Extreme weather conditions across the country are likely to have some adverse impact on agriculture production this year.
♦ The floods in parts of Karnataka and Kerala have damaged plantation crops such as spices and rubber. While the loss in Kerala’s agriculture sector has been extreme, it is unlikely to have a significant impact on overall production of food grains (in particular rice) in India. Kerala accounts for only 0.5% of overall rice production in the country.
♦ Deficient rains recorded in JH, HR, WB, GU, PN, BH. These six states account for 34% of total food grain production in the kharif season. Due to the high unirrigated area in JH, GU, and WB, crop production is likely to be impacted the most in these states.
♦ Paddy output could be lower this year with lower rainfall in UP and WB for most of the sowing season. The efficient use of buffer stocks and food supply management by the government will determine the impact on prices. Rice has a weight of 4.5% in CPI basket.
♦ Production of Groundnut and Bajra likely to be somewhat lower due to deficient rains in Gujarat.
♦ Overall, our production indicator shows that agricultural production is likely to be slightly lower in this kharif season compared to last year. This could add to the pressure on food inflation, which is already expected to feel the heat from the recently announced MSP increases.
♦ That said, headline food inflation could remain contained as lower inflationary pressures in certain other categories such as vegetables, fruits, sugar, and protein inflation – as has been witnessed in the last three months – could offset the impact of 1)unfavorable monsoons and 2) higher imported inflation due to the fall in the rupee.
* Mr. Abheek Barua, Chief Economist, HDFC Bank. Mr. Barua tweets at @AbheekHDFCBank.