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Monsoon troubles for the government

	June 29, 2009

The India Meteorological Department (IMD) is forecasting a ‘below normal outlook’ for monsoon. The June deficit of 45 per cent as on date is itself a lead indicator of where the monsoon is headed this year. June generates 18-20 per cent of the season’s rainfall. Even assuming that the monsoon improves during the last week of the month, which is what is being forecast, the deficit is still likely to be around 9 per cent. This would be carried over into July, which normally accounts for around 30 per cent of the season’s rainfall. But the IMD would need to make allowance for likely impact from a developing El Nino during late-July and into August.

Earlier, the IMD had estimated the realisation to be around 96 per cent, or ‘near normal’. Anything below 90 per cent is considered ‘deficient monsoon’ or drought.



Water levels fall in key reservoirs – impact on power generation: Water levels in a majority of the country’s key reservoirs are currently about 30 per cent lower than the average levels at this time of the year. With forecasts of deficient rainfall, the hydro generation from major storage projects could take a hit in the coming weeks, adding to the overall peaking power shortages.

Of the 32 major hydro reservoirs monitored daily by the Central Electricity Authority (CEA), excepting five in the northern region that depend on Himalayan snow melt, all the others are rain-fed.

Water levels in key reservoirs — including the Bhakra and Pong reservoirs in Punjab, Tehri in Uttarakhand, Indira Sagar in Madhya Pradesh, Bhira and Koyna in Maharashtra, Nagarjuna Sagar in Andhra Pradesh, Almatti in Karnataka, Mettur in Tamil Nadu and Hirakud, Indravati and Upper Kolab in Orissa — are currently about 30 per cent lower than the average levels recorded at this time of the year.



The position in most reservoirs is way below last year’s levels and close to their minimum draw down levels. The Bhakra Nangal dam in Punjab, which is one of the most important dams in north India, has just about 15 days of water left in its reservoir. According to Power Ministry officials, while reservoir levels tend to be low at the onset of the monsoon, there has been extra pressure on water levels this summer due to the absence of pre-monsoon showers.



The installed hydro power capacity of around 36,900 MW accounts for close to a quarter of the total electricity produced in the country, especially peaking power.



Impact on crop: Farmers usually start sowing the kharif (summer or monsoon crop) crop from June, but with hardly any rains in the current month, planting operations are bound to suffer some delay. If farmers can manage to plant using whatever little soil moisture in their fields, a monsoon revival from late-July may still be good enough at the crucial vegetative growth stage of the crop.



The IMD outlook for Central India, which has been the main source of concern so far, suggests a rainfall recovery in Madhya Pradesh, Gujarat and Maharashtra, which contribute to a chunk of the country’s kharif oilseeds, pulses, coarse grains and cotton produce.



On the other hand, the forecast for the North-West India region is not so good. Although farmers in Punjab and Haryana enjoy the benefits of irrigation cover, deficient rains may impact the prospects of the sugarcane crop in Uttar Pradesh, especially the central and eastern districts. That could, in turn, compound the shortage situation in sugar.



Impact on FMCG sector: Analysts and the marketers feel that poor rainfall may cause sales slippage in the rural turf going forward. According to analysts, on the back of recent strong earnings momentum, FMCG stocks’ valuations are attractive from historical perspective, but delayed monsoon is a worry. The FMCG companies are sensitive to monsoons for both input (vegetable oil) costs and rural demand. Compared with last year, when early rains and a hiatus thereafter, caused a burnout of sown seeds in many areas, this year sowing activity has largely been delayed. The current delay is not reason enough to panic.



According to research organisation MART, rural sector accounts for 46 per cent of all soft drinks, 59 per cent of cigarettes and 11 per cent lipstick sales. Around 30 per cent of the rural population currently uses shampoos compared with 13 per cent in 2000.

A C Nielsen’s retail sales audit figures for pre-monsoon April-May indicate 16 per cent YoY growth, lower than 19 per cent in FY09 YoY. According to ICICI Securities, sales growth was driven more by volume growth rather than price growth and all did not fare the same way. For HUL, a strong player in the rural market, sales grew 9.6 per cent. HUL lost significant market share in toilet soaps, toothpastes, skin care, detergent cakes and shampoos.

The price actions in the FMCG counters, which have prominent rural links, still do not suggest a sharp decline. But the weekly growth has slowed down, analysts admit.



Analyses: Analysts say there is no need for panic and that the monsoon forecast projecting total rainfall during the season at 93 per cent of the long-period average (with an error margin of 4 per cent), should not be cause for alarm. Taking into account the error margin, the actual rainfall should be between 89 per cent and 97 per cent of the normal level. There is definitely no impending drought. Nor can it be viewed as a big drag on the economy as it slips into recovery mode, considering that agriculture’s share in GDP is now less than 18 per cent” according to analysts.



Indeed, the monsoon appears to have revived and is likely to gain in strength in the next couple of weeks. As a result, it is likely to cover the bulk of the country, up to and including the parched Central Indian belt, spanning from Gujarat in the west to Madhya Pradesh in the middle and Jharkhand, Bihar, Chhattisgarh and Orissa in the east, by the end of June. The rest of the country, notably the key agricultural bowl of the north-west, comprising Punjab, Haryana and western Uttar Pradesh, is expected to get the monsoon by the first week of July, which is more or less normal for this region. If the forecast is correct, what it means is that the worst may be over. Admittedly, there is distress in central India and parts of Maharashtra, interior Karnataka and Andhra Pradesh. But with the onset of the rains, farm operations should now get going in these areas as well, though some shrinkage in yields due to belated planting cannot be ruled out.



Another reassuring indication in the revised monsoon forecast is the projection of rainfall in July (93 per cent) and August (101 per cent), when the bulk of the kharif sowing takes place. The region-wise break-up of the anticipated precipitation also indicates good rainfall of between 92 per cent and 99 per cent of the normal level, in almost all regions except the north-west which may receive only around 81 per cent of the normal. The projected 19 per cent shortfall in the north-west is not a cause for as much concern as it might be in any other region, because this particular region has extensive irrigation infrastructure and farmers do not rely solely on the rains for raising their crops. On the whole, though the performance of the monsoon may not be perfect this year, it is unlikely to be a disaster story.