India Insight:Monsoon trend is normal so far, crop sowing progressing well

Event

Cumulative rainfall trend is normal up to July 30: The overall countrywidedata released by the India Meteorological Department (IMD) indicates thatcumulative rainfall was 4% below normal up to July 30 (vs 5% below normalup to July 22). We note that normal rainfall is defined as 96–104% of LPA(long period average). On a weekly basis, the rainfall trend improved to 21%above normal for the week ending July 29 (vs 12% below normal for theprevious week). The good progress of monsoons so far has defied theconcerns about drought or deficient rainfall this year.

Continuity of good rains over the coming weeks is critical to increasecrop sowing as well as to improve crop yields: Nearly 70% of crop sowingfor summer crop has been completed through end-July. Even as crop sowingis progressing well (up 9% YoY during the week ended July 31), we believeIndia needs the continuity of a good rainfall trend over the coming weeks toimprove crop yields. The conscious policy efforts, including seed subsidy andconstant sharing of scientific inputs based on amount as well as spatialdistribution of rainfall, have helped to limit the damage from poor rainfall. If thecurrent trend is sustained, we believe the downside risks to growth and upsiderisks to inflation will be contained.

What is in the details?

Spatial and temporal distribution of rainfall remains weak: On a spatialbasis (distribution of rainfall across states), except for Northwest India, whichis also largely irrigated (rainfall 12% above normal), all other regions – CentralIndia (near normal), South Peninsula (18% below normal) and Northeast India(8% below normal) – continued to receive near- or below-normal rainfallduring the period June 1 to July 29. In terms of distribution by states, parts ofMaharashtra, North Karnataka, Bihar, Rayalaseema and Telangana areamongst the worst affected. On a temporal basis (distribution of rainfall overthe four months) the rainfall trend was below normal in the past five out ofnine weeks since the start of the monsoon season.

Area under cultivation for summer crop up 9%YoY up to July 31: Cropsowing for summer crop (kharif), which accounts for nearly-50% of totalagriculture production, grew 9% YoY as of July 31 (vs +26%YoY in theprevious week) as the base effect normalised . The increase in area sownover last year was largely led by oil seeds, coarse cereals, pulses and rice.

While crop sowing has been progressing well, we believe good rainfall duringthe flowering stage in mid-August is crucial to improve crop yields.

Water level in reservoirs at comfortable levels: According to the CentralWater Commission, the total live storage in 91 key reservoirs stood at 45% ofthe storage capacity as of July 30. This is above last year's storage of 44%and the last ten years’ average of 41%. This is important to (a) meet theneeds of irrigation for both the summer crop in the case of deficient rains andalso the winter (rabi) crop and (b) help generate power, as many of thesereservoirs are linked with hydropower project plants.