Dry run

Brace for weak monsoon, and hope for best

It should have been a good day for markets, with Iran and US talking peace, but Friday ended with Sensex and Nifty down roughly 1.5% each. The dampener was El Nino, which is now expected to weaken this year’s monsoon further. In April, IMD had forecast rainfall at 92% of long-term average – below but still close to normal. Now, it’s revised it down to 90%. That doesn’t seem like a big change, but averages don’t tell the whole story. Drought in the food basket states, and excess rainfall elsewhere, can add up to a good average, but food production, inflation, consumer demand, and govt budgets, will all take a hit. That’s why the seemingly small, 2 percentage point change is a big deal. And markets are naturally worried.

Not only is it looking like the worst monsoon since 2015, it comes at a time when the Hormuz blockade has pushed Indian fuel prices to their highest levels ever. While diesel for farmers is costlier, govt’s subsidy bill for fertilisers could more than double to ₹3.8L cr this year – again because of Hormuz. Given that almost half of India’s population is dependent on farming, and half of agriculture is rain-dependent, govt can’t ask farmers to share the fertiliser bill. That will strain its finances, curbing infra spending. And while the country’s food stocks are adequate, higher food prices due to reduced production will stretch budgets of most families. It’s not a full-blown crisis, but the situation demands deft handling. Centre and states will need to coordinate better, to soften the impact on farmers. The outlook could improve quickly if Iran and US make a deal, easing the pressure of energy and fertiliser prices in a couple of months. Fingers crossed.

Read more:

India warns of weakest monsoon in 11 years, inflation risks rise

Explainer: How El Nino-driven weaker monsoon rains could impact India

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