Monsoon Rain in India at Five-Year Low May Cut Farm Output

Aug 12, 2014 8:22 am ET

(Updates with inflation data in fifth paragraph.)

Aug. 12 (Bloomberg) -- Monsoon rainfall in India will be the weakest since 2009 this year, potentially cutting farm output and accelerating the highest inflation among Asia’s biggest economies.

Rains will be 87 percent of a 50-year average of 89 centimeters (35 inches) in the June-September period, less than the 93 percent predicted in June, Jitendra Singh, minister for Earth Sciences, told reporters in New Delhi today. Showers have been 17 percent below the average since the start of the season, the India Meteorological Department estimates.

Planting of crops from rice to soybeans and lentils were delayed this year as about 90 percent of India received below normal rainfall in June. An estimated 833 million people out of the 1.2 billion population depend on agriculture for their livelihood and the sector accounts for 14 percent of the nation’s gross domestic product.

“Any kind of crop failure would lead to higher prices and inflation would come under pressure,” Madan Sabnavis, an economist at Credit Analysis & Research Ltd., said by phone from Mumbai. “Lower rains will affect crop output and at the end of the season there will be a shortfall in specific commodities such as oilseeds and lentils.”

The Reserve Bank of India left interest rates unchanged at 8 percent for a third straight meeting last week, citing upside risks to its target to lower consumer-price inflation to 6 percent by January 2016. The index rose 7.96 percent in July from a year earlier, the Statistics Ministry said in New Delhi today. The median estimate in a Bloomberg News survey of 43 analysts was for a 7.4 percent increase.

Late Revival

A revival in the monsoon since the middle of July may not help mitigate damage to crops from a dry start to the planting season, Sabnavis said. The monsoon accounts for more than 70 percent of annual rainfall and waters about half of India’s farmlands. The area under monsoon crops fell 9 percent to 80.3 million hectares as of Aug. 8, Agriculture Ministry estimates.

No drought-like conditions have been reported anywhere and showers in August and September will be better at 95 percent of the average, Singh said.

Rainfall in northwest India, the main grain and sugar cane growing areas, will be 76 percent of the average, Singh said. The central region, the biggest soybean producing areas, will receive 89 percent of the average precipitation, while it’s seen at 93 percent of average in east and north east India and 87 percent in the south, he said.

Imports of edible oil and lentils may climb next season, pushing prices higher, Sabnavis said. India imports more than 50 percent of its annual cooking oil requirement and 25 percent of the lentils consumption, he said.

Rainfall was 22 percent below normal in 2009, reducing food-grain output and more than doubling inflation from the previous year, official data show.