India Insight:Pick-up in crop sowing bodes well for agriculture growth

Near-normal rainfall: The overall countrywide data, as released by the IndiaMeteorological Department (IMD), has indicated that cumulative rainfall wasnear normal up to July 27 (vs 1% above normal in the previous week). On aweekly basis, the rainfall trend was 4% below normal for the week ending July27 (vs 7% below normal in the previous week).

Continuity of good rains over the coming weeks is critical to increasecrop sowing as well as to improve crop yields: Nearly two-thirds of cropsowing for the summer crop was completed through end-July. Even as cropsowing is progressing well (up 6% YoY as of July 29), we believe India needscontinuity of good rains over the coming weeks to improve crop yields.

Good monsoons will help improve crop production and boost farmincome: The summer (kharif) crop production (that accounts for nearly 50%of total agriculture production and a 5% share in GDP) is largely dependenton the rainfall the country receives during the monsoon season given limitedirrigation facilities. The favourable momentum in rains will help brighten theprospects for agricultural growth this year (estimated at 3.7% YoY in FY17) vsan average of 0.5% YoY registered in the previous two years on deficientrains. It will also improve the prospects for winter (rabi) crop production(accounting for the remaining half), which is dependent on soil moisturecontent and the water level in reservoirs. Good monsoons will also help boostfarm incomes, which will help support rural demand and, hence, overallconsumption.

Spatial distribution remains good, temporal distribution weakens: On aspatial basis (distribution of rainfall across states), barring Northeast India(12% below normal), all regions including Central India (9% above normal),South Peninsula (2% above normal) and Northwest India (near normal)received good rainfall during the period June 1–July 27. However, on atemporal basis (distribution of rainfall over the four months) the rainfall trendwas above normal in three out of the last nine weeks since the start of theseason.

Area under cultivation for summer crop up 6% YoY as of July 29 (vs +3%in the previous week): Crop sowing for the summer crop (kharif), whichaccounts for nearly-50% of total agriculture production grew 6%YoY as of July29. The increase was mainly led by pulses (up 41% YoY) and can beattributed to higher minimum support price (MSP) and bonuses recentlyannounced by the government to promote pulses cultivation (an averageincrease of ~13% YoY vs only 1.5% YoY in the previous two years). It seemsthat farmers have shifted from other crops such as cotton and jute towardspulses to take advantage of higher support prices. There was also a marginalincrease in area under oil seeds, paddy (rice) and coarse cereals.

Water level in reservoirs is comfortable: According to the CWC, the totallive storage in 91 key reservoirs stood at 38% of the storage capacity as ofJuly 28. While this is still below last year's storage of 43%, it has improvedand is now close to last ten years’ average of 40%. We believe this isimportant to track to meet the irrigation needs for both the summer crop incase of any rain shortfall and the winter crop and to help generate power, asmany of these reservoirs are linked with hydropower project plants.