India hopes monsoon will tame inflation

India’s Congress-led government is counting on bountiful monsoon rains to boost agricultural production and tame inflation that hit 10.16 per cent in May, driven partly by a 16.5 per cent rise in food prices.

Yet, in spite of the Indian Metrological Department’s optimistic April forecast for a normal monsoon, the departments’ charts and maps – published on a website updated four times daily – indicate that the progress of this year’s monsoon across the subcontinent has been sluggish.

Rains hit India’s southern coast on May 31, a day before schedule, and progressed well into the cane, oilseed and rice growing areas of the south-west. Heavy rains in Mumbai, the business capital, brought the city to a virtual halt yesterday, forcing the airport to close for two hours.

But the monsoon’s progress northwards has been slower than normal. Weather officials have warned that the rains might be late to reach the northwestern state of Punjab, India’s traditional granary. As of June 11, India’s cumulative rainfall was 7 per cent below the long-period average for the season.

Indian officials have played down the sluggish start to the rains, saying the delays could be made up in the rest of the season and would not affect agricultural production. Independent analysts said it was too soon to draw any conclusion about the quality of the monsoon season, which lasts until September, or its likely impact on food production.

“The south, which isn’t very well irrigated, has received rainfall quite early and adequate, so that’s the good side,” said Jahangir Aziz, chief economist in India for JPMorgan. “The north and east, which has more irrigation, still seems to be a problem.”

About 60 per cent of India’s cultivated areas depend entirely on rainfall to water crops. Farmers were hard hit last year by poor, erratic rainfall, which led to a fall in crop production, driving food price inflation to nearly 17 per cent, from previous levels of about 10-11 per cent.

Mr Aziz said easing the current high levels of food price inflation was crucial if the Congress-led coalition was to act on its politically sensitive aim of raising subsidised fuel prices, which was essential to reduce the government’s yawning fiscal deficit.

A government panel, led by Pranab Mukherjee, the finance minister, this week postponed a meeting scheduled to consider whether or not to reform the state-controlled fuel price system, to link prices more closely to the market, which would lead to a rise in fuel prices.

“If you don’t get at least a couple of months of a decline in headline inflation, it’s going to be very difficult for the government to come and change the petroleum policy,” said Mr Aziz.