Late rains, high farm support prices add to inflation woes

The onset of the monsoon across the country has been delayed by a week, adding to the worries over inflation and farmers' lives. The rains are now likely to cover most of India only by June 22-23.
The upshot is that they were 50% below average in the past week. That’s a second week of scant rain and confirmation that the season has got off to a slow start.

As if that were not enough, the government on Thursday announced 15% to 53% higher minimum support prices for the next kharif or summer crop — a populist move keeping in mind the next general elections.

Meanwhile, inflation rose to 7.55% in May, adding to an avalanche of harsh data for the beleaguered leaders and making it harder for the RBI to revitalise the flagging economy with a widely expected interest rate cut next week.

The government also revised the March inflation number to a 2012 high of 7.69%. "The most important negative is the revision to the March number, which means the May headline inflation may be revised upwards," said Rajeev Malik, an economist with Singapore-based brokerage CLSA.

Meanwhile, the Indian Metrological Department (IMD), said the delay in monsoon is due to atmospheric disturbance over the northern parts of the country.

"The monsoon is not able to enter the greater part of the Indian peninsula because of the northern disturbances. Once the disturbances settle down, the monsoon clouds will be able to enter,” said an IMD scientist. "The northern disturbances are expected to die down within the next few days. It should pour a day of two after that."

At present, monsoon is active in Kerala and parts of coastal Karnataka.

Experts said there was no urgent cause for concern, with crops not greatly affected by the quantity of rains at this early stage. More important for growth is rainfall distribution from mid-July after the monsoon hits the entire country.

"There is no reason to press any panic button at this stage as the rainfall activities are expected to improve," said AK Singh, deputy director-general of the state-run Indian Council of Agricultural Research.

India's weather office has forecast average rainfall for the whole June to September season -- the third year in a row -- to avoid a drought in one of the world's biggest consumers of rice, wheat and sugar, with a population of about 1.2 billion.

The monsoon rains are vital for farm output and economic growth as about 55% of India's arable land is rain-fed, and the farm sector accounts for about 15% of a nearly $2-trillion economy, Asia's third-biggest.

-- With Reuters inputs