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August 29, 2019

Indian Economy: Rain rebounds

After a false start, the southwest monsoon has made a comeback, and how. But as it happens, rains have unexpectedly moved in quickly to narrow the monsoon deficit from a high 19% on July 24, to 9% on July 31, and 1% surplus on August 14.


If monsoons stay the course, agriculture is bound to get a lift. Kharif crops will benefit, particularly in rain-fed areas, and rabi, from healthy reservoir capacities and improved groundwater levels. That improves chances of normal agricultural production this year. Whether this materializes, is anybody’s guess. 


The rainfall pattern is somewhat skewed, with some regions continuing to face deficiency while others staring at deficit earlier, now grappling with excess. In several parts, the southwest monsoon has left a trail of destruction, claiming lives and damaging crops and infrastructure across states. In the absence of official estimates on crop losses due to excessive rains, we expect production figures to tot up differently eventually. What can be said with certainty, though, is that rains have recharged reservoirs, which will help the next rabi output.


CRISIL’s Deficient Rainfall Impact Parameter (DRIP) index (developed in 2002) is an effective gauge of the impact of deficient monsoon on agriculture. The higher the CRISIL DRIP score, the more adverse the impact of deficient rains. DRIP is a better indicator than percentage deviation of rainfall from normal as it captures both shock (deviation from normal) as well as vulnerability of a region (measured as percentage of unirrigated area).


Latest DRIP scores show some stress in four states – West Bengal, Andhra Pradesh, Tamil Nadu and Haryana – where delayed or still-absent rains have created pain. For crops, the latest DRIP scores highlight relief, with all crops showing low and below trend scores. Our analysis indicates that crop production might be adversely impacted in some states, but it might not make a sizeable dent to all-India crop output. Rice might be in stress. But even if rice output takes some hit this year, it may not have much impact on prices, owing to excess stocks.


So, while delayed rains showed stress in nearly all crops at the start of the rainfall season, these crops are now faring better. But with excessive rains is several regions, the possibility of crop loss and damage cannot be denied. This, however, is not captured under the DRIP framework.


To sum up, monsoon has caught up well, but damage in areas with excess, need sestimation.