Agriculture GDP growth to be zero in FY15 in case of below normal rains: Nomura

Rainfall 10% below normal adds 60 bps to headline CPI inflation in the following four quarters

The India Meteorological Department (IMD) has predicted rainfall will be 5% below normal during the 2014 Southwest Monsoon (June-September). The Australian Bureau of Meteorology has also noted that while the Southern Oscillation Index has risen to neutral recently, El Nino thresholds may be exceeded as early as July, which implies higher risk of lower rainfall.

In case of below-normal rains, Nomura Financial Services and Advisory expects agriculture GDP growth to be zero in FY15 (versus current forecast of 2.8% yoy), which would reduce their overall GDP growth forecast of 5.0% y-o-y by 40bp.

Nomura estimate that rainfall 10% below normal would add 60 bps to headline CPI inflation in the following four quarters, ceteris paribus. Output and prices of pulses and oil seeds will likely be impacted, while the impact on cereals may be contained given the higher stocks.

As per the Nomura, monsoons look very likely to be below normal in 2014, which will hurt food output, agriculture GDP growth and possibly inflation. However, Nomura thinks it is early to estimate the exact impact with trends likely to be clearer in July.

Powered by Capital Market - Live News