New Delhi, August 19: With a persistent 13% rainfall deficit due to the ongoing El Niño effect affecting the southwest monsoon in India, global financial services firm Nomura has warned that this deficit monsoon could affect agricultural output and eventually dampen rural demand, reversing the recent momentum seen in two-wheeler sales and Fast Moving Consumer Goods (FMCG).
In its latest Asia Insights report, Nomura further explained how the rough start in June, with the 39% rainfall deficit, had affected cropping patterns, with conditions improving in July while weakening again in August. With the Indian Meteorological Department (IMD) expecting a strengthening of El Niño conditions in August-September, the challenges could affect food inflation more than rural demand, the report further added.
With India’s inflation already exceeding forecasts, the RBI is expected to have a tough time controlling inflation, given that food prices have already risen 5.1% since April, with cereals and sugar leading the increase.
Rice planting has declined 3.7% since last year, while pulses, oilseeds, sugarcane and cotton have also slipped due to the delayed rains. The overall kharif sowing is 2% lower year-on-year as on August 14.
According to estimates by the Skymet Weather Services, there is a nationwide probability of drought that could reach 70% this time, primarily due to the El Niño effect.
Rural demand for two-wheelers and tractor sales has decelerated after growing at double-digit rates in July, as input costs outpace revenues, Nomura further said in its report.
