No other event in the recent past has brought more cheer to a large section of Indian population than Indian Meteorological Department (IMD) forecast of an above-average and well-distributed monsoon for 2016. Farmers, consumers and Government is happy with this news, so are the stock markets. This reflects the importance of Indian agrarian economy despite reducing share of agriculture in GDP (approx. 15% of GDP).
The news is more soothing in the context of twin drought years (2014 & 15). About 55% of India’s agricultural area is rain-fed. India also consumes 2-4 times more water per acre for irrigation than countries like China, Brazil and USA. India’s 75% of cattle population also reside in rain-fed areas so a bad monsoon can also severely impact availability of fodder.
Despite positive monsoon forecast, the prices are already on boil for some commodities (Chili, soy, cottonseed, sugar, vegetable oil etc.). Growing demand for food and feed (>8% per annum) with supply constraints arising out of volatile monsoon in the recent past and low productivity gains has resulted in food inflation. Food inflation going forward will be a systemic trend, which at best can be predicted but cannot be avoided.
Higher commodities prices in India is also reducing India’s global competitiveness. A case in point is soybean meal (mostly used in animal feed). India has become an importer despite about 15% import duty on the meal. In not-so-distant past, India has exported in excess of 3 mn tonnes of soymeal per annum. Another example is Corn, which is being imported in India after a period of 16 years. Also, the first wheat cargo to be imported into India this year arrived in Tuticorin from Australia this week, in spite of a 25% import duty. Read More...