Signalling robust farm output and benign inflation and giving hope to the rural populace reeling under an income contraction, the India Meteorological Department (IMD) on Tuesday predicted above normal rainfall this year at 106% of the benchmark Long Period Average (LPA), with a model error of ±5%. This comes after two successive years of deficient monsoon. “There is a 94% probability that southwest monsoon will be ‘above normal’ to ‘excess’. There is just 6% chance of monsoon being poor,” said LS Rathore, IMD director general. He added that rainfall during the monsoon months (June-September) would be “well spread out”, a prognostication that augurs well for the the agriculture sector. However, Rathore said that parts of northeastern and southern regions could get less than normal rainfall. According to DS Pai, head of long-range forecast division of IMD, El Nino conditions were still strong but would continue to decline and reach neutral levels by mid-monsoon. According to an Icra forecast, a cyclical upturn in agriculture would support rural demand and contribute to an uptick in growth of gross value added at basic prices to 7.7% in the current fiscal from 7.2% in the previous year. Above-normal showers will help farm and allied sector growth, which is estimated at just 1.1% for 2015-16 even on a favourable base (the sector had contracted 0.2% in 2014-15). Moreover, the gross value added in crops, an important component of the farm sector, will likely register healthy expansion after expected subdued growth in 2015-16 and a contraction of 3.2% in 2014-15. The farm and allied sector accounts for roughly 14% of the country’s GDP. Higher farm output is expected to rein in any surge in food inflation and consequently weigh on the headline retail inflation, which touched 4.9% in 2015-16, compared with 5.9% a year before. The monsoon rains are critical to India’s farm sector as 55% of farmland continues to be rainfed. The monsoon rains are crucial for kharif crops like paddy, pulses and oilseeds and help boost soil moisture for the rabi crop. The last two years’ deficit monsoon rains have already resulted in depleted water levels in the country’s 91 large reservoirs. Till last Thursday, water reserves were lower than a year ago by almost a third, a situation that has already impacted hydro power production. Indranil Pan, chief economist at IDFC Bank, said: “This is just the first estimate and we need to see the second estimate, which will be closer to the monsoon time, for clarity on its impact on growth and inflation. I don’t expect any change in RBI’s policy stance based on this monsoon forecast as they have just lowered the interest rates and will wait the second round of forecast.” The met department will issue the second-stage forecast in early June. Along with the second forecast, separate forecasts for the monthly (July and August) rainfall over the country as a whole and seasonal (June-September) rainfall over the four geographical regions of India will also be issued. “The El Nino conditions over equatorial Pacific ocean that established in April, 2015 reached to strong condition in July and peaked in December 2015. Thereafter, the El Nino conditions started weakening even though sea surface temperatures over the Pacific Ocean are still above normal,” IMD said in a statement. The department’s forecast seems to be in the line with that of private weather forecaster Skymet which on Monday predicted that the southwest monsoon is likely to remain ‘above normal’ at 105% of LPA, with a model error of ± 4%. Because of deficient monsoon rains in last two years, the country’s foodgrain production declined to 252 million tonnes and 253 million tonnes in 2014-15 and 2015-16, respectively, from a record production of 265 million tonnes in 2013–14. In 2009, when the monsoon rainfall was 23% below normal, the production of foodgrain dropped to 218 million tonnes from 234 million tonnes in the previous year, a decline of 6.8%. In a statement, CII director general Chandrajit Banerjee said that the prediction of an above-normal monsoon would be a great mood changer for industry, as revival of rural demand leads to a turn in the investment cycle. “This would take the economy to a higher trajectory of around 8% growth,” he said. According to IMD, the monsoon is categorised as normal if cumulative rainfall during the June-September period is in the range of 96-104% of the LPA. Other categories are: Deficient (below 90% of LPA), below normal (90-96% of LPA), above normal (104-110% of LPA) and excess (more than 110% of LPA) According to US Awasthi, managing director of fertiliser cooperative Iffco, fertiliser consumption will improve in 2016-17 season, especially due to better demand for winter-sown crops like wheat. “Imports of fertilisers will not rise despite good demand as we have ample inventory. The drought had squeezed sales last year,” he said. Vandana Bharti, associate vice-president, SMC Global Securities, said: “This year’s rainfall is crucial in bringing down prices of some commodities like pulses. Timely and well-spread rainfall can moderate imports of pulses and edible oils. It will also help in maintaining exports of rice, cotton and sugar.” Source - financialexpress.com