Food prices under threat as major parts of India suffer deficient rain

Storm clouds of a different kind are gathering on the macro-economic horizon and they have nothing to do with surging global crude oil prices. The monsoon has played truant across large parts of India, with western and southern India reeling under the impact of deficient and scanty rainfall (see chart).

As of July 23, crucial crop-growing regions like Maharashtra, north interior Karnataka and Saurashtra and Kutch in Gujarat, among others, are bearing the brunt of deficient rainfall. The cumulative seasonal rainfall between June 1 and July 23 for the entire country has been 2 per cent below the long-period average.

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According to a Crisil analysis, Maharashtra, Karnataka, Andhra Pradesh and Gujarat are the worst affected. Crops like tur dal, groundnut, jowar, soyabean, maize and cotton are facing problems on account of this.

The impact on wholesale price index-based inflation, Crisil says is already evident from cotton and soyabean. The sowing area of these crops has also shrunk.

The development augurs ill for food prices, despite the fact that overall foodgrain production in India, including rice and wheat, has been good this year. Foodgrains production for 2007-08 was a record 230.67 million tonnes, up 6.16 per cent over the previous year.

"The effect is already palpable. With 15 of 36 meteorological divisions reporting deficient rainfall, some price pressure is definitely there," said Shubhada Rao, chief economist, Yes Bank.

Around 60 out of a total of 225 talukas across Gujarat have received scanty rainfall, threatening crops which have already been sown. The Gujarat government has instructed all district collectors to carry out a detailed assessment survey of the situation.

To date, around 5.8 million hectares have been covered under Kharif crops against 7.2 million hectares in the same period last year.

In Maharashtra, out of 355 talukas in the state, 210 talukas have received less than half the average rainfall, and as a result, the area under kharif crops has more than halved.

Irrespective of party lines, politicians agree that this situation is even worse than 1972, deemed the worst drought since Independence.  The state government has already declared a drought-like situation.

Elsewhere in Maharashtra, Pune is facing power cuts after nearly two years, owing to low-power generation. The state has a deficit of 5,500 Mw with peak demand being close to 13,000 Mw.

"The demand from agriculture pump sets was supposed to come down, but this has not happened because of scanty rainfall. Also, the reservoirs of dams like Koyna are very low, affecting power generation," said Pradip Bhargava, chairman, CII's Maharashtra council, and the brain behind the project to rid Pune of power cuts.

In addition, he added the Dabhol plant is struggling to produce even 200-300 Mw.

"As a result, we have to stop our initiative. We will resume when there is good monsoon, and the power deficit comes down," Bhargava said.

In Kerala, local newspapers are full of reports about the electricity crisis triggered by the deficient monsoon. Reports suggest that the state electricity board is shelling out an additional Rs 7 crore (Rs 70 million) a day to buy power from outside sources to meet demand. The situation is exacerbated by the fact that there has been a considerable decrease in the water level in Idukki, Idamalayar and Kallada reservoirs over last year.

Although it is too premature to say that the monsoon has failed completely, economists say the situation is worrying. "The deficient rainfall has added a new risk to food prices and taken off the comfort level on that front," said Dharmakirti Joshi, principal economist, Crisil.

"The rainfall pattern has been quite skewed and the risk to food inflation has increased. If rainfall remains scanty, then some damage will be done and we will face price pressures in pulses, oilseeds and core cereals like jowar, ragi and bajra," he added.

However, with a shortfall anticipated in pulse production, prices have already started rising. Abheek Barua, chief economist, HDFC Bank, said prices of pulses and oilseeds have already started rising. "This could add 40-50 basis points to WPI inflation.

In addition, with cash crops getting affected, rural demand for consumer non-durables is likely to get impacted," he added. Headline inflation stands at near 12 per cent, the highest since 1995.

On its part, the Indian Meteorological Department expects the rainfall deficiency to be made up in the coming days, especially in south peninsular India.

"In 1971, there was a similar scenario, but by the end of the monsoons, the country received normal rainfall," said the Pune-based AB Majumdar, deputy director general, IMD.

With report from Ashish Amin in Ahmedabad and Makarand Gadgil in Mumbai