JOIN USScanty rains may trip GDP growth, fears Crisil study
If monsoon continues to remain below normal in August, the country’s GDP (gross domestic product) growth could fall below 6.0 per cent from the current expectation of 6.5 per cent, Crisil Research said in its report on monsoon update.
Till July 18, 2012, the overall monsoon has been 21.9 per cent below the Long Period Average (LPA), it said. According to Crisil, the rainfall pattern so far this year is similar to that seen in 2009 which was an all-India drought year which has raised the specter of drought in the country this year.
On inflation, the research firm said, food inflation, which is already high, will face further pressure due to poor rainfall. The prices of pulses and coarse cereals, which are rain-fed crops and for which no buffer stocks exist, could flare up as a result.
Further, stating the deficient rainfall situation is similar to that of the 2009 drought, Crisil said the shortfall will have an adverse impact on headline inflation and push it beyond estimates.
The agency's research wing said wholesale price index-based inflation, one of the key factors used by the Reserve Bank of India in its policy making, will go beyond its estimate of 7 per cent due to scarcity of rains and the resultant price escalation on food items.
“The rainfall pattern so far this year is similar to that seen in 2009 which was an all-India drought year. This has raised the spectrum of drought in the country this year,” the research note said.
The report further said, as a result, “food inflation, which is already high, will face further pressure due to the poor rainfall. The prices of pulses and coarse cereals, which are rain-fed crops and for which no buffer stocks exist, could flare up as a result.”
However, the agency did not offer a revised inflation estimate. Additionally, prices of oil seeds are also expected to rise because of lack of adequate sowing due to lower acreage, it said. Ever since the start of the current monsoon season, and the weakness in precipitation thereof, it is being widely feared that this may have an impact on inflation, RBI's guiding factor in determining monetary policy.
An uptick in inflation will only end up compounding the economic woes as the RBI may not relent to the demands from the industry to lower its elevated policy rates, citing inflation. The RBI is expected to come out with the first quarter review of the monetary policy on July 31.
Monsoon was particularly weak in the northwest, central, and southern peninsular regions, even as the Indian Meteorological Department (IMD) in its first forecast in April this year predicted a normal monsoon for the country at 100 per cent of the Long Period Average (LPA).
Till July 18, the cumulative deficiency in these regions was at -39, -26 and -23 per cent respectively. The overall rainfall deficiency till July 18 this year is similar to that in 2009, which was declared as an all-India drought year.