With a deficient monsoon, no acche din for rural economy anytime soon

Oct 30, 2015

- By Vivek Kaul

Vivek Kaul
This column has been due for a while now and I am finally getting around to writing it. Given that there has hardly been any mention of this topic in the mainstream media, it is still not too late to write about it.

For two years in a row India has had a deficient monsoon. In its end of season report, the India Meteorological Department (IMD), the nation's weather forecaster, stated that "rainfall over the country as a whole was 86% of its long period average (LPA). Thus years 2014 & 2015 was the fourth case of two consecutive all India deficient monsoon years during the last 115 years."

IMD uses rainfall data for the last 50 years to come up with the long period average. If the rainfall is between 96% and 104% of the 50 year average, then it is categorised as normal. If it is between 90% and 96% of the 50 year average is categorised as below-normal. And anything below 90% is categorised as deficient.

If something has happened only four times in 115 years, there is clearly reason to worry. Further, IMD at the beginning of June 2015 had predicted that the rainfall this year will be 12% below normal at 88% of the long period average(LPA) and they have more or less been proven right, with the rainfall coming in at 86%. The funny thing is that at the end of June it looked that the IMD might have got the forecast wrong.

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The rainfall in June was at 116% of the long period average. Nevertheless, IMD proved to be right given that the country saw deficient rainfall in the coming months. It was at "84% of LPA in July, 78% of LPA in August, and 76% of LPA in September."

The accompanying table from Crisil Research gives a breakdown of monsoon performance across various parts of the country.

South-west monsoon performance across regions

Interestingly, the IMD no longer uses the term 'drought' primarily because it believes that the entire country does not face a drought, at the same time.

As I keep pointing out, averages don't give the complete picture. If we were to look at state wise monsoon data, the situation is very bad in some states. As Crisil Research points out in a report titled Rain Check: All You Need to Know About Monsoon 2015: "Five states have seen a rainfall deficiency of 20% or more. At 45.8%, Uttar Pradesh (UP) had the highest deficiency, which is nearly as bad as last year's 47.2%. In Haryana, the deficit was 36.7%, in Punjab 31.7%, in Maharashtra 25.2% and in Karnataka 19.9%."

The impact of the deficient rainfall varies depending on the kind of irrigation cover that is available and that varies from state to state. "While irrigation cover is high at ~77-99% in UP, Haryana and Punjab, it is low ~18- 34% in Maharashtra and Karnataka. The impact of deficient rains, therefore, differs by geography," Crisil Research.

In fact, there are variations within a state as well. The Marathwada region of Maharashtra has been the worst affected region in the country, with a rainfall deficiency of a huge 54%.

The deficient rainfall will have a considerable impact on rural incomes this year. Depending on who you believe 40-60% of country's population is engaged in agriculture.

India Brand Equity Foundation, a trust established by the Ministry of Commerce with the business lobby CII, puts the number at 58%. Crisil Research puts the number at 40%. Given this, we can safely say that the deficient monsoon will roughly impact half of the country's population.

Slowing as well as falling rural incomes, will have an impact on rural demand. In fact, this is already being seen. Hindustan Unilever Ltd (HUL) has had to cut prices of its soap and detergents by seven percent, in order to counter falling rural demand. Soaps and detergents make up for around half of the company's sales.

Further, tractor sales have been falling all through this financial year. Data from the Tractor Manufacturers Association shows that sales have fallen by 20% during the first six months of this financial year (i.e. April to September 2015). "The decline is the sharpest since 2003, a year when India faced a severe drought," a newsreport in the Mint newspaper points out.

In fact, this is the second year of falling tractor sales. In 2014-2015(April 2014 to March 2015) tractor sales had fallen by 13%.

The slowdown in rural demand is also reflected in the falling motorcycle sales. Data from the Society of Indian Automobile Manufacturers (Siam) points out that motorcycle sales during the first six months of the year are down by 4.06% to 5.36 million units, in comparison to the same period last year. The fall in motorcycle sales hasn't been as big as the fall in tractor sales given that motorcycles are significantly cheaper than tractors.

Companies are also scaling down their future expansion plans due the slowdown in rural demand. Take the case of Hero MotoCorp Ltd, which has huge exposure to the rural market, with half its sales happening in the hinterland.

As the Mint newsreport referred to earlier points out: "In a post earnings conference call with analysts on 21 October, Hero's chief financial officer Ravi Sud said that the company has scaled down the initial production capacity at its upcoming facility in Gujarat from 1.2 million units earlier to 750,000 units now."

The failure of the monsoon has had an impact on the kharif crop. It is now expected to have an impact on the rabi crop as well. The sowing of the rabi crop has started in some parts of the country.

Due to a bad monsoon the water level in the reservoirs is well below normal. The Central Water Commission monitors 91 reservoirs in the country. The water level in these reservoirs currently is at 58% of the total live storage capacity. At the same time the water level is at 76% of the average availability during the last ten years.

This is clearly not good news for the rabi crop, given that with low water levels in reservoirs, the irrigation needs of farmers cannot possibly be completely met. Some of the crops grown during the season are onion, masur, mustard and wheat.

All in all things look tricky for the rural economy as of now. No acche din for them anytime soon.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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2 Responses to "With a deficient monsoon, no acche din for rural economy anytime soon"

Dr Brij Bhushan

Nov 2, 2015

The situation is alarming. The other aspect is do we have drought monitoring system in place. This is absurd to calculate state, regional or country wide averages and than say there is no drought. Impact of drought may vary from village to village. India has more than 30000 rain gauge stations. It is doubtful, if the rainfall records are maintained.

It is shame on the part of counties scientific organisations, that they do not follow established practice to monitor drought. How any body can assess its impact. How the relief measures be taken.

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asit ganguly

Oct 30, 2015

India should be ready to face such erratic monsoons. With global warming and change in green covers even in places like Rajasthan we cannot expect regular monsoons. Clear policy and implementation of rain water harvesting is must across the country. With unproductive Irrigation projects and scams, we have lost a lot of time and resources. Mass movement is essential to save water

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