IMD issues normal monsoon forecast, but food inflation needs to be watched 

India is likely to receive normal monsoon rains in 2023 despite the likely emergence of the El Nino weather phenomenon, the India Meteorological Department (IMD) said on May 26, but experts warned that inflation needs to be closely watched.

“A normal monsoon would lead to better crop output this year as parts of India, specifically Maharashtra, have been suffering from a glut in vegetables due to high rains the past few years,” said Deepak Chavan, an agriculture expert.

Even so, the spatial distribution impact of the monsoon on food inflation will need to be watched.

Normal monsoon and harvest would be good news for crops, including onions, tomatoes and tur, among others, which had seen bumper outputs this year and last year, Chavan added.

Prices of onion in Lasalgaon, India’s largest wholesale market for onions located in Maharashtra’s Nashik district, had crashed to an all-time low of Re 1 to Rs 2 per kilogram in February. Several other vegetable crops had met a similar fate in Punjab and Haryana.

The north-western part of country, which includes Punjab and Haryana, is likely to remain slightly deficient in rains with monsoon bringing in less than 92 percent of the normal of the normal precipitation, the IMD said.

“Decent to average rainfall forecast may translate into better conditions for farmers. With highly declining ground-water levels and a resultant ban on groundwater irrigation, especially in Haryana and Punjab, this may be a huge help and even lead to ground water recharge,” said Vartika Singh, Senior Research Analyst at the International Food Policy Research Institute.

Timing of future forecasts will be key, she said. “If IMD continues to give timely forecasts which also penetrate down to farmers, it will prove beneficial.”

Inflation impact 

The forecast of a normal monsoon, if it processes to be correct, would help check inflation, said Madhavi Arora, Lead Economist, Emkay Global Financial Services Ltd.

The prediction should also augur well for a downturn in food inflation, which is not aligning with the fall in global food inflation, she added.

This will mean that pressure on the central bank for policy action to tackle inflation will taper as well, she said.

Spatial distribution crucial 

IMD has predicted below-normal rainfall in Northwest India, which is less than 92 percent of the Long Period Average (LPA), normal rainfall in northeast India, Central India and South Peninsular India.

On the June rainfall, IMD said the average over the country in the month is most likely to be below normal.

“If I take the average of Skymet as well as IMD forecasts, then there is a 10 percent LPA deficiency,” Karan Mehrishi, an independent economist, said.

Another problem that may crop up would be a deficiency in reservoir water levels.

If partially filled, given the fact that these regions are the primary food baskets of the country, says Mehrishi, there will be irrigation problems as well. He estimates that there will be a material impact on food inflation at least in the second half of the financial year.

“Given the fact that almost 46 percent of CPI (Consumer Price Index) is based on food basket, there will be a material impact on headline number for the financial year,” Mehrishi added.