Monsoon, Agriculture and Inflation - Sept 2015: CARE

CARE Ratings' report on EconomicsThe monsoon season for India starting June looked positive leading to an increased sowing for the months of June and July. However, the fears of a deficit monsoon came true with the rainfall falling below IMD’s initial forecast of 88% of the long term average in August. The country is witnessing one of the driest years as it received only 658.9 mm of rainfall against normal rainfall of 768.9 mm as of Sept 8.Inflation indices for the month of July do not reflect well the deficit in monsoon the country is facing. With the exception of pulses, price increase for all other major food categories was fairly subdued. However, with the country facing a drought like situation the precise impact on output prospects for various crops needs to be tracked as it will have a bearing on the final inflation numbers.The Government of India announces its Minimum Support Price (MSP) for the Kharif crops at the start of the season. The MSP set by the government has been rising in order to provide incentive to the farmers to produce various crops. The average increase in the MSP for the kharif crops has been between 1-4% which is lower than what it used to be in the past. To this extent, the impact of such prices on inflation would remain low.Overall AssessmentAt the beginning of the last month of monsoon season, the agricultural scenario does look fairly stable though the outcome for specific crops could be affected by the dry weather conditions. The area under cultivation has been higher this year for almost all crops so far. The overall inflationary impact would be muted.Under these conditions, CPI inflation would range around 5% once the base effect wears off from September onwards. This should provide some comfort to the RBI which may consider a cut in interest rates. The Fed’s decision to raise rates next week could also have a bearing on the decision taken by the RBI on 29th of September.DisclaimerThis report is prepared by the Economics Division of Credit Analysis &Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report.

Read More