India Said to Forecast Normal Monsoon Rain as El Nino Looms

Apr 22, 2014 7:09 am ET

(Updates prices in seventh paragraph.)

April 22 (Bloomberg) -- The monsoon in India, which provides more than 70 percent of annual rainfall, will be normal this year amid forecasts for the emergence of an El Nino that previously caused droughts, government officials said.

Rain may be 96 percent of a 50-year average of 89 centimeters (35 inches) in the June-September period, said two officials with direct knowledge of the matter, requesting not to be identified before an announcement by the state weather forecaster on April 24. Actual rainfall may be 5 percent more or less than the prediction, the officials said.

The monsoon is the main source of irrigation for India’s 235 million farmers and planting of crops from corn to soybeans are dependent on timely arrival of the seasonal rains as more than half of farm land is rain-fed. Agriculture represents about 14 percent of Asia’s third-largest economy, which is also the world’s second-largest producer of rice, sugar, cotton and wheat. Consumer price inflation averaged 10.07 percent in 2013 even as the nation harvested record crops.

“In case of a bad monsoon food inflation number will further go out of hand,” Madan Sabnavis, an economist at Credit Analysis & Research Ltd. in Mumbai, said by phone. “In which case, the Reserve Bank of India’s ability to lower the interest rates will become very much limited.”

Inflation Worries

Elevated inflation has prompted RBI Governor Raghuram Rajan to raise the benchmark rate 75 basis points since taking over at the central bank in September. Risks to inflation arise from guaranteed prices for farm products, higher energy costs and government spending on subsidies, according to Rajan. There is also a threat from less-than-normal monsoon rains due to possible El Nino effects, he has said.

The consumer-price index accelerated 8.31 percent in March from a year earlier, quickening for the first time in four months, according to the Central Statistics Office. The economy grew 4.9 percent in the year ended March 31, after decade-low growth of 4.5 percent the prior year, the Statistics Ministry estimates.

Cotton futures in New York dropped for a second session yesterday on concern normal rainfall will boost supplies from India, the world’s second-biggest exporter. The July delivery contract, which fell as much as 0.9 percent yesterday, traded at 93.18 cents on ICE Futures U.S. by 4:37 p.m. in Mumbai.

The India Meteorological Department will issue a detailed monsoon forecast in June after this month’s first long-range prediction, the officials said. Showers between 96 percent and 104 percent of the average are considered normal by the department. B.P. Yadav, a spokesman of India Meteorological Department, declined to comment.

El Nino Odds

Signs have been detected that El Nino is imminent, presaging changes to global weather patterns in the months ahead, the World Meteorological Organization said last week. The chances that an El Nino will develop are growing, the U.S. Climate Prediction Center said this month, boosting the odds to 65 percent from 52 percent. The weather pattern may develop by July, Australia’s Bureau of Meteorology said today.

El Ninos occur irregularly every two to seven years and are associated with warmer than average years. They tend to lead to abnormally dry conditions over parts of Australia, the Philippines and Brazil, and to more intense storms in the Gulf of Mexico. Their counterpart, La Ninas, are associated with cooler years.

Drought Years

India received normal or more-than-normal rains during only three El Nino years out of the past 10 occurrences while the remaining were drought years, according to data from the meteorological department. Monsoon rainfall was the least in almost four decades in 2009, when El Nino occurred last, data show. Rice and oilseed harvests fell 10 percent, according to Agriculture Ministry data.

An El Nino has not always resulted in weak monsoons in India and mitigating factors this year may include comfortable reservoir water levels and excess food grain stockpiles, Rohini Malkani and Anurag Jha, Mumbai-based analysts at Citigroup, said in a report last month.

Production of food grains from rice to wheat, lentils and corn is seen at a record 263.2 million metric tons in the year ending June after more than normal monsoon and cooler winter boosted yields, according to the ministry.