India Sees Below Normal Monsoon Rain as El Nino Threat Looms

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The monsoon in India is seen below normal for a second year as an El Nino develops, potentially hurting agricultural output and stoking food inflation in Asia’s third-largest economy.

Rainfall in the June-September period will be 93 percent of a 50-year average of 89 centimeters (35 inches), Science and Technology and Earth Sciences Minister Harsh Vardhan told reporters in New Delhi on Wednesday. El Nino weather conditions may persist during the monsoon and the probability of rains being above normal was negligible, he said.

Prime Minister Narendra Modi is counting on normal rainfall to accelerate economic growth in a country where smartphone makers to gold jewelry retailers derive the bulk of their sales from 833 million people living in villages who depend on farming. A reduced agriculture harvest, after unseasonal rain and hail ravaged winter crops, can drive up costs of grains and vegetables and may limit the room for the central bank to ease interest rates to bolster growth.

“A normal monsoon is crucial as this comes after a weak winter harvest,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, said by phone on Wednesday. “If there’s a weak monsoon then repercussion could be wider than just inflation alone. It will come in the way of government policy and the RBI could find it hard to keep interest rates within the band they wanted to.”

Price Pressures

Reserve Bank of India Governor Raghuram Rajan kept the benchmark repurchase rate at 7.50 percent this month and the bank said it will monitor the likely strength of the monsoon as it stays vigilant for price pressures. Consumer prices rose 5.17 percent in March from a year earlier after a 5.37 percent increase in February, official data show.

Stocks in Mumbai fell as much as 1.1 percent in intraday trading after the monsoon forecast. The S&P BSE Sensex ended 0.8 percent higher at 27,890.13, snapping five days of losses.

Agriculture accounts for about 15 percent of India’s gross domestic product and the monsoon is the main source of irrigation for the nation’s farmers, where only 45 percent of the farmland is irrigated. India’s economy will likely expand 7.5 percent this year, surpassing China’s pace, according to International Monetary Fund forecasts.

“Inadequate rains have been a bugbear of India’s economic growth since ages,” CRISIL Ltd., the Indian arm of Standard & Poor’s, said in a report on Wednesday. “If monsoon fails yet again and there is zero agriculture growth, India’s GDP growth will be flat at 7.4% in fiscal 2016 – or 50 basis points lower than our current forecast of 7.9 percent.”

El Nino Alert

An El Nino may develop by June, according to Australia’s state forecaster, which upgraded its outlook for the weather-altering pattern to ‘Alert’ last week. El Ninos, caused by periodic warmings of the equatorial Pacific, can roil world agricultural markets as farmers contend with drought or too much rain. There’s a 70 percent chance of the weather phenomenon continuing during the monsoon, said D.S. Pai, director for long range forecast at the India Meteorological Department.

The department’s monsoon prediction has a margin of error of plus or minus 5 percent, Vardhan said. Skymet, a private agency, last week said rains will be 102 percent of the average.

Winter crops in about 9.38 million hectares (23.2 million acres) were damaged as rainfall since March 1 was 102 percent more than a 50-year average, government data show. Wheat production may fall as much as 5 percent this year from a near-record 95.8 million tons estimated by the government in February, Agriculture Minister Radha Mohan Singh said April 7.

The onset of the monsoon was delayed last year, with rains reaching India’s Kerala state on June 6, compared with the normal date of June 1, according to department. Rainfall was 12 percent below the average recorded between 1951 and 2000, it estimates.

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