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As on July 25, 2014, monsoon has been 24% below the long-period average (LPA). Thats worse than
the deficiency seen in fiscals 2009 or 2012. While 2009 turned out to be a drought year, rains recovered
sharply in the latter half of the season in 2012.
This year, we believe there is a higher probability of a turnaround just like in 2012. This is consistent
with the IMD forecast of rainfall deficiency to reduce to less than 10% by the end of the season. But
despite the recovery, agriculture growth will remain muted at 1% as a strong statistical base-effect from
last years growth will kick in. That, again, will be a replica of 2012 when food grains production clawed
back to above the long-term average, but farm growth came in at a measly 1.4% because the year
preceding - 2011 - had seen an above-trend 5% farm growth.
And if monsoon fails to revive in the coming weeks, agriculture growth is forecast to decline to 0%,
shaving off an additional 30 basis points from our base-case GDP growth forecast of 5.5%.
CRISILs Deficient Rainfall Impact Parameter -- or DRIP - which is computed as a product of the
percentage deviation of rainfall and percentage of unirrigated area, captures both magnitude of the
shock (measured as the deficiency of rainfall) as well as the vulnerability of a region (measured as a
percentage of unirrigated area).
State DRIP scores show Maharashtra, Gujarat and Rajasthan are the worst-hit. These states have a
large share of the production of coarse cereals (jowar, bajra), pulses (tur) and oilseeds (groundnut,
soybean).
Crop-wise DRIP scores indicate that coarse cereals (jowar, bajra) oilseeds (groundnut, soybean), cotton
and pulses (tur or arhar) are twice as worse off as fiscal 2009 due to deficient rains in Maharashtra,
Gujarat and Rajasthan. Rice, however, has been impacted less than in 2009 because of lower rainfall
deficiency in the north-east, which accounts for around 30% of Indias rice production.
Overall sowing, at 24% below normal as on July 25, is far behind schedule and worse than in 2009. For
rice, it is 16% below normal, for coarse cereals 43% and for pulses 33%.
Although some damage to sowing is already done, we believe the situation will not be as dire as in 2009.
Historically it has been observed that in three of the last 5 fiscals -- 2009, 2010 and 2012 -- sowing was
well behind schedule same time of the year. But in both 2010 and 2012, it recovered fully with the rains.
Therefore, the odds of a recovery are still favourable -- at 2 in 3.
The good part is, the most-affected crops have a low weight 4.3% -- in headline consumer price index
(CPI). Moreover, government measures (such a lower rise in minimum support price or MSP this year
and ample buffer stocks) and a favourable base-effect will keep the lid on food grain inflation. But
elevated prices of fruits and vegetables could play spoilsport.
CRISIL Insight
2009 repeat or 2012 redux?
After a bumper year of agricultural growth last year, fiscal 2015 has a dry feel to it. In its latest forecast in
June, the IMD has forecast a 33% probability of deficient monsoon (which is defined as < 90% of LPA), and
38% chance of a sub-normal one (90-96% of LPA). Region-wise forecasts signal deficiency in the northwest, below normal in the central and southern peninsula, and normal in the north-east.
Even as rainfall deficiency has reduced in recent weeks from 40% in June-end to 24% as on July 25 (chart
1), it still continues to be more than in fiscal 2009 a drought year.
Chart 1: Rainfall deficiency
Rainfall deficiency from June 1
11-Jun
18-Jun
25-Jun
2-Jul
9-Jul
16-Jul
25-Jul
30-Jul
0
-10
-20
-24
-30
-40
-36
-40
-50
-44
-43
-45
-43
20
10
0
-10
-20
-30
2006
2007
2008
2009
2010
2011
2012
2013
2014
Lets see how weak rains in 2009 and 2012 led to very different farm output. In 2009, rainfall deficiency was
at 19% by third week of July (Chart 2) and deteriorated in the subsequent weeks, bringing down the overall
season average. Not surprisingly, 2009 was declared a drought year, and agriculture growth was a meagre
0.8% over an even lower base of 0.1% in the previous year.
