By Yuvika Singhal, Vivek Kumar and Shubhada Rao
Monsoon in India manipulates a lot of factors such as agriculture, vehicle sales and the overall economy at large. However, unseasonal and excessive rain causes severe damage as well. How is the monsoon impacting the various aspects of the economy this year and what is the outlook.
India’s Southwest monsoon managed to escape the deficient/drought tag in Aug-21 by a whisker, with cumulative rainfall at 9% below LPA (Long Period Average). Defying hopes of normal activity as per IMD, standalone Aug-21 clocked a deep rainfall deficit of 24.1% – the worst August outcome seen since 2009.
On a spatial basis, performance worsened, with all regions with the exception of the Southern peninsula (+8% of LPA) recording deficit rainfall. Northwest and Central India rainfall stood at 14% below LPA each. In terms of geographical area, 35% of the country received deficient rainfall, up from 20% as of Jul-21.
Sowing however progresses further in Aug-21
The rainfall deficiency notwithstanding, the area sown under Kharif crops made good progress in Aug-21. As of 27th Aug-21, the combined area is sown stood at 1064.03 lakh ha. This is 1.8% lower vis-à-vis last year, but marginally higher than the historically normal area sown up to the end of August. In terms of crops, contraction in area sown under cotton at 8.6% YoY was the biggest laggard (see table below).
Mapping deterioration in monsoon performance to improvement in Kharif sowing
The dichotomy can perhaps be explained by looking at an alternate assessment of rainfall performance – Actual rainfall weighted by foodgrain production at the state level (i.e., for key Agri states). As per this metric, rainfall performance has fared better throughout the season and as of the end of Aug-21 stood at a sober 4% deficit (see chart).
It appears that largely non-Agri states with sizeable rainfall deficits such as – Himachal Pradesh (-18%), Jammu & Kashmir (-30%), Kerala (-22%); along with some of the NE states (such as Nagaland, Manipur, Mizoram) have weighed on headline monsoon performance.
Will monsoon sign off with a bang?
At a granular level, among the key agriculture states –
• Gujarat, which is facing a ~50% cumulative deficit in rainfall, accounts for ~2% of India’s foodgrain output but has a greater share in non-foodgrain crops of oilseeds and cotton. While Kharif oilseed sowing has fared decent vs. normal area sown, cotton is seen lagging materially in the state.
• Odisha, at 29% cumulative deficient rainfall, again is a small contributor i.e., 2% to total foodgrain production in the country (predominantly rice during Kharif season).
• Chhattisgarh’s cumulative rainfall is lagging at a deficiency of 15%, but yet again the state accounts for <2% of India’s foodgrain output (predominantly rice during Kharif season).
• Punjab, which is facing a 24% cumulative deficiency in rainfall, accounts for a sizeable 11% of India’s total foodgrain output (predominantly rice during the Kharif season). However, the impact of precipitation shortfall may be blunted in the state given the well-developed irrigation facilities covering ~100% of Agri land.
• Rajasthan at 12% of cumulative monsoon deficiency, is dominated by the cultivation of coarse cereals accounting for nearly 7.0% of India’s foodgrain output; but coarse cereals enjoy drought tolerance characteristics.
Sep-21: A good end to the season?
• IMD forecasts Sep-21 rainfall to be above normal at >110% of LPA. As such, it cites – “Considering the expected above normal rainfall activity during Sep-21, the current deficiency of 9% in seasonal rainfall during Jun-Aug 2021 is very likely to reduce and accumulated seasonal rainfall for the full season is very likely to be around the lower end of the normal (i.e, >96% of LPA)”
• IMD forecast suggests that above normal to normal rainfall is likely over many areas of Central India. Normal to below normal rainfall is most likely over many areas of NW, NE and southernmost parts of peninsular India.
• Earlier in Aug-21, private forecaster SkyMet too had downgraded its monsoon forecast for the season to 94% of LPA, i.e., below normal with a 60% probability. For the month of Sep-21, it expects a normal monsoon with a 60% probability too.
Overall rainfall deficit while does raise some concerns, but may not be raising alarm bells yet from an agriculture perspective (especially foodgrains). A good Kharif output, along with the rising price of oilseeds and pulses, will help quicken recovery in the rural economy as the harvest season begins late Sep21 onwards while keeping a lid on food price escalation. The Q1 FY22 above long-term average growth in the agriculture sector at 4.5% despite the rural economy grappling with the devastating second wave of infections, underscores the cushion from record Rabi output and Government procurement.
A late monsoon revival in Sep-21 may augur well for soil moisture/reservoir levels and in turn, Rabi sowing, but a late withdrawal or unseasonal rains extending into early Oct-21 may be more damaging. Let’s just pray that rain Gods bestow some kindness.
(Yuvika Singhal is an economist at QuantEco Research. Vivek Kumar is an economist at QuantEco Research. Shubhada Rao is the founder of QuantEco Research.)
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