India's Agriculture Sector Not Out Of The Woods Yet

Despite an overall improvement in the performance of monsoon compared to last year, the agriculture sector continues to remain at risk due to regional disparities in rainfall, CareEdge Ratings has said. Major agrarian regions, particularly in Northern India and the Gangetic plains, continue to experience significant deficits in rainfall. 

As of the last week of August, Kharif sowing is 97 per cent complete. However, compared to recent years with normal monsoons (2021 and 2022), the sowing of pulses and some oilseeds has lagged, potentially adding to price pressures given their import dependence. Global edible oil prices have recently exited a deflationary period due to global factors, and the risk of these prices passing through to the domestic consumption basket remains a key concern.

Additionally, lower reservoir levels, reflecting the rainfall pattern in some regions like northern India and a few state in east India could impede the prospects for Rabi sowing, which largely depends on irrigation, the agency added in the report.

At this juncture, monitoring food prices is crucial, especially as the base effect is expected to turn adverse ahead of the early festive season this year. These factors could slow the moderation of already high food inflation, increasing the risk of entrenching higher inflation expectations. 

Recent surveys indicate that since March 2024, inflation expectations have risen while consumer confidence has trended downwards. “Looking ahead, we expect food inflation to average 6.9 per cent and 7.5 per cent in Q2FY25 and Q3FY25, respectively, before moderating to 5.3 per cent in Q4FY25, assuming a robust rabi harvest,” CareEdge Ratings added.

Despite Above Normal Monsoon, Regional Variation Remains High
Following a sluggish onset in June, the southwest monsoon gained significant momentum, achieving surplus levels in July (2 per cent above normal) and further strengthening this surplus throughout August (6.6 per cent above normal). In August, the North-West India and East and Northeast India narrowed the cumulative deficit witnessed in June and July. In the same month, the rainfall in the Southern Peninsula slowed thereby reducing the cumulative surplus.

The report added that although the monsoon in this season has been above normal at the national level, significant regional variations persist. Approximately 42 per cent of the 36 meteorological sub-divisions experienced cumulative rainfall deficits, including key agrarian regions, which is a cause for concern. While central and southern India saw substantial surplus rainfall, it was notably muted in Eastern India and the major agrarian states of Northern India.

The key states such as Punjab, Bihar, Haryana, Uttar Pradesh, Gangetic West Bengal, and Orissa experienced double-digit deficits in rainfall. Indian National Centre for Ocean Information Services (INCOIS) has revised its outlook for the emergence of La-Lina conditions from an earlier estimate of September to November 2024 now, thereby missing the southwest monsoon season. 

This revision reduces the likelihood of increased rainfall in the final weeks of the monsoon season, particularly in key agrarian regions where the rainfall has been deficient. “This shortfall could negatively impact overall agricultural productivity and output, especially given that approximately 97 per cent of kharif sowing has already been completed, leaving limited scope for recovery,” it stated. 

Risk To Food Inflation Needs Close Monitoring
The Kharif sowing of food grains has increased by 4.6 per cent compared to the same period last year (as of 23 August) and is 2.9 per cent higher than the average sowing of 2021 and 2022. Sowing of all major categories of foodgrains led by cereals (4.4 per cent) and pulses (5.7 per cent) have shown improvement compared to last year. However, the sowing of non-food items like cotton and jute have shown a sharp contraction.

The report also mentioned that the lower reservoir levels in northern and some states in eastern India can impact upcoming Rabi sowing. Overall, reservoir levels at an all-India level are at 72 per cent of full capacity, which is higher than last year’s 63 per cent and the long-term average of 65 per cent. This robust national figure is primarily driven by higher reservoir levels in Southern, Central, and Western India, mirroring the rainfall pattern. 

However, reservoir levels in Northern India are significantly lower, at just 53 per cent of full capacity, compared to 84 per cent last year and the long-term average of 75 per cent. All major northern states with substantial storage capacities - Punjab, Rajasthan, and Himachal Pradesh (which supply water to downstream states like Haryana, Punjab, and Rajasthan) - are experiencing lower reservoir levels compared to both last year’s level as well as the long-period average. 

Additionally, it is important to note that in Eastern India, reservoir levels in key agrarian states like Bihar and West Bengal remain below the long-term average, despite the overall regional storage appearing adequate. Lower reservoir levels in major agrarian northern states and some key eastern states affect the prospects of rabi sowing which primarily depends on irrigation, it added.