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Economy
Monsoon
Food grains acreage hints at restricted inflation moderation. Rainfall data till
August 17 indicates that rainfall has improved from the precipitation in July. However,
the worry is that acreage of food grains is still below last year’s levels though total
acreage has improved. The IMD expects rainfall in August-September to be ‘below
normal’ with precipitation around 90% of the Long Period Average (LPA). Our analysis
suggests that if food grains acreage does not improve, we may not see the expected
degree of softening in inflation in November-December.
Monsoon does not seem to be a worry for this year
Data till August 17 suggests that rainfall has been satisfactory, at least in spatial terms. Out of the
36 meteorological sub-divisions, rainfall has been ‘normal’ in 26 sub-divisions while rainfall has
been ‘deficient’ in 4 and ‘excess’ in 6. Cumulative rainfall on an aggregate basis for the country
has been 1% below LPA. This is certainly a huge improvement from the rainfall pattern in July.
The weekly deviation from LPA rainfall improved from (-)23% in the week-ended July 27 to 26%
in the week-ended August 17. With the July rainfall being weak, the negative for this year’s
monsoon has been the temporal distribution of rainfall. This in turn has significant chances of
affecting kharif production due to the high correlation between rainfall in July and grain output
(see Economy comment on August 4, 2011). The IMD continues to see rainfall being welldistributed
for the rest of August.
Lower acreage may limit the moderation expected in November-December inflation
Food grains acreage continues to lag FY2011 numbers with only rice being sowed in excess of last
year’s acreage. Oilseeds and cash crops like cotton and sugarcane have higher acreage than last
year. A simple analysis throws some light on what the effect of lower acreage may be on inflation
in India. Exhibit 3 shows that over a long term too, growth in acreage and production has moved
in a synchronized manner and this high correlation indicates that this year if acreage is lower than
last year, it is likely that we might not see much increase in food grain production (given that yields
do not improve markedly in a short timeframe). Exhibit 4 looks at inflation in the December-March
period from FY2006 to FY2011. These 4 months are the post-harvest period which sees the effect
of the kharif output on the overall inflation. We look specifically at food grain inflation and kharif
food grain production for the same period. With lower production this year, we might see inflation
(in food grains for sure) being high. Given the dynamics between acreage and production and
production and inflation, with food grain acreage still below last year, we see risks to the degree
of moderation that markets have been expecting in December.
Reservoir and basin levels remain at comfortable levels
Data from 81 reservoir levels in the country, however, indicates that storages of water are at
comfortable levels. In fact, throughout this year’s monsoon season the reservoir levels have been
at a surplus. Till August 18, the reservoir levels are at a surplus of 31% and this bodes well for the
rabi crops. River basin levels have also improved with recovery in the erstwhile deficient basin levels
of rivers in Gujarat like the Mahi, Sabarmati, etc. River basin levels are currently at a surplus of
30% compared to the past 10 years’ average. The Godavari river basin is the only deficient river
basin because of lower rainfall in parts of Maharashtra and Andhra Pradesh.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Monsoon
Food grains acreage hints at restricted inflation moderation. Rainfall data till
August 17 indicates that rainfall has improved from the precipitation in July. However,
the worry is that acreage of food grains is still below last year’s levels though total
acreage has improved. The IMD expects rainfall in August-September to be ‘below
normal’ with precipitation around 90% of the Long Period Average (LPA). Our analysis
suggests that if food grains acreage does not improve, we may not see the expected
degree of softening in inflation in November-December.
Monsoon does not seem to be a worry for this year
Data till August 17 suggests that rainfall has been satisfactory, at least in spatial terms. Out of the
36 meteorological sub-divisions, rainfall has been ‘normal’ in 26 sub-divisions while rainfall has
been ‘deficient’ in 4 and ‘excess’ in 6. Cumulative rainfall on an aggregate basis for the country
has been 1% below LPA. This is certainly a huge improvement from the rainfall pattern in July.
The weekly deviation from LPA rainfall improved from (-)23% in the week-ended July 27 to 26%
in the week-ended August 17. With the July rainfall being weak, the negative for this year’s
monsoon has been the temporal distribution of rainfall. This in turn has significant chances of
affecting kharif production due to the high correlation between rainfall in July and grain output
(see Economy comment on August 4, 2011). The IMD continues to see rainfall being welldistributed
for the rest of August.
Lower acreage may limit the moderation expected in November-December inflation
Food grains acreage continues to lag FY2011 numbers with only rice being sowed in excess of last
year’s acreage. Oilseeds and cash crops like cotton and sugarcane have higher acreage than last
year. A simple analysis throws some light on what the effect of lower acreage may be on inflation
in India. Exhibit 3 shows that over a long term too, growth in acreage and production has moved
in a synchronized manner and this high correlation indicates that this year if acreage is lower than
last year, it is likely that we might not see much increase in food grain production (given that yields
do not improve markedly in a short timeframe). Exhibit 4 looks at inflation in the December-March
period from FY2006 to FY2011. These 4 months are the post-harvest period which sees the effect
of the kharif output on the overall inflation. We look specifically at food grain inflation and kharif
food grain production for the same period. With lower production this year, we might see inflation
(in food grains for sure) being high. Given the dynamics between acreage and production and
production and inflation, with food grain acreage still below last year, we see risks to the degree
of moderation that markets have been expecting in December.
Reservoir and basin levels remain at comfortable levels
Data from 81 reservoir levels in the country, however, indicates that storages of water are at
comfortable levels. In fact, throughout this year’s monsoon season the reservoir levels have been
at a surplus. Till August 18, the reservoir levels are at a surplus of 31% and this bodes well for the
rabi crops. River basin levels have also improved with recovery in the erstwhile deficient basin levels
of rivers in Gujarat like the Mahi, Sabarmati, etc. River basin levels are currently at a surplus of
30% compared to the past 10 years’ average. The Godavari river basin is the only deficient river
basin because of lower rainfall in parts of Maharashtra and Andhra Pradesh.
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