The Hindu Business Line : Will monsoon be as good as it looks to be now?

WITH the annual wholesale inflation rate crossing the psychological 5 per cent mark for the week ending May 22, all eyes are now on the behaviour of the south-west monsoon.

How much rainfall the country receives during the four months from June to September - and equally important, its spatial and temporal distribution - would probably be the most significant factor influencing the course of prices, interest rates and bond yields in the days ahead.

The good news so far though is that the rain gods have not just been kind, but over-delivered, during the period from March 1 to May 31, technically called the `pre-monsoon' season.

Over these three months, the country as a whole has received an average area-weighted rainfall of 161.6 millimeters (mm), which is 25 per cent more than the normal 129.6 mm for this period.

What is more, 19 out of the 36 meteorological sub-divisions have recorded excess rainfall, i.e. precipitation levels exceeding 20 per cent of their respective long period average (LPA).

The rainfall has been normal (i.e. within plus or 20 per cent of LPA) in 8 other sub-divisions.

The pre-monsoon rainfall has been deficient or scant only in nine sub-divisions.

These include Madhya Maharashtra, Marathwada, East and West Madhya Pradesh, West Rajasthan, Gujarat (excluding Saurashtra and Kutch), Himachal Pradesh and Jammu & Kashmir.

The entire southern region, along with Uttar Pradesh, Bihar, Jharkhand, Chhattisgarh, Orissa and the North-East have received above normal rains, which means there is adequate soil moisture to facilitate sowing.

From the accompanying table, it can be seen that this year's pre-monsoon rainfall performance has been bettered only in 2001.

The real heartening feature is the good showers in the southern States, especially Tamil Nadu, Karnataka and Kerala, which were going through an intense dry spell.

Only Maharashtra is yet to see any respite and all hopes are being placed on the rain gods not playing truant in the main monsoon season.

The importance of the south-west monsoon springs from the fact that the country usually receives an average area-weighted rainfall of about 880 mm during these four months, which is nearly 7 times what it gets in the three months pre-monsoon season.

And this time round, the monsoon factor assumes added significance, considering that the supply position in many commodities is not as comfortable as it was even a year back.

During 2002, the country was able to weather its worst drought in three decades because of its huge public foodgrains stocks. Sugar mills were also inundated with massive unsold inventories, just as dairies were laden with excess milk powder.

To add to this, international prices of most agri-products, be it edible oils, pulses or cotton, were ruling easy, all of which meant that the impact on the drought was mainly on farm incomes and not consumer purses.

This time things are pretty different. Public grain stocks in July 1 are expected to be only around 33 million tonnes (mt), against over 63 mt on the same date two years ago.

Sugar stocks are similarly just about enough to meet domestic requirements.

Further, prices are hardening in most commodities, particularly grains, cotton, milk, sugar and rubber, not to mention non-agri products such as cement and steel.

There is also an element of `suppressed inflation' arising from domestic oil companies not being allowed to pass on the burden of soaring global crude prices to the consumer.

The only real cushion against a bad monsoon today is the abundant foreign exchange reserves with the Reserve Bank of India, which will ensure that a general upward pressure on prices will not translate into runaway inflation or undue interest rate volatility.

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