On the other hand, in 2012, the deficiency was close to 22% in the latter half of July, but rains picked up
dramatically thereon, leading to above-normal farm growth. Similar examples can be seen in 2006 and 2007,
when heavy rains in July and August compensated to lift agricultural growth to 4.2% and 5.8%, respectively.
Thus empirical evidence shows that whenever poor rainfall in June or mid-July was compensated by good
rains in second half of the season, agricultural performance was near-normal. So rainfall in the coming
weeks will determine agriculture production this fiscal.
In regions where rains remain scanty well into August, the damage to crops wont be sufficiently mitigated.
But any bounce-back in September will improve the ground water situation for the rabi, or winter season,
crop.
In the milieu, we see a higher probability of a 2012 redux - in line with the IMD forecast of less than 10%
deficiency for the season.
CRISIL Insight
-4
-9
-12
-12
-13
-20
-24
-30
-38
-41
-42
-42
-53
-60
-70
-60
-50
-40
-30
-20
-10
Note: **Tamil Nadu and Pondicherry together, *** Haryana, Chandigarh, Delhi; Source: IMD, Crisil Research
DRIP CROPj = w i
% UNIRRIGATED i j * % RAINFALLDEFi
100
groundnut) and cotton are twice as worse off. Rice and sugarcane, however, are doing better.
Table 1: Crop-wise DRIP score
Crop Aggregated
For the period from 1st June to
DRIP
22 JUL
21 JUL
20 JUL
25 JUL
24 JUL
25 JUL
Previous
maximum
2009
2010
2011
2012
2013
2014
Average
2009-2013
9.1
5.7
3.0
4.1
4.5
5.6
5.3
9.1
Jowar
10.8
7.3
3.8
23.6
0.6
23.2
9.2
23.6
Bajra
19.3
16.0
4.7
38.5
1.8
34.2
16.0
38.5
Soyabean
10.2
17.9
1.8
20.9
0.0
22.5
10.2
20.9
Rice
Sugarcane
1.8
0.8
0.0
0.8
0.0
1.2
0.7
1.8
14.0
11.7
6.0
25.3
0.6
25.2
11.5
25.3
6.9
9.6
11.7
28.9
0.7
23.3
11.6
28.9
Maize
14.1
7.9
3.4
18.8
1.3
18.2
9.1
18.8
Cotton
6.8
4.1
6.5
15.9
0.1
18.3
6.7
15.9
4.9
3.3
1.58
5.2
1.1
5.7
3.2
5.2
11.4
7.8
3.5
13.4
3.1
13.6
7.8
13.4
Tur
Groundnut
All Crops
Food Grain DRIP
Source: Crisil Calculations
The DRIP scores suggest Gujarat, Maharashtra and Rajasthan are the most affected by the deficient rains.
Six out of 13 states are worse off than in fiscal 2009 as indicated by their higher DRIP scores this year. On
the other hand, Uttar Pradesh and West Bengal are doing better. For Punjab, even though rainfall is nearly
59% below normal, high levels of irrigation have meant a lower DRIP score of just 1. Conversely,
Karnatakas DRIP score is higher despite less-deficient rains because its irrigated area is lower, making it
more vulnerable.
Table 2: State-wise DRIP score
State DRIP
21 JUL
20 JUL
25 JUL
24 JUL
25 JUL
Average
2009
2010
2011
2012
2013
2014
2009-2013
Previous
maximum
Andhra Pradesh
16.0
0.0
5.9
0.5
0.0
18.1
4.5
16.0
Bihar
27.6
8.4
0.0
8.6
10.3
8.6
11.0
27.6
Gujarat
0.0
13.0
17.3
41.7
0.0
27.7
14.4
41.7
Haryana
12.5
0.0
3.0
13.4
4.0
10.2
6.6
13.4
Karnataka
0.0
5.3
0.0
24.1
0.0
8.1
5.9
24.1
Madhya Pradesh
9.4
27.1
0.0
13.6
0.0
12.4
10.0
27.1
Maharashtra
8.4
0.2
4.1
20.1
0.0
26.8
6.6
20.1
Orissa
0.0
20.2
11.5
11.6
0.0
2.7
8.7
20.2
Punjab
0.8
0.0
0.0
1.1
0.0
1.0
0.4
1.1
Rajasthan
9.7
19.0
0.0
41.2
0.0
36.7
14.0
41.2
Tamil Nadu
4.5
1.5
3.8
7.5
2.4
3.0
3.9
7.5
Uttar Pradesh
17.3
8.8
0.0
8.4
0.0
11.4
6.9
17.3
West Bengal
19.4
4.5
0.0
1.6
10.1
6.3
7.1
19.4
CRISIL Insight
Such state-level differences also mean varying crop impact. For example, the production of coarse cereals,
pulses and oilseeds is likely to be adversely affected by higher rainfall deficiency in north-west India and
some states in central India.
