State Bank of India’s current ‘Monsoon Impact (MI)’ Index, with a present value of 64.0 fares better than the 2022 full-season MI Index at 60.2, implying better monsoon prospects from this point.

This observation comes in view of monsoon-related uncertainties due to the emergence of the El Nino phenomenon even as the Indian Meteorological Department (IMD) has forecast a normal monsoon.

The “SBI Monsoon Impact Index/MI” incorporates four parameters from 15 major food grains producing states -- their share in total food grains production, rainfall deviation from normal, irrigation status, and overall skewness in rainfall among states.

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On a scale of 0-100, MI values closer to 100 indicate lesser impact while values with increased distance from 100 indicate rising impact of spatial distribution of rainfall on economy.

SBI’s economic research department (ERD) expects the MI Index to move towards 90, where the negative impact on economy would be virtually nil.

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, observed that within the agriculture sector, food grains production is highly reliant on monsoon performance and hence it is more appropriate to appreciate the performance of monsoon with Consumer Price Index (CPI) cereals & products inflation.

“While the correlation of CPI cereals inflation with IMD monsoon LPA (long period average) is low and positive (which is obviously incorrect), the correlation with our monsoon impact index is high and negative.

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“Interestingly, even though on an overall basis rainfall is deficient, the cereal producing states have received plenty of rainfall in FY23 unlike in FY22 when it was deficient,” Ghosh said.

Ecowrap report

The ERD, in its report “Ecowrap”, estimated that in case of prevailing El Nino conditions but supportive conditions in the Indian Ocean (Indian Ocean Dipole/IOD of greater than 0), there is no impact on real agriculture GVA (gross value added), barring a worst case scenario of an unlikely severe El Nino occurrence that could push up food prices.

The report noted predictions of a somewhat normal monsoon by IMD factoring in the Indian Ocean Dipole (IOD) indicator, an interplay of warm and cold waters in distinct parts of the Indian Ocean, despite the strong possibility of El Nino developing in the Pacific.

“India has received lower than long period average rainfall at times when El Nino was accompanied by neutral or negative IOD index.

“The IOD is currently neutral (>0.4 is positive, <-0.4 is negative, and values in between read neutral), though a positive IOD is likely to develop in the coming months, thereby ruling out any negative impact on monsoon in India due to El Nino,” the report said.

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