View from India: Monsoon with a twist
The downpouring of rain this season may make it seem as if monsoon has fulfilled its purpose, providing relief to the parched areas across the country. However, this year monsoon has been far from fruitful.
According to the CRISIL October 2017 report titled ‘Insight Normal Rains Little Gains,’ the Indian Meteorological Department (IMD) had forecast 2 per cent deficiency (or rains at 98 per cent of the long-period average) for the southwest monsoon (July to September 2017) at an all-India level.
The actual deficiency was 5 per cent, compared with 3 per cent in 2016, but still normal. However, distribution has been uneven, with excess rains in some parts and severe shortage in others. Both sporadic and surplus rains have resulted in three trends.
The first trend is about agriculturally important states like Tamil Nadu, Gujarat and Andhra Pradesh which have recorded excess rains causing floods or flood-like situations in many regions. To a great extent the normalcy of the lives of inhabitants living close to river beds as well as those in the urban suburbs was disrupted. On the other hand, deficient zones in other states like Maharashtra and Karnataka did receive rains by August, but pockets of stress remained.
Even in this uneven distribution of rain, there seems to be a trickle of hope for many crops, like the case of Kharif crops or monsoon crops. They are usually sown at the beginning of the first rains and the sowing pattern continues till about October. Rice, millet and maize (corn) are among the Kharif crops. The kharif production on a long-term measure is expected to be healthy. That’s because those regions that witnessed scanty rainfall either had a strong irrigation buffer system or were regions which didn’t cultivate Kharif crops.
The second trend points to the fact that during the last monsoon, the agricultural sector yielded a bumper crop. A surplus in the market means that the prices of oilseeds and food grains, including pulses, have fallen. In some regions the prices have witnessed such a steep decline that profit margins of the farmers have become worringly slender.
The currency withdrawal during demonetisation in November 2016 has also led to the price fall of pulses. However, the government’s procurement of pulses increased to 11 lakh tonne in agricultural year (AY) 2017, compared with 46,000 tonne the previous year. Yet this could not match the fall in market prices due to stock holding limits and export restrictions on pulses.
The third trend is to do with the falling prices of food grains. While it’s time for consumers to rejoice, falling prices have showered challenges on the farming community. Miniscule profits have begun to deflate the income levels of farmers. In order to mitigate their woes, farm loan waivers have been announced by the states of Uttar Pradesh, Maharashtra, Punjab and Karnataka this fiscal period.
Ironically, loan waivers have been announced at a time when we’ve had an almost normal monsoon. All loan waivers amount to Rs 88,524 crore and the waiver amount is spread over a period of three to four years. Hopefully, the states will be able to fund the loan waiver scheme within the stipulated period. A possible turnaround in tax collections due to the implementation of goods and services tax (GST) or a cyclical pick-up in growth leading to better tax buoyancy holds some hope.
As per the CRISIL report, stabilisation measures should be a mix of government intervention and market-based mechanisms to protect against price risks. As a long term perspective, it’s essential to encourage farm investments and productivity in order to ensure the fiscal well-being of the states.
One can’t help but reflect that these monsoon showers have come with a twist.