Monsoon in India: All eyes on August performance

Monsoon in India: All eyes on August performance

By Yuvika Singhal, Vivek Kumar and Shubhada Rao

Monsoon in India plays a very crucial role in boosting or dampening the country’s economy. With July 2021 registered a rainfall deficit, August rainfall is going to be very important for the Indian economy.

India Southwest monsoon ended the month of July 2021 with a cumulative rainfall deficit at 1% of LPA. After nearly 3 weeks of a break in activity beginning last week of June 2021 which continued until the mid of July 2021, pick up in performance over the last 2 weeks eased the cumulative deficit that had soared to near 8% (as of 11th July 2021). Nonetheless, on a standalone basis, July 2021 clocked a rainfall deficit of ~8.0%, defying IMD’s expectation of a ‘normal’ outcome.

On a spatial basis, there remains sizeable dispersion. While the Southern peninsula has recorded excess rainfall (at +15% of LPA), the East & North-east region is trailing with a deficit at 13%. In comparison, rainfall in Northwest and Central regions after a strong start in June 2021, is now close to flat.

The revival in rainfall activity has also been accompanied by incessant rainfall, flash floods and landslides in several parts of the country. In another indicator of monsoon extremity, in terms of area, nearly 20% of the country has received deficit rainfall while 22% has received excess to large excess rainfall.

Sowing sees good traction in Jule 2021. The recent recovery in rainfall has aided the area sown under Kharif crops, which stood at 848.15 lakh ha as of 30th July 2021. Compared to the corresponding period last year, this is 4.7% lower but almost at par with the historical normal area sown up till the fourth week of July 2021. The pickup has abated some concerns, as annualized sowing was trailing nearly 11.5% as of the end of June 2021.

On a crop-wise basis, compared to last year (see detailed table below)

  • Area sown under Sugarcane and Jute & Mesta stands higher 1.6% and 1.2% respectively
  • Cotton is tracking the biggest shortfall, at -8.68%
  • For all other crops, the area is sown is lower in the range of 3-6%
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Source: Ministry of Agriculture, QuantEco Research

Looking ahead

  • Rainfall trajectory in the first half of the season has broadly tracked last year’s pattern – when a 17% surplus in Jun-20 had swung into a 10% deficit in Jul-20. Despite this, Kharif sowing had held up well, leading up to a record high Kharif production. This offers some consolation.
  • Rainfall in Aug-21: Despite nearly 80% of the season’s sowing completed as of the end of July 2021, good rainfall in Aug-21 remains crucial for supporting higher yield and productivity of crops and to lift the season’s performance. Of the four months, July and August receive maximum precipitation. IMD expects rainfall to most likely be above normal in Aug-21 (i.e., 94 to 106 % of LPA).
  • Spatial distribution of rainfall especially in Northwest and Central India has lagged in the month of Jul-21. Both these
    regions together account for nearly 60% of India’s foodgrain production, with Central India being highly dependent on rainfall owing to less coverage of irrigated land.

Outlook
In its “Third Update on Long Range Forecast for 2021” IMD has sounded optimistic for the second half of the season. It estimates rainfall for Aug-21 and Sep-21 combined to most likely be normal, with a tendency to be on the positive side of normal. However, on a spatial basis, it forecasts uneven distribution at ‘below normal to normal’ over NW and East & NE and ‘normal to above normal’ over South India and adjacent central India.

Agriculture exports clocked an expansion of 24% in FY21 with double-digit growth continuing into the first two months of FY22.

The monsoon performance and distribution will have a strong bearing on the pace of rural economic recovery. Given the rise in agriculture prices especially of oilseeds and pulses, a good Kharif output can translate into higher farm incomes; in addition to supporting from the Government’s income transfer scheme of PM Kisan as well as a strong impetus on food grain procurement seen over the past few agriculture seasons. Agriculture exports too have held up well, clocking an expansion of 24% in FY21 with double-digit growth continuing into the first two months of FY22.

This can allow a more durable consumption recovery in rural India, which reeled heavily under the impact of the second wave of Covid infection. While healthcare-related expenses along with the need to build up precautionary savings are bound to weigh on rural disposable incomes but given the higher marginal propensity to consume at lower income levels, one can expect a quicker turnaround in non-discretionary demand closer to the harvest period that begins in Sep.

Rural consumer sentiment (as per CMIE), as of the end of July 2021, continues to remain nearly 5pp below pre-second Covid wave peaks.

Rural consumer sentiment (as per CMIE), as of the end of July 2021, continues to remain nearly 5pp below pre-second Covid wave peaks, displaying a slow recovery compared to the urban sentiment which has recorded a near-complete recovery. On the other hand, we remain watchful of the agility in discretionary demand recovery which we anticipate to be somewhat sober. While domestic tractor sales soared to a near-record high in Jun-21 largely aided by pent-up demand; we will cautiously keep a track of its sustainability.

A good monsoon will be critical to keeping a lid on food price escalation. Carrying nearly 45% weight in CPI index, the respite in food inflation will help offset some of the price pressures, especially those emerging from global fuel and other commodity prices.

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Also Read: India macro tidings: Return of stagflation?

(Yuvika Singhal is an economist at QuantEco Research. Vivek Kumar is an economist at QuantEco Research. Shubhada Rao is the founder of QuantEco Research.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)

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