IMD's forecast of deficient rains latest scare to India's growth story

The first long-range forecast of the India Meteorological Department (IMD), released on Wednesday, has cast a pall of gloom across the country. Like last year, India is likely to experience a below-normal monsoon this year too, according to the forecast.

According to IMD, the probability of a deficient monsoon is 33% and the probability of below-normal monsoon is 35%. Effectively, there is a 68% probability of a weak monsoon.

It is indeed bad news for the country's agrarian sector that is already reeling under distress as unseasonal rains and hailstorms have destroyed 80 lakh hectares of croplands, according to official figures. A consecutive year of below-normal rainfall will also mean that the government may well have a drought on its hands. Last year, the onset of monsoon was delayed by a week and June was one of the driest in history. The overall deficit stood at 12% below average rainfall and triggered drought in several parts of the country.

Just when economists and rating agencies were upwardly revising India's GDP growth rate for the current fiscal, the IMD prediction has poured cold water on government's hopes of attaining a double-digit growth rate.

Analysts and consultants believe that deficient rains would hit rural demand and slow down the economic growth. Ranen Banerjee, partner – government reforms & infrastructure development, PricewaterhouseCooper (PwC) India, said unseasonal rains clubbed with below average rainfall will mute rural demand and slow down the economy, which in turn will affect government revenue and its ability to meet its fiscal deficit target.

"A monsoon failure will have two consequences. First, the farmers will be pushed to the brink having already faced major crop failures due to unseasonal rains. The government will be forced to intervene with relief measures and this will put a burden on the fiscal. Second, the GDP growth itself will be impacted with a higher share of Gross Value Add for Agriculture and Allied activities in the new series of GDP. There will be muted rural demand and a slowdown of economy. This will have negative consequences on revenues of the government making the task of meeting fiscal targets stiffer," said Banerjee.

Domestic rating agency Crisil said in its report, IMD's first monsoon forecast for 2015 is gloomier than its first one last year, and could shave off 50 basis points from its GDP forecast of 7.9% for current fiscal.

"A second straight year of weak monsoon will decrease the efficacy of India's irrigation ecosystem and hit agricultural output and farmers adversely. To add to this, unseasonal rains since early March have already had a negative impact on many crops. According to our calculations, a deficient monsoon, if it comes true, will shave off 50 basis points from our GDP forecast of 7.9% for fiscal," stated the Crisil note brought out immediately after IMD announced its forecast on Wednesday.

"A normal monsoon is crucial to push economic growth this year, given weak investment climate, tepid export growth and fragile consumption. Our base case, given a normal monsoon, is that agricultural growth will be 3% -- up from a weak base of 1.1% in fiscal 2015," the report further added.

Recently, there have been some bullish projections on India's GDP growth rate. The Asian Development Bank (ADB) had projected India's economy to grow at 7.8% in 2015-16 and at 8.2% in 2016-17 while the World Bank has forecast GDP to accelerate to 8% in the next fiscal. Even the international credit rating agency Moody's has forecast a growth rate of 7.5% in 2015.

DK Srivastava, chief policy advisor, EY India, said the IMD's prediction is the second negative impact after the untimely rain early this year, which could put pressure on food prices. In the recent past, food prices have been declining due to lower fuel and power costs.

He, however, said the negative impact of shortfall in rain on inflation can be contained if the government takes timely action by accurately predicting crop shortages and taking remedial measures.

"The impact (of the drought on inflation) can be short term and can be mitigated if the government forecasts relatively and accurately critical crop shortages and tries to import to reduce the impact of drought," said Srivastava.

Meeta Punjabi, director of Delhi-based Creative Agri Solution, a research and consulting firm in agriculture and livestock sector, said it would be difficult for the farmers to absorb the impact of two blows in a year. She said since 60% of the area and 45% of food crop under cultivation in India are rain-fed, a drought could have a disastrous economic impact.

Dr Harshvardhan, minister of earth sciences, however, dismissed all concerns saying there is no need to panic. "The forecast will be revised in June. Our forecasting capabilities match those of anywhere in the world and we will be closely monitoring the developments," he said.

According to IMD's forecast, the country will receive 93% of the long period average (June-September) rainfall. The long-period average of monsoon over the country is 890mm as per historical data while rainfall between 90% and 96% of this average is defined as below average rain.

IMD officials said that El Niño weather phenomenon has been factored while preparing the forecast. Though there is no region specific forecast as of now, the country's North-West and Central regions are likely to receive lesser rainfall compared to other regions.

"As per the current indicators and conditions, the forecast for monsoon is below normal. The unseasonal rainfall seen in March has no bearing on the monsoon. As far as El Niño is concerned, it is likely to persist during the monsoon season," said LS Rathore, director general of meteorology, IMD. The El Niño is a weather phenomenon -- marked by warmer-than-average sea surface temperatures -- that causes droughts in south Asia is currently active.

North-West and Central regions to be hit hard

According to IMD's forecast, the country will receive 93% of the long period average (June-September) rainfall. The long-period average of monsoon over the country is 890mm as per historical data while rainfall between 90% and 96% of this average is defined as below average rain.

IMD officials said that El Niño weather phenomenon has been factored while preparing the forecast. Though there is no region specific forecast as of now, the country's North-West and Central regions are likely to receive lesser rainfall compared to other regions.