India: Rising risks of a deficient monsoon this year – Standard Chartered

According to analysts at Standard Chartered, the start of the south-west monsoon has not been favourable for the Indian economy as the cumulative rainfall in June 2019 is 35% below Long Period Average, LPA.

Key Quotes

“The June rainfall performance is weak relative to previous years, heightening risks of a deficient monsoon overall. However, a pick-up in rains in July and August, which contribute to c.60% of monsoon rainfall, may offset some of the impact. If rainfall is >5% of LPA in July and August, the overall 2019 monsoon could still be normal. However, we see increased probability of a deficient monsoon.”

“The distribution of rainfall is equally important. Currently, rainfall deficiency is relatively less in the north-west and southern regions that account for 55% of agricultural output. A pick-up in rains in these regions could alleviate some concerns about food output and inflation.”

“The distribution of reservoir levels is also crucial – while these are currently similar to last year, there is a wide disparity at the state level (Figure 4). In key agricultural states like Maharashtra, reservoir levels are at multi-year lows; given limited irrigation facilities this could be cause for concern.”

“Our analysis of past data indicates that an inadequate monsoon can have a muted impact on inflation if factors like prudent fiscal policy, benign commodity prices and a benign growth environment are in place. However, lower crop production can have a significant impact on GDP growth.”