India is expected to see a lower rainfall in the last two months of the monsoon season, according to a press release by India Meteorological Department (IMD).
While the country has seen a healthy monsoon season, growing El Nino conditions are expected to push the rainfall for August-September to 84 per cent of the long-period average, lower than the 88 per cent IMD expect for June-September period.
The report by IMD indicated that there was a 72 per cent probability of El Nino conditions intensifying during the remainder of the monsoon.
Though rains have brought some respite for the agricultural sector which has been struggling with growth, prices of pulses and oilseeds have gone up leading to a rise in inflation. With rains to be deficient in the remainder of the season, prices may rise further.
The Reserve Bank of India (RBI) in its policy review on Tuesday held policy rate at 7.25 per cent while highlighting that further rate cuts will be predicated upon transmission on rate cuts to consumers and inflationary pressures. But the bank may have to yield to market pressure to cut rates which it can't do if prices go up due to lower rainfall.
"Turning to the balance of inflation risks, most worrisome is the sustained hardening of inflation excluding food and fuel,” the bank said in its monetary policy statement.
While low rainfall is a concern, where it falls is much more of a concern. A report by Yes Bank pointed out that the spatial distribution has been a concern in July as 73 per cent of country’s area received excess to normal rainfall compared to 92 per cent as of June 30.
The report also highlighted that while sowing has improved, the momentum has tapered off somewhat on a yearly basis, which is likely to be influenced to some extent on account of late arrival of rainfall last year which delayed sowing.
With the monsoon session washed away by protests from Opposition and no key legislation passed in the Parliament, a weak spell in rainfall can spell trouble for the government which is trying to revive investment and growth.