Will normal monsoon pour cold water on inflation?

New Delhi: Predictions of a normal monsoon season brightened India’s FY22 economic prospects amidst gloom induced by the resurgence of COVID cases.

The prediction of a healthy to normal rainy season this year was released by the state-run and a private weather forecaster.

Significantly, the IMD and Skymet have forecast that the monsoon rainfall will be 98 per cent and 103 per cent of the long period average (LPA), respectively.

The predictions indicate the third consecutive year of normal or above normal rainfall.

Notably, these predictions not only brings in cheerful news for India’s majority rain-fed agriculture sector, but that of cement, two-wheelers, automobile, tractors, farm machinery, infrastructure sector, consumer durables and others.

Economy watchers contend that a normal rainy season this year will power the FY22 GDP growth, generate higher seasonal employment in rural areas along with dousing inflationary pressure.

At present, both consumer and wholesale price based inflation have consistently been above the RBI’s comfort zone, thereby, preventing the central bank from cutting key lending rates further.

“Normal monsoon, along with healthy winter crop production, should help keep food inflation under check, assuming we don’t face the same supply chain disruptions like last year due to nationwide lockdowns,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

The CPI as well as the WPI inflation print have risen significantly over the last three months, reaching 5.52 per cent and 7.39 per cent, respectively in March 2021.

While food inflation has moderated on a sequential basis, it still was recorded at 5.24 per cent in March 2021, which reflects the sticky inflation in certain food categories namely edible oil, fruits, pulses, meat and fish.

“Both IMD and Skymet predicting a normal southwest monsoon in 2021 augur well for the Indian economy which continues to be impacted by the COVID pandemic and increased inflationary pressures,” said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.

“Our base scenario of 11 per cent GDP growth and 5 per cent average CPI inflation in FY22 also takes into account a conducive monsoon season with a balanced geographical and temporal distribution.”

On an industry specific basis, healthy rainfall will help the agriculture sector to achieve a robust long-period average growth of around three per cent.

Barring FY19, agricultural gross value added (GVA) growth since FY17 has been in excess of 3 per cent.

“The India Meteorological Department’s (IMD) forecast for the 2021 southwest monsoon rainfall is good news for the economy, which is under the shadow of second COVID-19 related regional lockdowns and restrictions,” said Devendra Kumar Pant, Chief Economist, India Ratings & Research.

“This will certainly help in a stable rural demand, which is struggling under the shadow of COVID-19. Apart from agriculture manufacturing sectors linked to agriculture such as tractor, fertiliser, two-wheelers, agriculture credit, and insecticides and pesticides are likely to get a boost.

Aditi Nayar, Chief Economist, ICRA, said: “The temporal and spatial distribution of the monsoon rains will remain crucial. As of now, we expect the agricultural GVA to report a moderate growth of 2 per cent in FY2022, following two years of above average rainfall and healthy output expansion.”

“A normal pattern of monsoon rainfall should also help to rein in food inflation, although the global trend in the prices of edible oils, as well as domestic demand-supply disruptions for perishable items such as vegetables, will continue to play a critical role.”

IANS