Ind-Ra: Mitigating Monsoon Blues - Government Holds the Key

India Ratings and Research (Ind-Ra) says government will need to devise a two pronged strategy if meteorological department's forecast of a deficient monsoon for a second consecutive year comes true. To minimise the adverse impact of a weak monsoon on agriculture, a practical and implementable contingency plan will have to be made ready even before monsoon failure becomes a reality. Ind-Ra understands that the government is already working on this. And for price stabilisation, a judicious use of the INR5bn price stabilisation fund in combination with the law which has made hoarding a non-bailable offence should be used. Ind-Ra believes this strategy would help the government sail through the monsoon blues effectively.

The correlation between the kharif food grain output and monsoon rains (June-September) declined to 0.3 over FY05-FY14 as compared with 0.6 for FY97-FY04. This shows the increased resilience of Indian agriculture to absorb deficiency in monsoon rainfall. However, Ind-Ra believes that due to the state wise variation in areas under irrigation, the ability to absorb the shock varies across states and a large part of the country is still heavily dependent on the monsoon.

The past monsoons show that while the occurrence of El Ni increases the chances of less-than-normal monsoon rains, it does not necessarily lead to deficient rainfall. Moreover, spatial and temporal distribution of monsoon rainfall is more important than the aggregate end-season deviation of the rainfall from the long period average. In case monsoon plays out as per Skymet's forecast, Ind-Ra does not expect any significant downside risk to agricultural production and expects agricultural GDP to grow 2.1% in FY16. In case the aggregate end-season all-India rainfall remains normal but north-west India's rainfall turns out to be 85% of the long period average (LPA), Ind-Ra expects agricultural GDP to grow in the range of 1.0%-1.5% in FY16. In case aggregate end-season all-India rainfall is 88% of LPA and north-west India's rainfall is 85% of LPA, Ind-Ra believes agricultural GDP will grow in the range of 0.0%-0.5%.

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