The monsoon rainfall maintained its strong trend, running at more than 21 percent above normal in July. Water storage in most key reservoirs has improved, which should boost crop sowing in the coming weeks says a report by Barclays.
According to the report ‘Monsoon tracker: Maintaining momentum’, rainfall remained healthy through the past week, keeping the cumulative surplus at 10 percent. Only seven of the 32 subdivision are reporting deficient rainfall, while the rest of the regions are seeing normal or above-normal precipitation levels.
The rainfall deficiency, though, is concentrated in the northern parts, especially the key farming regions of the Indo-Gangetic Plain, which continues to be a concern. However, the extensive irrigation canal network in the region should offset that to some extent. Indeed, reservoir storage levels have improved significantly, which should help increase crop sowing in the coming weeks.
According to the report, the rapid progress of the monsoon has also boosted crop sowing, which has now covered the deficiency seen through the past few weeks.
The area sown through July 22 surpassed last year’s level, with the area sown reported to be about 65.8 million hectares compared with 64.9 million hectares in the year-ago period.
“The sowing of rice remains deficient (-17 percent year-on-year) but is expected to improve in the coming weeks. We expect sowing activity to pick up significantly in the coming weeks, as rainfall strengthens and we enter the critical stage of the sowing season,” the report said.
The increase in rainfall has also helped to boost water-storage levels over the past few weeks. According to the Central Water Commission (CWC), as of July 28, storage in 143 key reservoirs improved to about 57 percent of the total capacity. That amounts to 119 percent of the available capacity over the year-earlier period and 139 percent of the 10-year average for this point in the season.
RBI to continue normalisation of monetary policy
The implications of improving rainfall will be most relevant for food inflation, albeit with a lag. Data released earlier showed inflation based on the Consumer Price Index was steady at 7 percent on an annualised basis in June, while the Wholesale Price Index registered a small downside surprise.
“Recent commodity price declines could offer the Reserve Bank of India (RBI) some room to lower its inflation forecasts modestly amid signs of stable growth. We expect monetary normalisation to continue, but see signs that the RBI is turning more comfortable with a modest pace of rate hikes,” the report said.“Still, we expect the RBI to deliver a unanimous 35bp (basis point) repo rate hike during next week’s policy review meeting (see India: August MPC preview: Sticking to its guns, 28 July 2022), followed by two 25bp rate increases—one in September and another in December,” it added.