A normal monsoon this year will help reign in food inflation and offset rising pressures from crude oil prices and ‘sticky services inflation,’ according to rating agency Crisil.
“We believe inflation would therefore average five per cent in fiscal 2017,” according to a Crisil report.
The Reserve Bank of India (RBI) kept the repo rate unchanged at 6.5 per cent due to a “sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices.” A large part of the country is witnessing drought, declining ground-water levels, and shortage in reservoirs, following two consecutive sub-normal monsoons.
Deficit rainfallRainfall deficiency in 2014 and 2015 stood at 12 per cent and 14 per cent of normal, respectively. In 2015 rainfall received by Haryana, Chandigarh, Delhi, Punjab and West Uttar Pradesh was more than 50 per cent below normal. “This has taken a toll on agricultural production,” according to the report.
As per the third advance estimates for 2015, rice output was down two per cent, coarse cereals fell 12 per cent, pulses declined by 0.5 per cent along with sugarcane (0.5 per cent) and oilseeds, (six per cent) exacerbating rural distress. Agriculture GDP growth averaged 0.4 per cent in the last two fiscals, much below the long-term trend of 3 per cent.
An above-normal monsoon this year will augment groundwater and reservoir levels and in turn increase crop production, according to the report.
The Indian Meteorological Department (IMD) reiterated its April forecast of a good south-west monsoon — at 106 per cent of the long period average (LPA). However, the report said that the sensitivity of crops to rainfall signals the need for improvement in irrigation facilities, change in cropping patterns, harnessing of rainwater, adoption of water conservation techniques and availability of stable electricity. Also, efficiency of water usage needs to improve. India currently uses 2,800 cubic metre of water to produce 1 tonne of rice, compared with half that – or 1,321 cubic metre – in China. “This underlines the need to address structural issues.” An important source of irrigation in India is groundwater, which accounts for as much as 60 per cent of water used for irrigation. Also, irrigation accounts for close to 90 per cent of the total groundwater consumed in the country — the proportion is 98 per cent and 94 per cent for in Punjab and Haryana, respectively.
Farm outputDuring the green revolution, the report said, with excessive use of inputs to pump up farm output, farmers increasingly moved towards using groundwater compared with surface water for irrigation. This was supported by government subsidies for electricity supply and irrigation equipment. Excessive use of groundwater has led to depletion of the water table. Between 1993-94 and 2014-15, the share of wells with groundwater less than 10 metre has fallen by 6 percentage points, while that of wells with groundwater more than 60 metre has risen to 6 per cent from 4 per cent, making it increasingly difficult to access ground water.