In terms of overall state DRIP scores, Rajasthan, which accounts for 40% of Indias bajra production, was the
worst-affected as on July 25. This is reflected in the high DRIP score of the coarse cereal. Another state with
a high DRIP score -- Gujarat -- accounts for over a third of Indias groundnut and cotton production. While its
area under cotton is well irrigated, that for groundnut is not, making the crop vulnerable.
Rains in Maharashtra, which accounts for roughly 40% of Indias production of jowar, tur and soybean, is
30% below normal. What makes things worse is that more than 90% of the area under these crops is
unirrigated.
Table 3: Coarse cereals, pulses, oilseeds and cotton are worse off than in 2009
Rainfall as of 23rd
July
Jowar
Bajra
Tur
soyabean
Groundnut
Cotton
Cotton
Worst affected
state
Maharashtra
Rajasthan
Maharashtra
Maharashtra
Gujarat
Gujarat
Maharashtra
2014
-30.5
-40.7
-30.5
-30.5
-42.3
-42.3
-30.5
2009
-9.6
-10.7
-9.6
-9.6
8.9
8.9
-9.6
%
unirrigated
area
90.5
96.7
98.4
99.6
87.6
41.3
97.3
Share of
state in allIndia
production
of crop
43%
41%
36%
33%
38%
35%
21%
2009
8.6
10.4
9.4
9.5
0.0
0.0
9.3
The DRIP score of rice, which accounts for nearly 71% of total food grain production in the kharif season, is
lower than fiscal 2009 levels, but marginally more than the average of the last six years. Some cushion to
rice production is coming through lower rainfall deficiency in Assam, Bihar and West Bengal which account
for 30% of Indias rice production compared with 2009. This is a blessing in disguise as these states are
also the most vulnerable to monsoon failure because a large share of their area under rice cultivation is unirrigated 95% in Assam, 44% in Bihar and 52% in West Bengal. Rainfall deficiency in other major rice
producers such as Punjab and Andhra Pradesh is greater, but they are less vulnerable because of higher
irrigation.
2009
2010
2011
2012
2013
2014
Rice
-20%
-14%
-8%
-7%
-4%
-16%
-11%
-5%
-7%
-21%
0%
-43%
Total pulses
-24%
-14%
-10%
-41%
10%
-33%
-5%
-1%
7%
6%
17%
-17%
-15%
-8%
-3%
-10%
4%
-24%
Total oilseeds
All crops
th
Historically it has been observed that in three of the last five years -- 2009, 2010 and 2012 -- sowing was
behind schedule at this time of the year because of deficient rains. However, in 2010 and 2012 sowing
rebounded as rains, which were 8-10% deficient by end-July, caught up by August. In 2009, however,
August was drier and overall deficiency was 22.7% from June to September. As a result, sowing never
recovered, adversely impacting food grain production.
Past data, thus, suggests the odds of an improvement remain favourable at two in three.
Chart 4: Sowing picked up in 2010 and 2012
%
10%
5%
0%
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
-5%
-10%
-15%
-20%
-25%
-30%
Note: Sowing deficiency = %area sown -% normal area sown as on date
Source: Ministry of Agriculture, Crisil Research
CRISIL Insight
Production crop i
* Sowing deficiency crop i
Total foodgrain production
Where,
Sowing deficiency crop1 = % area sown crop i - % normal area sown crop i as on date
Production of crop1 and total food grain production are for Kharif season only
As July and August are the critical months for sowing, the weighted sowing deficiency as of August-end is a
strong indicator of kharif foodgrain production in any year. In fiscals 2010 and 2012, as the weighted sowing
deficiency improved by the end of August, food grain output rose sharply, even managing to surpass the
long-term average of 114.8 million tonne.
