Most brokerages discount drought fears

Research agencies are divided over the impact of a possible drought-like condition this year on farm output and its resultant bearing on growth with majority of them ruling out drought hitting the growth engine due to low share of farm sector on overall growth numbers. However, some projected a 50-75 bps reduction in GDP.

Stating that the fears of a drought are unfounded as of now, an SBI research report said, "Whatever be the course of the monsoons this year, fears of drought are unfounded at this point of time as severe drought years since 1951 revealed that drought has occurred when rainfall was below 90 % of long period average (LPA)."

Soumya Kanti Ghosh, chief economic adviser at SBI's economic research department, further said "historical evidence suggests that the median agricultural growth in years where the rainfall was between 90 to 95 %, was closer to 2 %.

"If this is the case in the current year, it will shave off just 7 bps from the GDP which is projected at 5.5 % this fiscal. This may add 45 bps to CPI from the current levels."

The IMD last Friday projected a below average monsoon (95 % of LPA) this year, citing a 60 % chance of an El Nino (sea surface temperatures rising over the equatorial Pacific region) incident this year impacting the Southwest monsoons.

According to IMD, it sees a 35 % probability of normal monsoon, 33 % chance of sub-normal monsoon and 23 % probability of deficient monsoon this year.

Notably, the average LPA (long period average) for the 1951-2000 period is 89 cms, this year's forecast puts monsoons as sub-normal. The country experienced the impact of the El Nino conditions in 2010 with agri GDP growing just 1 %.