In what may serve as a dampener for the economic prospects of the agricultural sector, US-based forecaster Earth Science today revised downwards its India monsoon forecast to 88 percent of the long period average (LPA).
While India's national forecaster, the Met department, in its initial forecast said it sees only a slightly below-normal monsoon, at 93 percent, it is set to release its second stage forecast later today.
Reacting to the news, ICRIER's Ashok Gulati said that if the forecast turns out to be true, it would result in a challenging situation for the government.
"It is not good for the farmer, and not good for the economy because the demand for fast-moving consumer goods (FMCG) will suffer," he said. "Politically, it will be a challenge for the Modi sarkar."
Below is the transcript of the interview on CNBC-TV18.
Ekta : Your first thoughts in terms of the revision to 88 percent of long period average. Does that qualify for a mild drought and how worried would you be considering that it would be the second year in a row at 88 percent low pressure area (LPA)?
A: That is not a good news for the Modi government. Two successive droughts, if this turns out to be, it will be the fourth in a century and that is a pretty bad thing because farmers are already reeling under lot of stress. And 88 percent means almost the same as what was last year. They are going to have a growth rate, which is flat or negative.
Under that situation, it is not good for the farmer, and not good for the economy because the demand for fast-moving consumer goods (FMCG) will suffer. Politically, it will be a challenge for the Modi sarkar.
Sumaira: The model which forecast the monsoon now to be at 88 percent of long period average (LPA) also has a modal error of about 5 percent, so is there a danger that this could be revised still lower especially since the monsoon has already been delayed?
A: What we have been looking at it what the US weather forecasting agencies are saying. They are already predicting a drought in much of western India and central India and all the way to Pakistan and that with erratic monsoon that we have in ’14-15 and now in ’15-16 if we have that then that’s a bad news for the economy.
Ekta: Is there any sort of spatial distribution of rain that you would look at closely in order to assess that maybe even though it is 88 percent of LPA, there could be some amount of spatial distribution which could make up for it?
A: If you look at the spatial distribution normally the western states from Karnataka, Maharashtra, Gujarat, Rajasthan even Madhya Pradesh are likely to suffer even more because if 88 percent is all India average and in those states, most of the time we have seen, it could be 30 percent shortfall or 20 percent shortfall and that is the un-irrigated area, so much of oil seeds, cotton, pulses are going to suffer.
Ekta: What would be the government measures that you would now look at very closely in light of the revision downwards?
A: I think two-three major measures that the government can take, of course they already have contingency plan in place, so the government is quite aware of that but having suffered two bad seasons for the farmer it will be a challenge how to sustain and therefore the government has to bring out a very proactive insurance policy. The current insurance policy is not at all sufficient for farming.
Ekta: Which would be the crops you think that would be most impacted and which do you think that we have a sufficient buffer on?
A: Wheat and rice – we have sufficient buffers, so I am not worried about the basic staples but I am worried about cotton. In Maharashtra, it's only 3 percent irrigated and also oil seeds; much of the oil seeds for example soybean in Madhya Pradesh or Maharashtra belt is not that much irrigated, so they rely on rains.
However, much of the pulses in Maharashtra, Karnataka belt are all un-irrigated. Therefore, the pulses would be a delicate thing because prices can spike like anything. We have the stock of cotton so we can be somewhat confident to manage the thing. Oil seeds are import; more than 50 percent of edible oil is imported, so you will be importing more. So pulses are one where you need to see the strategy in your grip.
Ekta: What would be the risk to the upside to vegetable prices and you did mention edible oils. Considering that drought could possibly be beyond India and there could be global risk at this point in time this year, edible oil could see an upside because of the global condition?
A: At present the palm prices because 70-80 percent of our edible oil import is basically palm and palm is at a historic low prices. So even if it takes a little bit upturn it cannot go back to USD 1,000 plus, it can go to USD 800. However, our import this year were quite a large amount, so I will not be that much worried on edible oil but pulses, global market is very small and vegetable and all is a local thing. we also keep some stock of onion because politically onion is a hot thing and that gives lot of tears. We have lot of stock of potatoes, but onion is one we have to watch.
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