 8 per cent. The prospect of a normal monsoon for the second year in a row is expected to fuel rural demand and ease food inflation. 

“Our baseline expectation is that growth of agricultural gross value added will moderate to 3.5per cent in 2017-18 from 4.9 per cent in 2016-17 despite the favourable monsoon outlook,” said Aditi Nayar, principal economist at ICRA.

As a result, the Reserve Bank of India might keep interest rates unchanged in its June monetary policy review, ICRA said. The monsoon is considered normal if rainfall during June-September is 96-104 per cent of the average seasonal rainfall in the country in the last 50 years, estimated at 89 cm.

The IMD issues its first monsoon forecast in April and updates it in June. The department, which used a combination of statistical and ocean atmospheric models, said both showed rainfall this year would be normal.

The IMD attributed its projections to a weakening of El Niño and the Indian Ocean Dipole turning positive. Both factors are seen combining to boost the southwest monsoon. 

El Niño is a warming of sea surface temperature along the equatorial Pacific Ocean, while in the Indian Ocean Dipole sea surface temperature in the western Indian Ocean alternately becomes warmer and cooler than the eastern part.

Last year, the IMD had predicted rainfall to be more than 106 per cent of the LPA in its first forecast. Actual rainfall was 97 per cent of the LPA.

What a normal monsoon means for India

* Agriculture production grows, reducing the food inflation rate and lowering import of pulses and oilseeds. Economic growth strengthens

* Less drawdown of water levels in reservoirs, fewer instances of drinking water crisis

* Improved power situation due to adequate water in hydel power projects, less use of pumps for irrigation

* Overall rural consumption gets a boost due to rising farm and non-farm wages

* Sales of auto, FMCG, fertiliser, seeds, tractor companies positively impacted

* Less pressure on the RBI to raise interest rates

* Low inflation further fuels demand in the housing and auto sectors

* Drought or rainfall deficiency in less number of areas means the burden on exchequer towards providing relief or extra person days of work under MGNREGA is that much less