2017 monsoon to be below normal: Skymet

After being scorched by rising fuel prices, inflation, especially for food items, is likely to face more headwinds if the monsoon predictions of private weather forecast agency Skymet come true.

The weather forecaster on Monday said it expected below-normal rainfall in the peak monsoon months, between June and September this year, at 95 per cent of the long period average (LPA) of 887 mm.

Economists said a poor or deficient rainfall in monsoon could add to current economic stress caused by rising fuel and food prices, which led the February wholesale price index (WPI) and consumer price index (CPI) inflation to soar to a 39-month and a 4-month high of 6.55 per cent and 3.65 per cent, respectively.

Last month, annual retail food inflation rose to 2.01 per cent from 0.61 per cent in January due to jump in prices of cereals, sugar and fruits, as per the Central Statistics Office (CSO).

D K Srivastava, Chief Policy Advisor, EY India said a below-normal monsoon, which will impact the agricultural output, could further push up food inflation. However, GDP growth is unlikely to be hit due to provisions in the Budget for capital spending, he said.

Weather Risk, another private forecasting agency, has predicted an El Nino event for 2017, saying  it could have a negative impact on the later part of the southwest monsoon. The first half of the monsoon period might see better rainfall than the later half, Jatin Singh, the CEO of Skymet, said.

Regions like Gujarat, Konkan and Goa, central Maharashtra, Karnataka, Kerala and Tamil Nadu may record below average rainfall while east India, especially Odisha, Jharkhand and West Bengal are most likely to see normal monsoon rains throughout the season. 

“Food prices were already firming up and fuel prices, generally, will either remain stable in the range of $50-55 a barrel, with an upward bias. So, there would be inflationary pressure due to fuel and on food prices (due to deficient monsoon),” he said. 

“The economy should, in general, maintain an upward growth rate and would not be adversely affected except for the fact that policy interest rate may not be brought down. This is partly because the Budget had some stimulus in terms of additional capital expenditure and, my sense, is that if required the government might go for stimulus either through additional borrowing on government account or additional borrowing through public sector,” Srivastava said.

Richa Gupta, senior economist at Deloitte India, also expects a below-normal rains to lift an already lofty inflation to a higher level.

“Below normal monsoon would mean that the agriculture sector would again be under stress, unless we are able to provide with insurance cover or expanded irrigation cover which are slightly difficult to do in the short term. So, lower production in agriculture will lead to a spike in food prices and our inflation statistics are very sensitive to food inflation statistics,” she said.

Though, she expects the government to manage the supply side through imports and better distribution of agricultural output from one part of the country to another.

Gupta said a lot would also depend on how inflationary GST rates would be when unified indirect tax goes live in July and whether crude oil prices could be tamed to remain below $60 per barrel.

Today, services contribute the highest to the GDP, followed by manufacturing. “It is a little premature to say how much it will impact the GDP growth. Agriculture impacts employment and consumption levels in the economy and so it impacts the GDP growth indirectly. If the agriculture income suffers then the allied sectors also suffer and rural sector consumption goes down,” she said.

—With agency inputs