Major Foodgrain Producing States In Deficit Amid Good Monsoon
The State Bank of India (SBI) expects inflation to remain within the Reserve Bank of India (RBI) target in FY25
India's monsoon season has seen slightly above-normal rainfall, but major foodgrain-producing states are facing a deficit, the State Bank of India (SBI) has said in a report. In the country, key agricultural states have reported below-average rainfall, sparking concerns about crop yields and food production.
The southwest monsoon covered the whole country six days ahead of its normal date and owing to that the cumulative rainfall during June to July 2024 is at 2 per cent above LPA. Consequently, the cumulative kharif sowing stood at 905 lakh hectares (as on 02 August 2024), 82 per cent of the full season normal acreage and 3 per cent higher than the corresponding date of the previous year.
“However, certain major foodgrain-producing states are still in huge deficit mode. Going forward, IMD’s forecast of above normal rainfall augurs well for replenishment of reservoir levels and further progress of kharif sowing,” the report added.
Notably, India's retail inflation increased to 5.08 per cent in June 2024, compared to 4.80 per cent in May, owing to higher food and beverage inflation. Core CPI increased to 3.13 per cent compared to 3.07 per cent in May. Both rural and urban inflation increased in June. While rural inflation increased to 5.66 per cent, urban inflation rose to 4.39 per cent in June 2024.
"CPI inflation is expected to remain below or close to 5.0 per cent in the remaining months, except for Sep’24 and October 2024. For the whole of FY25, CPI inflation is likely to average to 4.6 to 4.7 per cent," the SBI stated in the report.
With the monsoon progressing satisfactorily with a 2 per cent surplus to date and progress of area coverage under Kharif crops showing 2.9 per cent YoY, SBI expects inflation to remain within the Reserve Bank of India (RBI) target in FY25. However, with La Nina getting precedence, excess rainfalls could result in crop loss and thus a negative impact on food prices.
Talking about the Current Liquidity trend, the report stated the current trend shows Rs 0.14 lakh crore average deficit in FY25. The Net liquidity was in deficit mode from 22 April 2024 to 27 June 2024 (except for 03 June 2024 to 06 June 24, where it was in surplus mode with an average of Rs 0.4 lakh crore, mainly on account of month-end government spending) with an average deficit of Rs 1.1 lakh crore. Then It came to surplus mode on 28 June 2024 with an average of Rs 1.0 lakh crore till July 2024.
The state bank in the report added that the RBI has been actively managing liquidity through main and fine-tuning operations. The average supply of liquidity by way of variable rate repo auction held in FY25 is Rs 0.69 lakh crore and average absorption through variable rate reverse repo auction amounts to Rs 0.27 lakh crore.
Government surplus cash balances average to Rs 2.8 lakh crore in July 2024. According to the report, durable/core liquidity surplus has gone up to Rs 4.03 lakh crore as of 31 July with an average of Rs 3.8 lakh crore post-last policy.
