Normal India Monsoon Poised to Bolster Farm Output, Curb Prices

India, the world’s second-biggest rice, wheat and sugar cane grower, may get above-average monsoon rainfall for the third time in four years in 2013, boosting crop harvests and curbing retail food prices.

Rain will be 98 percent of a 50-year average of 89 centimeters (35 inches) in the four months through September, Earth Sciences Minister S. Jaipal Reddy told reporters in New Delhi today. The bureau, which defines normal precipitation as 96 percent to 104 percent of the long-term average, will issue a detailed forecast in June, Reddy said.

A normal monsoon is critical to Prime Minister Manmohan Singh’s efforts to ease water shortages, control food prices and spur growth after the weakest rainfall in three years in 2012 cut production of rice, cotton, oilseeds and sugar. Increased farm output may boost rural incomes, lifting sales of everything from gold to tractors and mobile phones. Agriculture accounts for about a fifth of the economy, while 55 percent of the farm land does not have access to irrigation.

“Good rain will lead to good production of agricultural commodities, which will lead to lower prices and inflation,” said Faiyaz Hudani, a senior analyst at Mumbai-based Kotak Commodity Services Ltd. “This may help the Reserve Bank of India to ease interest rates. Farmers will have more money to spend as they will have a good crop.”

Consumer prices rose 10.39 percent in March, while wholesale price-based inflation slowed to a 40-month low of 5.96 percent last month, according to official data. India’s economic growth was 5 percent in the fiscal year ended March 2013, the slowest pace since 2003, partly because of a decline in farm output caused by a below-average monsoon last year and a moderation in investment, the statistics agency estimates.

Boosting Growth

Food grain production, including rice and wheat, will fall 3.5 percent to 250.1 million tons in the year ending June 30 from a year earlier, according to the farm ministry. The drought will also cut sugar output for a second year, according to the Indian Sugar Mills Association. The growth in agriculture sector is estimated at 1.8 percent in 2012-2013, the least in three years, according to the government.

“A good monsoon will boost growth,” Madan Sabnavis, chief economist at Credit Analysis & Research Ltd., said in a phone interview from Mumbai. “Even though agriculture contributes just about 14 percent of the economy, the sector provides a lot of important purchasing power for industrial goods and consumer goods in particular.”

Borrowing Costs

India’s central bank has lowered borrowing costs twice in 2013, limiting each rate cut to 25 basis points, to spur investment. The government estimates growth has slowed to a decade low as foreign direct investment slid 20 percent to $30.8 billion in the April-to-January period, set for the biggest 12-month drop since the fiscal year through March 2002. The next policy decision on interest rates is due May 3.

More than 235 million farmers depend on rain for irrigating crops such as rice and cotton. The monsoon, which brings more than 70 percent of the annual rain, usually makes landfall in the south in June and covers the whole country by July 15. Sowing of crops begins in June and harvesting in September.

A normal monsoon may ensure India sustains exports of rice, wheat, cotton and other farm commodities, said Hudani.

A ban on exports of sugar, rice and wheat was extended in 2009 following the weakest monsoon since 1972. Record harvests of rice, wheat and cotton in 2011-2012, following two normal monsoons, led to the bans being scrapped. State stockpiles of rice and wheat rose to 59.8 million tons at the start of this month from 53.4 million tons a year earlier, according to the Food Corp. of India.

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