This year, too, if rains pick up in the coming weeks, food grain production may not be severely impacted. But
the high growth of last fiscal will mean the statistical year-on-year trend in farm output will be flattish just
the way it was in 2012-13, when foodgrain production recovered but agricultural growth came in at 1.4%
following up on a 5% growth in 2011-12.
Chart 5: Weighted sowing deficiency by August-end and foodgrain production is strongly
correlated.
mn tonnes
20.0
%
8.0
6.0
15.0
4.0
10.0
2.0
5.0
0.0
-2.0
0.0
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
-5.0
-4.0
-6.0
-10.0
-15.0
-8.0
-10.0
Reservoir levels
According to latest data (July 17), water levels at 85 major reservoirs stands at 39.9 BCM, which is lower
than both last fiscal and the normal storage, which is the average of the last 10 years. In percentage terms,
current year storage is 61% of last years and 87% of normal storage. Weekly data suggest reservoir levels
have dropped sharply in recent weeks. If this continues, it will have a bearing on the rabi or winter crop.
Among the states worst-affected (or those with high DRIP scores), reservoir levels in Gujarat are 19% below
normal storage, and in Maharashtra 47%. On the other hand, reservoir levels in Rajasthan, another rainfalldeficient state, are 28% above normal, and in Madhya Pradesh 75%, which will help cushion crop
production. For other states, there is no reservoir support.
What does a sub-normal monsoon mean for the economy and inflation?
A monsoon failure will lower GDP growth 30 basis points to 5.2% in fiscal 2015
As some recovery in rains seems likely, in our base case we envision a turn around like in 2012. But despite
this, agriculture growth will remain muted at 1% as a strong statistical base-effect from last years growth
(4.7%) will kick in. This year, we see overall GDP growth touching 5.5% as faster clearances of stalled
projects, higher mining output, and improvement in external demand help industry and services.
In the event rains fail to recover by August-end, agriculture growth will decline to 0%, shaving off an
additional 30 basis points from our base-case GDP growth forecast, taking it to 5.2%. Lower farm growth will
also impact industry and services growth, with demand for consumer durables and two-wheelers declining.
This would defer a much-needed recovery in private consumption growth, which has fallen to a decadal low.
Given IMDs forecast, we give a 60% chance of our base case of 5.5% GDP growth materialising, and a 40%
chance of it falling to 5.2%.
Moving to inflation, we believe inflation will remain capped despite poor monsoon unlike in fiscal 2009 when
inflation in cereals had surged to 11% and in pulses to over 40%. In 2009, a part of the increase in inflation
was also due to high demand due to the fiscal stimulus which is not the case this year. Other reasons for this
are as follows.
First, the crops affected by poor monsoon in the kharif season (jowar, bajra, tur, groundnut) have only a
4.3% weight in the Consumer Price Index. Second, the government has been proactive, increasing the
minimum support price (MSP) for food grains at a slower pace than previously. For rice, the MSP was
increased by 4% compared with an 8% average in the last five years, while for tur it was raised by just 1.2%.
Also, buffer stocks as of June 1 for rice (20.6 million tonne) are much more than whats needed under the
buffer norms. The government has indicated that it is ready to offload excess stock and provide credit lines to
states wanting to import food grains and oilseeds. In addition, for oilseeds, a large portion of which are
imported, international prices also are favourable (at 30% lower than last year).
We believe all this, and the favourable base-effect of last year, will curb cereal and pulses inflation. However,
a complete monsoon failure could lead to sharp price increases in the prices of pulses and coarse cereals,
which are rain-fed crops and for which no buffer stocks exist.
Apart from this, the major headwind to inflation, we believe, could come from the prices of fruits &
vegetables. To control this will be the bigger challenge for the government.
CRISIL Insight
Analytical Contacts:
Dharmakirti Joshi
Sakshi Gupta
Email: dharmakirti.joshi@crisil.com
Email: neha.saraf@crisil.com
Email: sakshi.gupta@crisil.com
Media Contacts:
10
Tanuja Abhinandan
Jyoti Parmar
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