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| DEPENDING ON THE RAIN GODS | | | Sandeep Bamzai
The IMD's predictions of an above-normal rainfall this season should bring cheer to rural India and the country's overall economy, which had been under stress for the last two years due to poor monsoons.
Last week, when the Indian Railways water train arrived empty at Jhansi, making a mockery of the dire situation in parched Bundelkhand after political quibbling between the Samajwadi Party-led State administration and the BJP led Centre, the gravity of the crisis was not lost on anyone. Large swathes of India have run dry, cumulative storage in India's 91 biggest reservoirs is currently about half of the January levels. Maharashtra has drawn the most water the fastest, going from 30 per cent of full capacity to 14 per cent in late April. The Latur train, arguably the strongest visual reference to drought-hit Vidarbha's woes, was the most telling commentary of a water-deficit India in recent times.
Two consecutive years of rural distress and weak rural consumption have played havoc with automobile and fast-moving consumer goods companies' balance-sheets. Mercifully, after two straight seasons of deficit monsoon, the Indian Meteorological Department has predicted an above-normal monsoon for the upcoming season. With Indian agriculture still dependent on monsoon rains (only 46 per cent of net sown area irrigated), a substantial portion of agricultural land in India still remains rain-fed. Now there is growing optimism that domestic consumption demand will pick up, particularly in rural India. India consumes 67 per cent of its two trillion dollar GDP, and it is imperative that consumption picks up to take the economy to a higher plane.
IMD (first prediction, April) predicted the upcoming season to have above-normal rainfall at 106 per cent as the effects of El Nino roll back. In recent history, predictions of the IMD has been with better accuracy compared to the previous decade (2001-2010). The second prediction of monsoon will come in June 2016. During 2014 and 2015, monsoons were lower by 12 per cent to 14 per cent from the long period averages. The coverage of irrigation is only 46 per cent for the country, and thereby lack of rainfall directly impacts crop output. The primary causes for weakness in crop output stem from (a) two years of deficit rains (2014 and 2015) which have led to ground-water depletion and thereby less water for irrigation; and (b) unseasonal rains impact (mid-March 2016). Therefore, States/areas with irrigation facilities reported normal yields (Punjab), and are showing decline in yields of up to 20 per cent to 30 per cent year-on-year in some places of Uttar Pradesh and Madhya Pradesh. Groundwater level has gone down significantly, as is reflected in the lower water storage across the country (30 per cent YoY lower in second half of April 2016).
Even though the past four crops (including Rabi 2016) have been weak, a good monsoon would increase farm income on the back of improved productivity and probable higher net sown area. Even though minimum support price growth in the past three years has been weak, due to inflationary reasons MSP hike for the upcoming Kharif season would be supportive rather than sharp. Many international Met departments are also predicting the onset of La Nina by September; and global agri-commodity prices usually increase during La Nina periods. The rise in global agri-prices would also help farm income. Good rains would aid productivity: There is significant correlation of crop yield with monsoon rainfall, as still 50 per cent-plus of Indian agriculture does not have irrigation coverage and thereby depends only on rainfall. Even in regions where there is irrigation, monsoon impacts indirectly as lack in rainfall reduces the water-table level.
In what is a remarkable journey to the worst-impacted rain deficit areas of India, JM Financial's team of analysts has just returned with the third and most defining of its Rural Reports. The data collated is comprehensive and provides eye-opening insights into the misery and plight of rural Bharat as it wages war to survive without water. It would make eminent sense for policy mavens to read this report and start taking corrective measures post-haste. This document, which offers real time perspective on the agrarian crisis in the wake of two failed monsoons, provides an assessment on the extent of rural distress and how a revival will impact the overall rural consumption story. This troubled journey took the analysts through the lake city of Bhopal, palace city of Mysore and to the worst drought-hit regions of Marathwada, among others enabling them to understand recent rural economy trends and identify key growth drivers. The report says, "Our analysts covered 14 districts across eight States that account for 52 per cent of India's agri GDP, including Marathwada. Our rural survey I and II conducted in FY15 and FY16, had alerted to the possibility of weak rural consumption due to declining incomes and waning wealth in rural India. In this report, we present the findings of our third rural survey, where we observe that (a) farm incomes have fallen further; (b) asset values (especially land prices and transactions) are mostly stagnant (except in select places); (c) debt/assets of farmers have likely risen by 200- 300 basis points over the past three years.
"On the positive side, we note: (a) Rabi crop production could be higher YoY though short of Government estimates; (b) infrastructure/ irrigation spending is supporting non-farm income (something that we did not see 6 months back); and (c) run-rate of loan recoveries has increased YoY in places where there are no drought-like conditions. In our view, a normal monsoon has the potential to increase farm incomes by 20 per cent-plus YoY in FY17 while higher rural spending by Governments should support non-farm income."
As it is said, it is darkest before dawn. And it's so with the travails of rural rain-dependent India. The monsoon this time will function as a catalytic agent. If India is to truly change the way it consumes, rural India has to get a leg-up. Unfortunately, it remains rain dependent. This is India's biggest travesty.
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