Good monsoon raises hopes, but crop prices key to rural India turnaround

The southwest monsoon has finally exited India after recording a rainfall surplus of almost eight percent between June and September, the traditional ‘monsoon months’.  

Region-wise, the southwest monsoon was above-normal in most parts with central India leading the show with 19 per cent surplus rainfall, followed by Southern peninsular India at 14 per cent. However, it was in deficit in the North and North-eastern parts of the countries with a 14 percent shortfall.  

The bountiful rains have spurred the sowing of kharif crops with acreage of most, barring cotton, urad, and bajra, crossing their normal levels, which is the average area under cultivation over the past five years.  

The extended withdrawal of the monsoon also means that water levels in the 155 reservoirs across the country, which are monitored by the Central Water Commission (CWC), are higher than last year’s level as well as the normal range.  

Impact on reservoir levels and soil moisture 

Additionally, the good rains have also meant that residual moisture in the soil is better than in previous years which is likely to significantly aid in the planting and growth of the next rabi crop.  

As per an assessment by the agriculture department, root zone soil moisture between September 7 and September 13 this year was better or close to the average of the past nine years in Karnataka, Andhra Pradesh, Tamil Nadu, Telangana, Gujarat, Rajasthan, and most parts of Uttar Pradesh and Madhya Pradesh, Chhattisgarh, Punjab, southern Haryana, and southern Bihar. However, it was lower than the average of nine years in northern Bihar and parts of Jharkhand and northern West Bengal.  

Kharif crop outlook and economic indicators 

Given the overall positives from this year’s rains, production of major kharif crops is expected to be better, too. Officially, though, the central government is yet to come out with its first advanced estimate for kharif production for 2024-25.  

Trade sources, however, say the output of major crops, barring a few like cotton or urad, are likely to be better than last year. The Soybean Processors Association of India (SOPA), in its first estimate for the 2024-25 crop, has projected the output to be around 12.58 million tonnes, an increase of almost 6 percent from the same period last year.  

The good monsoons, along with its even spread and strong sowing of kharif crops, have spurred hopes for a firm recovery in rural markets over the next few quarters. From FMCG companies to automobile manufacturers, to seed companies to consumer durable firms, sales prospects for all of them have seen a lift due to the good monsoon.  

Rural labour and consumption patterns 

In corresponding data, demand for work under the flagship MGNREGA was at its lowest level of this financial year at 16.02 million households in September 2024. MGNREGA is the world’s largest state-sponsored employment guarantee programmes.  

Though the number of people seeking work in September 2024 is still higher than the corresponding pre-Covid month, the steady decline in work demand as per some economists is a sign of an improving labor market in rural areas. While there is some debate over whether the drop in MGNREGA work demand is an accurate representation of the rural informal jobs market, it does show some trends, nonetheless, more so when it is matched against other informal indicators.  

Tractor sales in September, as per data from the Tractors and Mechanisation Association (TMA), jumped almost 84 per cent compared to the previous month. On a year-on-year basis, September sales are almost 2.4 per cent more than the corresponding period last year. Though overall sales this calendar year are lower compared to the same period last year, the hope is that the good 2024 monsoon will push up sales in subsequent months.  

 Two-wheeler sales, which is also one of the key barometers of the rural economy, are also showing signs of picking up. Some recent reports note that sales have risen by almost 15 percent from October 1-20, as compared to the same period last year.  

FMCG companies, too, are hopeful that good monsoons, strong kharif sowing, and overflowing reservoirs will improve their sales. The management of Tata Consumer Products Division told analysts in a recent conference post that its current view is that rural areas are in recovery mode.  

"I think a good monsoon and therefore the kharif crop is only going to help in the rural recovery. But it is still not at the stage where it gives us a double-digit volume growth and a penetration growth, et cetera," one of the speakers is reported to have said. 

India's fast-moving consumer goods sector grew 4 per cent by value in the April-June quarter compared to the same period last financial year on the back of relaxed consumption patterns, according to consumer research firm NielsenIQ. Volume growth came in at 3.8 per cent. Rural volume growth in the quarter stood at 5.2 per cent while the urban number was at 2.8 per cent.  

Challenges in kharif crop prices 

But the proverbial gorilla in the room when it comes to the rural economy is the price of major kharif-grown crops. Though nothing can be said with certainty as mandi arrivals will only pick up pace after Diwali, initial projections show a mixed trend.  

So far, the average price of most paddy that has arrived in the mandis has been below the minimum support price (MSP) of Rs 2,300 per quintal (for common grade) while that of bajra, maize, and ragi too has been lower than their respective MSPs.  

In pulses, the average mandi price of masoor has also been below the MSP, while urad and moong are close to their respective MSPs, according to trade sources.   

In major oilseeds, the average mandi price of soybean has been below its MSP of Rs 4,892 per quintal, as have those of groundnut and mustard in initial trade.  

It is here the effectiveness of the latest Central interventions of lowering export curbs on paddy and raising import duties on major edible oils will come into play.  

How fast and how quickly average mandi prices of major kharif crops cross their respective MSPs will be a key factor that will determine whether the surplus monsoon has indeed translated into a bounty for rural India or not.