Moneycontrol Pro Panorama | Growing risk to farm incomes from unseasonal rains

The damage to crops will hit farmers and their incomes.

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Indians generally relish the cooling effect of good rainfall after a scorching summer. But anything in excess can have negative consequences and this year's rains are a case in point. After a harsh monsoon season, the country is now seeing unseasonal rains. This poses risks to the summer crop harvest. Farmers in Maharashtra, Telangana and Tamil Nadu are already complaining about crop damage.

As cyclone Montha nears landfall, there are growing fears of more damage to crops.

Readers may note that more than half of the kharif crop area received excess monsoon rains. “This year, there was excess rainfall throughout the season in 10 states, which together represent 58 percent of India’s kharif-growing area,” ratings agency Crisil said in a note.

The unusually high rains have submerged crops in several states and hit sales of agriculture inputs providers. Even as overall kharif crop acreages increased this year, total production may not rise at a healthy pace. “Based on what I'm hearing and estimate, while (kharif) area has gone up, overall production may not go up because a lot of it got damaged,” said Gyanendra Shukla, MD and CEO of Rallis India, in an earnings call.

The damage to crops will hit farmers and their incomes. While this can intensify pressure on states to provide relief measures, investors should watch out for the impact on supply chain and inflation. Crop damage and lower production can send prices of fruits, vegetables and staples higher. A prolonged rise in prices can attract policy action, even though current headline inflation is in the Reserve Bank of India’s comfort zone.

The situation requires careful monitoring. The US sanctions of Russian oil companies can raise  fuel prices and the import bill. Analysts are already warning about rising gasoil and diesel prices in the international market. Crude oil price-led inflation can pose risks to equity markets, but a sustained rise in fuel prices is unlikely, argues Vijay L Bhambwani in this column. Do read.

The scenario in the crude oil market may not be worrying yet, but investors need to keep an eye on the domestic farm sector. A substantial hit to farm incomes from crop damage can undermine some of the positive impact of GST rate cuts on the rural consumption economy.

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