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Monsoon worries threaten growth outlook, inflation

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Monsoon worries threaten growth outlook, inflation
Analysts who were suggesting that growth rates in India may have bottomed out, may now have to re-visit their outlook, as a weak Monsoon now threatens to pull growth rates down.
 

Monsoon rainfall is likely to be below average this year, the Indian Meteorological Department (IMD) said. "Quantitatively, the monsoon seasonal rainfall is likely to be 95 per cent of the Long Period Average (LPA) with a model error of ± 5 per cent," the IMD said in a release.

The agency has forecast the chances of El Nino as high as 60 per cent. "However, the sub surface temperatures in the tropical Pacific have warmed to the levels generally observed prior to an El Nino event. Latest forecast from a majority of the models also indicate warming trend in the sea surface temperatures over the equatorial Pacific reaching to El Nino level during the southwest monsoon season with a probability of around 60 per cent," the IMD said in a release.

Agriculture accounts for almost 20 per cent of GDP in India and a poor monsoon is likely to pull growth rates lower. For many quarters now, we have had GDP that has been sub five per cent.

To compound woes a poor monsoon could also trigger higher food inflation, stoking WPI and CPI inflation higher.

The month of March saw inflation rising after having fallen in the previous months. This is likely to put pressure on the Reserve Bank of India (RBI) to continue to keep interest rates at elevated levels. The central bank has made it clear that its objective would be to continue to fight inflation.

GoodReturns.in

Read more about: monsoon inflation
Story first published: Friday, April 25, 2014, 8:53 [IST]
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