Moneycontrol Pro Panorama: Time to be cautious -- Dry days ahead 

The monsoon this year has been very erratic and the distribution of the rains too has been far from uniform

Dear Reader,

The monsoon this month has been conspicuous by its absence. According to the Meteorological Department, this August will go down as the driest since 1901. Till Tuesday morning, the country received only 160 mm of rainfall for August, a deficit of about 33 percent for the month. The country has never received less than 190 mm of rain in August.

Among the worst hit are Gujarat and Kerala, where the deficit was as high as 90 percent during the month. Karnataka, Telangana and Andhra Pradesh received only 50 percent of the long-term average rainfall.

As a result of the low rainfall, storage of water in the reservoirs is at a critical level. If the monsoon does not pick up over the next few months, we look at a challenging year ahead.

The farming community is already witnessing the pressure. Good July rains saw increased sowing activity, but lack of follow-up monsoon can play havoc on standing crops. The area under the kharif crop declined marginally by 2.72 lakh hectares as sowing for 2023-24 has been completed on 137.50 lakh hectares as against 140.22 lakh hectares for the same period last year.

Farmers have invested time and money in sowing the crop and are waiting for the monsoon to pick up and the crop to grow. A prolonged dry season leads to pest attacks, which would mean that farmers spend more money on pesticides and fungicides to protect their crops.

The monsoon this year has been very erratic and the distribution of the rains too has been far from uniform. While some regions have been reeling under floods others have wilted under drought-like conditions.

If the rains don't return in September, the consequences will be felt throughout the economy. The domino effect of a weak monsoon and its impact will be felt on consumption, which has picked up over the past few years. A lower crop will mean lower income in the hands of farmers. It could also push up food prices, resulting in lower consumption of other items, especially consumer discretionary items. Lower domestic demand could lower growth, at a time when global growth is sputtering.

In addition, deficient monsoons could not have come at a worse time for the Centre and states. With elections likely to be scheduled in May 2024, stress in the agriculture sector will impact the voting pattern. The upshot: One can expect more populist measures to be announced ahead of the elections. Telangana has already announced a loan waiver of up to Rs 99,999. The central government has also announced lower prices for LPG. Similar announcements cannot be ruled out by other governments.

The banking system, especially state-owned banks, will be feeling the pressure. Crop insurance companies may also be pressured to compensate the farmers early. All this could impact a market priced for perfection.

These are, however, worst-case scenarios. If the monsoon picks up, we can be back in the fast lane. Till such time, though, it is better to be cautious.

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