RBI for contingency plan to deal with impact of poor monsoon

Strong food policy and management will be important to help keep inflation and inflationary expectations contained over the near term, says Rajan

Government should put in place a "contingency plan" to deal with the possibility of a below normal monsoon and its impact on foodgrain production and prices, the Reserve Bank said today.

"What is clear is that contingency plans for food management need to be in place to manage the impact of low production on inflation," RBI Governor Raghuram Rajan said in his second bi-monthly monetary policy for 2015-16.

The India Meteorological Department has meanwhile further lowered monsoon forecast to "deficient" for the current year, followed by unseasonal rains and hailstorms in March 2015, which have already impacted foodgrains production.

"For the kharif (summer) season), the outlook is clouded by the first estimates of IMD predicting that soutwest monsoon will be 7 per cent below the long period average. This has been exacerbated by the confirmation of the onset of El Nino by the Australian Bureau of Meteorology," RBI said.

Against this backdrop, the RBI said: "Strong food policy and management will be important to help keep inflation and inflationary expectations contained over the near term."

The food management plan should comprise of storage of adequate quantity of seeds and fertilisers for timely supply, crop insurance schemes, credit facilities, timely release of food stocks and the repair of disruptions in food supply chains, including through imports and de-hoarding, it said.

Inflation control will also be helped by limiting the increase in agricultural support prices, it added.

Assuming reasonable food management, RBI said, "inflation is expected to be pulled down by base effect till August but to start rising thereafter to about 6 per cent by January 2016 -- slightly higher than the projections in April".

Citing reasons for lower production in 2014-15, RBI said that agricultural activity was adversely affected by unseasonal rains and hailstorms in north India during March 2015, impinging on an estimated 94 lakh hectares of area sown under the rabi crop.

Reflecting this, the Agriculture Ministry has estimated more than 5 per cent drop in total foodgrains production at 251.12 million tonnes for 2014-15 crop year, as against a record 265.04 million tonnes production in the year-ago.

"Successive estimates have been pointing to a worsening of situation, with the damage to crops like pulses and oilseeds -- where buffer foodstocks are not available in the central pool -- posing an upside risk to food inflation," RBI said.

Food inflation has softened to 4-month low in April, but the impact of unseasonal rains yet to show up, it added.

In April, wholesale inflation has dipped to record (-)2.65 per cent, while that of retail inflation has fallen to 4-month low of 4.87 per cent in the same period.