After being in denial mode, the India Meteorological Department (IMD) today pared its forecast for a second time in three months and said state governments were free to announce “drought”. This came amid widespread concerns that the monsoon rains, the main source of irrigation for farmers, may, in fact, be the weakest in more than seven years.
Rain in the June-September season will be 87 per cent of the long-period average, compared with 93 per cent forecast in June, Ajit Tyagi, director general at India Meteorological Department said. Rainfall could be 4 per cent more or less than the estimate, he said.
Speaking to Business Standard, A B Mazumdar, deputy director general at IMD, Pune, said the Met department had earlier predicted normal rainfall this year “but projections do vary over a period of time".
He added, "As of now, a large number of regions have seen deficient rainfall. The state governments are free to declare drought, which do not necessarily depend on rainfall numbers.”
The Bihar government today declared 26 out of 38 districts in the state as "natural calamity-hit" following deficient rainfall, and asked Prime Minister Manmohan Singh to sanction a special package to tackle the crisis.
Between June 1 and August 6, Bihar received just 331.7 mm of rain against the normal 568.5 mm, a 42 per cent deficiency. This has resulted in a 58 per cent decline in paddy transplantation.
Asked what went wrong with monsoon projections this year, Mazumdar said, “Such predictions were based on certain climatic situations that did not necessarily develop that way.”
He added, however, that "the rainfall numbers should recover over the remaining season, although it’s sure that we now expect less rains than normal”.
Mazumdar said parts of central India should receive good rains over the next 15 days and he expected the rainfall shortage to improve in Jharkhand, Madhya Pradesh and some regions of Andhra Pradesh.
The markets don’t seem to be that convinced. Shares of consumer goods companies and automobile makers paced declines in the Bombay Stock Exchange Sensitive stock index, which fell 150 points on concerns that deficient rainfall may cut incomes of rural India, cooling demand for their products.
Mahindra & Mahindra, the largest producer of sport-utility vehicles and tractors, dropped 9.4 per cent and Maruti Suzuki lost 5.3 per cent. Hindustan Unilever, the biggest FMCG company, slid 5.6 per cent.
Rice has been the worst hit, with the area declining by 6 million hectares. Sugar follows closely. While Uttar Pradesh, the second-largest sugar producer, has declared drought in 47 districts, Maharashtra has cut its sugar output forecast to 4.6 million tonnes from 5 million predicted in June.
Global sugar prices have jumped to their highest in more than 25 years as India, the world’s largest consumer, has had to tap the global market to offset the impact of the poor monsoon on the country’s sugarcane crop. Prices in India are, however, still lower than the cost of imported sugar.
Crisil Economist Dharmakirti Joshi said any shortage on food can push up the consumer price index much faster this time as the index is very high in comparison to previous drought situations in 2002-03. “If the monsoon revives from now on, the damage to crops may be limited. But the damage done to crops such as paddy can’t be undone now,” he said.
Tushar Poddar, vice-president and chief economist at investment bank Goldman Sachs India, said that the weak rainfall could reduce agricultural growth to -2 per cent year-on-year, down from an earlier estimate of 1.4 per cent.
And UBS has warned that if rainfalls failed to improve, real growth in GDP could be 1 to 2 per cent lower this year than its forecast of 7 per cent.
A Citigroup study said the damage on the price front had taken place. Despite the mitigating factors like the possibility of a better winter crop and higher foodstocks, primary product prices have begun to spiral. Commodities hit include pulses, rice, fruit and vegetables and cereals.