Normal Monsoon 2022 critical to douse some inflationary flames

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SME Times News Bureau | 17 Apr, 2022
A normal monsoon season this year is expected to mitigate some inflationary pressures, especially being witnessed in certain food commodities.

Besides, healthy and well-spread rains will repose faith in the country's economy which faces ever increasing risk of 'Stagflation' due to high global commodities' costs.

In March, the retail inflation rate climbed to nearly 7 per cent triggering fears of an imminent rate hike by the RBI in its next MPC meeting. The present inflationary pressure has made this year's monsoon season crucial for propelling growth not just for the agriculture sector but for the whole of India Inc.

In terms of predictions, both Skymet and IMD have given a forecast for a 'normal' Southwest Monsoon for the current year at 99 per cent and 98 per cent of the long period average (LPA) respectively.

India has been relatively fortunate to receive a favourable pattern of rainfall consecutively over the last 3 years -- 2019, 2020 and 2021 -- when the actual rainfall has been recorded at 110 per cent, 109 per cent and 99 per cent of the LPA.

According to Emkay Global Financial Services Lead Economist Madhavi Arora: "A normal monsoon should cushion food prices, especially at the time, when global food and agri-inflation is soaring."

At present, seasonal factors along with high input costs have pushed up food prices.

The rate of rise in the Consumer Food Price Index, which measures the changes in retail prices of food products, increased by 7.68 per cent last month from 5.85 per cent in February 2022 and 4.87 per cent in March 2021.

"If the predictions come true for this year, this will be the fourth successive year of a favourable monsoon and healthy agricultural prospects. A regular monsoon with healthy rainfall in the initial period of June-July'22 will help to moderate the prices of fruits and vegetables which have a significant weightage in the food basket," said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.

"Food inflation has started to firm up again towards the end of FY22 with the print in March-22 at 7.5 per cent YoY which is the highest in the last 16 months."

Besides, the rise in key input prices will impact the agriculture sector's growth. This impact will cascade into other industries such as two-wheelers, cement and steel.

"The prospects for the agricultural sector remain bright in FY23 with the prediction of a normal monsoon by IMD. However, prices of key inputs like fertilisers, diesel have been on the rise recently which could play a spoilsport," said Paras Jasrai, Analyst, India Ratings and Research.

"Nonetheless, India Ratings' forecast suggests that the agriculture sector would witness an annual growth of 3 per cent in FY23."

In addition, Aditi Nayar, Chief Economist, ICRA said: "The encouraging forecast of a normal monsoon in 2022 coupled with healthy reservoir levels in all the regions augur well for a timely onset of kharif sowing."

"However, a good monsoon may not be able to douse the prices of those items that are currently pushing up food inflation in India such as edible oils."