The monsoon so far has been disappointing but, the Indian Meteorological Department has some hope to offer. According to DS Pai, Director - Long Range Forecast at India Met Department, the first week of July has seen some improvement in monsoon and they are expecting rainfall to improve over the next fortnight.

In an interview with CNBC-TV18, Pai further stated that the overall monsoon deficit in India is down to 25%. However, he is concerned about the north-western part of India which is witnessing a substantial deficiency. But, he added that the rainfall deficiency is now down to 43% from 73%.

Indranil Pan, Chief Economist at Kotak Mahindra Bank too is hopeful of better spatial distribution of rainfall in the next 15 days or so. Looking at the present situation, Pan believes agricultural output will be low if the rains do not pick up on time. Hence, it is one of the main reasons why Kotak Mahindra is keeping their GDP figure at 6% for the financial year.

However, Pan is not building in negative numbers for agricultural production yet because he feels adequate rainfall may revive Kharif sowing in the next two weeks. But, Rabi crops may be affected due to poor reservoir levels and this could impact the inflation numbers, opined Pan.

Further, Pan believes the RBI on July 31 is not likely to move on rates, irrespective of how the monsoon pans out.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying videos.

Q: There has been some positive development or progress over the last couple of days. Can you tell us how much things may have improved and whether you are still hopeful that the July deficit can be cut some more in the next week or ten days?

Pai: After a weak monsoon during June, there is a lot of improvement in rainfall activity from the first week of July, particularly over central India and north-west India. As of July 8, the total deficiency is 25% of the country as a whole. For south India it is 31%, for central India it is 26%, for north-west India it is 43% and in north-east India it is 14%.

If we look at a week back, our north west India deficiency was 76%. Yesterday it reduced up to 43%. There has been substantial increase in rainfall activity over central India and north-west India. In the coming one week to 15 days, we expect rainfall to continue like this and the situation to improve further.

Q: What is the forecast between now and July 15 which is considered the crucial phase, you expect a complete catch-up for whatever deficit there has been in July or you expect an improvement on the deficiencies that you were talking about?

Pai: The rainfall situation should improve a lot by mid July and deficiency should decrease in most parts of the country. We are expecting a good wet spell during the middle of July and there should be good rainfall activity even in August.

We expect rainfall activity to increase during these two crucial months which are particularly important for agriculture. There is a good chance of monsoon strengthening and improvement in rainfall activity in the next 15 days.

Q: Which areas would you be most concerned with now despite the improvement of the last couple of days, if you had to single out any area where you would need a lot of catch-up, what would those be?

Pai: A week back the deficiency in north-west India was 76%. Now that has reduced to 43%. The maximum concern is about north-west India. In July we expect rainfall to improve a lot and reduce the deficiency substantially, particularly in central India and north-west India.

Q: What is the comparison at this point between early trends in July versus what happened in 2009 because that's the year that everyone is drawing comparisons with? Has the makeup or recovery been much sharper than what we saw in July 2009?

Pai: June 2009 was very bad. We received only 50% rain and then the strong El Nino year stared at the beginning of the monsoon season. As this season progressed, things were worsening. Even July was very bad.

But, this year we expect the El Nino impact to be only in the later part of the monsoon and the present situation as we are observing, is improving. So July will be a lot better than even in the previous year.

Q: What kind of rainfall are you building into your forecast? The Met Department sounds a bit hopeful that things may improve but, would you say that significant damage has already happened to cropped areas?

Pan: We are looking at lower output in terms of the agricultural segment on the GDP and that is one reason why our GDP number for this financial year is at about 6%. As the sowing season is still not over and if the rainfall catches up significantly in the remaining part of July and till the middle of August, we can still remain hopeful in terms of kharif.

The more important factor is that in terms of reservoir level, it is at a poor level and therefore, the rainfall is much more essential in terms of how rabi production would be looking like. It's still quite a bit of a hazy scenario that I would be building up in terms of the overall implications of agriculture on the GDP numbers.

Q: Even though the sowing cycle is not over, for a lot of states one complete sowing session has been skipped, for instance in Bihar. You would say that there is likely to be an impact already, aside from what may happen in July?

Pan: Yes, in terms of agricultural output we should be looking at a lower output on agriculture compared to last year. But the point that I am trying to mention is that we should not be taking this monsoon season as a total wash-up yet and we should not be building in negative numbers on the agricultural production yet.

We are in a crucial phase in terms of monsoon development and if things get better from now on and till the end of July or even till the middle of August, we should be able to continue to see positive numbers on agriculture. However, it would be lower than the last year.

Q: What about the impact on inflation? Have you started seeing food prices tick up already because of the monsoon impact so far. Do you expect the next inflation reading not to be that great because that would have some bearing on the RBI's move at the end of the month?

Pan: We are anyway not looking at RBI to move by July 31, irrespective of the monsoon. With the monsoon, this becomes even more difficult. The point that needs to be made is that we are not too bad in terms of rice stock up.

So the type of inflationary impact that a poor monsoon may have on overall food grain prices due to kharif crops, may not be too significant. The second issue is that going forward, because of poor cropping pattern for e.g. cash crops like sugarcane and cotton, soybeans and pulses to a certain extent, we might be able to see higher inflation. But it still depends on what is the type of rainfall that pans out from now till the end of July.

The important issue as I had been mentioning is the rabi crop. If the reservoir levels do not come up, we can have implications out of poor rabi and that could be a bit more impinging in terms of inflation numbers.

Q: Someone was pointing out that the impact on the rural economy may not be that bad even if it is a poor monsoon because MSPs have been hiked on a lot of the key crops. Would you agree?

Pan: To a certain extent yes, may not be fully. Yes, that it actually depends on volumes of the output and therefore, the price multiplied by volume is something that we need to watch out. Yes, the MSPs have been increased, which to a certain extent would buffer the rural economy and its income.

The NREGA wages have also been rising and it is directly linked to the CPI of the agricultural labours. That would be another buffer in terms of the rural economy. But there has to be some implication in terms of the income if agriculture does not pan out as we are hoping for. The prices of agricultural output and the prices of a lot of other indirect implications of poor agriculture on other derived food products could be on the rise.

Q: Any weather formations that you see which might stall the progress of the last 2-3 days because as you are saying correctly, there is some hope that things will pick up in the next week and alleviate some of the pain so far, but could there be any kind of formations which come in the way as you can see?

Pai: Even after last week of good rainfall activity, the monsoon has slightly weakened over north-west India. But, if you see the satellite picture and the chart you can observe there is another pulse coming from south. So in the last week we did not have too much of rainfall in the southern part.

In the last 2 days, the southern part is picking up and this activity should spread over north-west India and then central India and north-west India. We are seeing that in the next 15 days, there will be good rainfall distribution. The most important fact even during the last week and what we are expecting in the next 15 days or so is that rainfall is likely to be widespread over most parts of the country.

You may not get very heavy rainfall but, you will have widespread rain. That is in fact good for agriculture. It is better than having floods and some regions having a deficiency. Even last week, there was a very good spread, nicely distributed rainfall.

For agriculture, the most important thing is to have even distribution of rainfall in most parts of the country. We have been receiving it in the last one week and we are expecting it in the next few days. That should be good news for agriculture.