How bad is the monsoon situation? Pretty bad, says Crisil

DK Joshi, chief economist at Crisil says the current monsoon situation in the country is similar to the drought of 2009.

In its report, 'Monsoons- 2009 situation yet again?' Crisil has said the impact of deficient rainfall is worse in case of some crops when compared to the 2009 situation.

"Pulses, oilseeds and coarse cereals impacted the most so far," Joshi told CNBC-TV18 in an interview.

Crisil measures the impact of rainfall using an index named Deficient Rainfall Impact Parameter (DRIP) that was developed in 2002. DRIP is based on the premise that both the availability of irrigation and the level of precipitation affect crop production. Accordingly, it is computed as a product of percentage deviation of rainfall and percentage un-irrigated area.

The situation may improve if rains pick up August-September, Joshi believes. "We see the GDP being impacted by 0.7% due to weak monsoon," he says.

Joshi says the government spending is set to rise of monsoon does not pick up soon.

Meanwhile, the Met Deparment continued to put on a brave face.

The monsoon rains will "fill up" the deficiency in coming days, said LS Rathore, director-general of the India Meteorological Department.

"The only problem is north-west India where rains are poor. That is primarily coarse cereal area," Rathore said after a meeting with Food Minister KV Thomas.

Monsoon rains have so far been 22% below average since the start of the season in June and the government said on Monday overall rainfall was now likely to be below average. Latest weekly rainfall data will be released later on Thursday.

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is your assessment on this report on impact on agricultural production?

A: I think things are as bad as 2009, and if this scenario continues which is about 22% deficiency into the rest of the season as well then we will have a situation where the food grain production will fall in kharif and we could end up with a flat year as far as agriculture is concerned.

The picture will become clearer once we get more information for the month of August. If we get good rains in August and September then that we improve the prospects for rabi. Things look pretty bleak right now.

Q: What is your assessment from the study of the worst affected states where crop production might be affected the most?

A: States like Maharashtra, Gujarat and Madhya Pradesh with low irrigation buffer and have suffered massive deficiency is worst affected. In these states sowing of coarse cereals, pulses have been impacted badly; both production and yields will go down.

Pulses, oil seeds and coarse cereals will witness high inflation. They already have higher inflation than rice and wheat and I think that scenario is going to worsen going ahead.

From agriculture perspective the GDP will be shaved off and inflation will perk up beyond what we currently believe. This will increase the trade-off between growth and inflation at the macro level.

Q: Which cereals, oil seeds and pulses will have maximum price impact?

A: Jowar, bajra, toor and soya bean. Globally, soya bean crop has been impacted very badly. So chances of getting cheaper imports can be ruled out for soya bean.

Q: By when do you expect them to be nudging inflation because of the price impact?

A: The commodity and food grain prices have already started shooting up. We will see the reflection coming in Wholesale Price Index (WPI) within a month.

Q: What kind of parallels can you see with 2009 in terms of how things are progressing at least till the end of July?

A: The overall situation is almost similar. For some of the crops and states the impact in terms of Deficient Rainfall Impact Parameter (DRIP), which combines the impact of deficient monsoons and the vulnerability of a particular crop in terms of irrigation cover. If you take both the factors together then for some of the crops and states things are worse than what they were in 2009.

Q: You have also alluded in your report to the possibility of GDP growth sliding even below 6% if things continue like this?

A: Our current GDP growth projection is at 6.5%, and that doesn't factor in bad monsoons. If the overall agriculture growth is zero or GDP in agriculture in zero that will shave off at least 70 bps from the current forecast. If this scenario continous then the GDP would be below 6%.

Q: How would it impact the government's fiscal situation because of schemes, restructuring etc. or payments and have you looked at any kind of parallels with 2009 in this context?

A: Not really, it is very clear that the outgoes on National Rural Employment Guarantee Act (NREGA) will increase. The government will have to purchase at the MSP and sell more at a lower subsidized price, so the food subsidy will get impacted.

On the fertilizer side, the consumption will be lower so the Fertilizer Subsidy Bill may not be that adversely impacted. On the food and drought expenditure side we will see an additional hit to the fisc.