India downgrades monsoon forecast, stokes drought fears

Rainfall of less than 90 per cent is considered to result in a drought year.

India on Tuesday cut this year's monsoon forecast to 88 per cent of the long-term average.

India's move was prompted by an El Nino weather pattern and raising fears of the first drought in six years.

India is a country where nearly half of farmland lacks irrigation.

Although agriculture accounts for just about 15 per cent of a $2 trillion economy, three-fifths of India's population of more than 1.2 billion depend on farming for their livelihood.

The arrival of the June-September rains has already been delayed about five days, worrying both farmers and Prime Minister Narendra Modi's government, which is battling a rural slowdown.

In 2009, El Nino, or a warming of sea-surface temperatures in the Pacific, contributed to India's worst drought in four decades, and drove steep rises in global prices for commodities like sugar.

"Let's pray to God that the revised forecast does not come true," said Harsh Vardhan, minister for earth sciences.

Modi has already asked ministers to prepare contingency plans to deal with a below-par monsoon, the minister added.

In April, India forecast monsoon rains at 93 per cent of the average.

Rainfall of less than 90 per cent is considered to result in a drought year, although the latest prediction has an error margin of 4 percentage points either way.

Inflation fears

India's central bank expressed concern about the monsoon after cutting interest rates on Tuesday for a third time this year.

The government said it would have its work cut out to contain inflation if the rains again fall short.

"Last year as well, the monsoon was not very good, and through government policy, we managed to contain inflation," Chief Economic Adviser Arvind Subramanian told reporters.

"We intend to do that this time around, should the monsoon be as bad as some people fear."

Food makes up nearly half of the consumer price index that the Reserve Bank of India now targets, a far higher share than in richer countries, making it harder for the central bank to hit its inflation target.

RBI Governor Raghuram Rajan wants to cap inflation at 6 per cent by the start of next year, versus April's four-month low of 4.87 per cent.

Unlike 2009, India has a surplus of key commodities such as wheat, rice and sugar, due to recent bumper harvests. But lower prices and the fate of a single crop can make a life or death difference for small-scale farmers.

Anger is already growing in the countryside after unseasonal rains and hailstorms ravaged farms, driving many debt-laden farmers to suicide.

"It will delay sowing, raise our irrigation costs and could blight our crops," said Dharmendra Kumar, a farmer in the northern state of Uttar Pradesh. "And as we've experienced in the past, it'll be too late by the time government help reaches us."

Harish Galipelli, head of commodities and currencies at Inditrade Derivatives and Commodities, said that prices of some essential commodities had already started rising and they would inch up further if the monsoon remained deficient, as forecast.

Image: A farmer; Photograph: Reuters

(Additional reporting by Rajendra Jadhav and Mayank Bhardwaj)