The prospects of yet another weak monsoon have triggered concerns about food inflation. This could also be a cause for worry to the Modi Government as it looks to push economic growth and faces a key election in Bihar later this year.

A poor monsoon on top of a 12 per cent deficient rainfall last year and unseasonal rains in the last couple of weeks could hurt agricultural output and slow economic growth.

The India Meteorological Department’s gloomy forecast on Wednesday has triggered a rise in the prices of many a farm commodity. Experts say they could spiral further if the IMD predictions come true. This, in turn, could force the Reserve Bank of India to take a cautious approach on rate cuts. Barring wheat, prices of all commodities have increased since the beginning of this month ( see table ). The surge was pronounced on Thursday with prices rising by over one per cent for most agri-commodities.

A weak monsoon will aggravate the agrarian distress, affecting rural incomes that have already come under pressure due to low commodity prices influenced by higher global supplies and crop losses due to unseasonal rains.

Lower rural income means poor demand for tractors, two-wheelers, cars, fertilisers, agro-chemicals, FMCG and white goods. Also, demand for gold could be affected. “We will have to wait till June to get a clearer picture, but we need to be prepared,” said DK Joshi, Chief Economist, Crisil.

Citi in a note on Thursday said that the recent unseasonal rain that impacted more than 10 per cent of standing Rabi crops has introduced a downside risk to Central Statistics Office’s 2015 fiscal GDP growth estimate of 7.4 per cent.

“Our 2016 fiscal GDP growth estimate of 8.1 per cent could also see a downside risk given the fact that CSO’s 2015 fiscal year growth may be lower-than-expected and agricultural growth of 3.6 per cent could be at risk in the event of deficient rainfall,” the note said.

Govt policies can help While rains pose a threat to inflation, proactive government policies such as contained minimum support price and food stock management could mitigate some of the risks, Citi said

Prices of farm commodities had bottomed out in December but have reversed since then. “There is more scope for upside movement in these commodities. If monsoon indeed remains poor as predicted, there could be a spike in food inflation,” said Ajitesh Mullick, AVP-Research at Religare Commodities.

State Bank of India’s Chief Economic Advisor Soumya Kanti Ghosh said the worry is that in terms of cumulative probability, IMD’s forecast of a deficient rainfall including below normal is as high as 68 per cent. In India, since 2000, there has been four El Niño years (2002, 2004, 2006 and 2009), and three of these (except 2006) resulted in a drought. Monsoon was normal in 2006, which was an El Nino year.

Thus, it is not correct to conclude that El Nino will result in drought-like conditions, Ghosh said.

“We believe the Government should quickly go for creation of a contingency fund to stabilise any adverse impact on farmers’ income,” Ghosh said.

“The trend in domestic prices has reversed and the rupee has weakened. The wholesale price inflation and the consumer price inflation are likely to go up and could probably stay the RBI’s hands on rate cuts,” said Tejinder Narang, a grains trade analyst.

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