Regional distribution, timing of monsoon rains hold the key: economists

The prediction by the India Meteorological Department (IMD) of an above normal monsoon this year, the first such forecast in eight years, bodes well for the economy’s growth and inflation outlook but the projection of below-par rainfall in parts of eastern, northeastern and northwestern India, flags the risks. 

“In 2023 as well, the east and north-east received below-average rainfall, at 82% of the long period average,” Crisil economists wrote in a research note on the key takeaways from the IMD’s first long range forecast for 2024. “If this year’s prediction were to manifest, States in this region (key producers of rice, sugarcane and maize) could face yet another year of rainfall distress,” they added in the note on Tuesday.

The IMD forecast of above normal rainfall, coming amidst extreme heatwave conditions, triggers hope for the farm sector and may serve as a check on high food inflation but the spatial distribution will matter as some regions, including the northwestern and eastern parts, are expected to see below normal rainfall, said Jahnavi Prabhakar, economist at Bank of Baroda.

A healthy monsoon would also help replenish water reservoir levels that stood at 33% of total capacity on April 12 as compared with 39% last year. This would support the rabi crop.

While more rigorous details on the monsoon’s onset and spread are expected in IMD’s next forecasts in May, the Crisil economists stressed that rainfall distribution would be watched closely this year.

“Uneven distribution over regions and time in the past year, with other weather disturbances, had hurt agriculture output and incomes while keeping food inflation persistently high,” they wrote, citing the spike in food inflation through 2023-24, from an already high 6.6% in 2022-23, and the sharp drop in farm sector gross value added (GVA) to 0.7% from 4.7% in the previous year.

“Areas and/or crops that face a monsoon shock (if at all) for the second straight year could suffer more than others,” the Crisil economists noted. The timing of rains would be critical as sowing decisions were based on rainfall arrival and its quantum.

“With about 43% of India’s total cropped area rain-dependent, adequate rainfall is required in July and August, the critical months for the kharif crop. In 2023, the temporal distribution was highly uneven, with rainfall oscillating between deficit and above normal,” they pointed out.