The recent crop damage resulting from unseasonal rains across the country will have a slight adverse effect on the headline inflation, JM Financial said in its recent note.
With unseasonal rains hitting the country, rural India is facing a challenge to protect its crops. The rainfall has been widespread across major agricultural states, causing some damage to the wheat crop, according to preliminary reports. Despite this setback, ample supply should help ease inflationary pressures, JM Financial report said.
India's headline retail inflation rate edged down to 6.44 percent in February from a three-month high of 6.52 percent hit in January. The biggest factors in bringing down food inflation were eggs, vegetables, edible oils, and meat and fish, with the index for these sub-groups of the CPI falling 5.7 percent, 2.5 percent, 1.7 percent and 1.6 percent, respectively, month on month.
However, the possibility of erratic weather conditions driving up inflation remains a concern, and much will depend on how the monsoon season ultimately unfolds. If an El Nino occurs this year, it could have a detrimental effect on kharif sowing and next year's rabi sowing due to decreased water availability, the report said.
" At this stage, we expect the recent crop damage to have only a marginal negative impact on headline inflation", the JM report said.
As of March 20th, the Indian Meteorological Department's data on rainfall indicates an average of 5 millimetres of rainfall across the country, with the highest amounts recorded in Telangana (23.4), Andhra Pradesh (24.1), Assam (19.2), West Bengal (17.6), Jharkhand (14.9), and the Vidarbha region in Maharashtra with 7.4 mm of rainfall. This rainfall has been widespread across the major agricultural states.
Despite the weather department's advisory to farmers on the unseasonal rains, initial reports indicate widespread crop damage throughout the country, particularly affecting standing rabi crops. While harvesting of mustard and chickpeas, two major rabi crops, has already concluded, some damage is expected to be seen in the wheat crop.
Maharashtra's agricultural regions have reported harm to fruit (such as grapes and bananas) and vegetable plantations, including potatoes and onions. However, states such as Uttar Pradesh, Punjab, and Haryana are said to have been less affected by these unseasonable rains. This weather pattern is expected to continue until March 25th, 2023, after which a persistent heatwave is anticipated in April and May.
According to JM Financial analysis of the CPI basket, inflationary pressures in the food and vegetables category have been decreasing, except for fruits and milk products. The inflation in the cereals category has also reduced significantly in February 2023, with major damage likely to be limited to wheat and mustard crops. However, the retail prices of these commodities have already decreased by double digits from their recent peak.
Additionally, the government has projected a record wheat output of 112.2 million tonnes for the 2022-23 crop year, and mustard seed production is expected to reach a record 11.5 million tonnes. As a result, ample supply is likely to ensure that inflationary pressures remain under control in the future, the report said.
