A pick-up in monsoon is likely to boost rural demand even as the farm sector anticipates not only improved production and also enhanced consumption in the wake of pay and pension revisions announced for the Central Government employees.
Presenting an optimistic outlook, a report by rating agency ICRA, released on Monday, said, ``the volume of rainfall is expected to improve in the remaining three months of the monsoon season.”
Nevertheless, the report felt that the out-turn of the monsoon in the first month of the season had been somewhat unfavourable, with a week’s delay in the onset of rainfall, mixed progress across the country and an 11 per cent deficit in the volume of rainfall.
“The below-average rains in June are likely to give way to surplus rainfall in the subsequent three months,” said Aditi Nayar, Senior Economist, ICRA Limited. “Expectation of an above-average volume of rainfall in 2016 comes as a big relief after deficits witnessed in the last two years though the likely temporal distribution is less than ideal,” she said. Regional variations in rainfall would impact the outlook for specific crops such as sugar, she pointed out.
The Indian Meteorological Department (IMD) has projected rainfall over the country to exceed the long period average (LPA) by 7 per cent and 4 per cent, respectively, during July and August 2016, thereby washing away the June deficit.
“A pick-up in the monsoon will boost demand for agricultural inputs and set the stage for an improved output of various agri commodities,” Ms. Nayar said. The expected rise in farm sector income would reinvigorate rural demand in the second-half of this fiscal, complementing the likely boost to consumption in the wake of revised pay and pensions for Central Government employees, she said.
``Food inflation is expected to dip as the monsoon progresses, taking a cue from improved kharif acreage, as well as lower prices of perishables following a decline in temperatures, even if their output is not correlated with the monsoon,’’ she said.
A favourable monsoon could also benefit the fiscal health of the Central and State Governments, particularly if demand for work under the MGNREGA eased and less funds were required for activities such as drought relief, the report said.
EOM
