Normal Monsoon Forecast Eases India Crop and Growth Concerns

India, which relies on rain for the vast share of its water, forecast that the monsoon will be normal this year, potentially bolstering the outlook for agriculture production and economic growth.

(Bloomberg) — India, which relies on rain for the vast share of its water, forecast that the monsoon will be normal this year, potentially bolstering the outlook for agriculture production and economic growth.

Showers during the June-September season are likely to be 96% of a long-term average, according to the India Meteorological Department. The estimate comes a day after private forecaster Skymet predicted a below-normal monsoon, saying rains may reach only 94% of the benchmark.

Hundreds of millions of farmers across Asia’s third-largest economy depend on the annual monsoon to nourish their fields. Ample rains may boost production of crops like rice, soybeans, corn and sugar cane, helping to lower food prices and aiding the government’s efforts to cool inflation.

The weather office said that the probability of a normal monsoon is as much as 35% this year. Rainfall between 96% and 104% of the historical average is considered normal. Last year’s monsoon was 106% of the average, boosting food grain output in 2022-23. The weather department’s forecast has a margin of error of 5%.

Based on the IMD’s forecast probability, the risk of lower rainfall remains, said Anubhuti Sahay, the Mumbai-based South Asia chief economist at Standard Chartered Plc. She expects inflation to hover at 5.3% this fiscal year and food inflation at 5.7% given falling wheat stockpiles, rising rural wages and prospects for less rain.

The shift to El Nino could also affect the monsoon in the second half of the season, according to the IMD. The event, triggered by warm water in the equatorial Pacific, is associated with drier conditions and reduced rainfall in India.

The IMD’s forecast of a normal monsoon “comes as a relief as it takes off the upside risk to our and RBI’s CPI inflation forecast” for the year ending March 2024, said Madhavi Arora, an economist at Emkay Global Financial Services Ltd.

Inflation stayed above the Reserve Bank of India’s target of 2%-6% for 10 straight months through October, forcing the central bank to explain to the government why it missed the target. Inflation again climbed to hover above 6% in January and February due to higher cereal prices.

With food constituting nearly half of the index, a normal monsoon could help to bring down food inflation and hence headline inflation.

The monsoon is crucial for winter-sown crops as well, as rains during the period also fill reservoirs and help crops during November and March, when most regions get little showers. India sows rice, soybeans and corn during the monsoon season, and wheat and rapeseed in winter. The nation is the world’s second-biggest producer of wheat, rice, cotton and sugar cane.

“The volume of rainfall, its timing and dispersion will crucially influence crop sowing and output, as well as prices,” said Aditi Nayar, chief economist at ICRA Ltd. Since reservoir levels are healthy by historical standards, a mild delay or sub-par monsoon may not be very challenging, she said.