Crisil cuts GDP growth projection by 0.5% on monsoon fears

The Indian Meteorological Department (IMD) on Tuesday forecast a 12 per cent deficiency in southwest monsoon during 2015.

The weather bureau's second reading is worse than a 7 per cent deficiency predicted in April and looks like a repeat of 2014. Worryingly, the IMD said the probability of a deficient monsoon could be as high as 66 per cent, compared with 27 per cent for below-normal, and 7 per cent for normal.

And in line with international forecasters, the IMD has also said there is a 90 per cent probability of an El Niño event occurring in the forthcoming monsoon season, which could adversely affect the distribution of rainfall.

IMD's regional distribution forecast for this year is also unfavourable and similar to last year where the north-west region is expected to witness maximum deficiency (-15 per cent) followed by the central region (-10 per cent).

These regions saw inadequate monsoon last year, and were hit by unseasonal rains and hailstorm in March this year.

But reasonably high irrigation levels had helped some states  -- such as Punjab (98 per cent of total area under cultivation is irrigated), Haryana (85 per cent) and Uttar Pradesh (76 per cent) -- to surmount the difficulties.

But a second straight year of deficiency can be very damaging because the efficacy of those irrigation systems would have been lowered by last year's inadequate rains.

Against this backdrop, Crisil has revised its GDP growth forecast down by 50 basis points to 7.4 per cent from 7.9 per cent, and expects agriculture growth to be 1.5 per cent on a weak base of 0.2 per cent in FY15.

On the demand side, we expect consumption revival to be moderate, cushioned somewhat by lower inflation and interest-rate cuts.

Crisil said in a statement, "However, we stick to our forecast of 5.8 per cent for CPI inflation in FY16, despite the weaker outlook on monsoon because we expect proactive action from the government such as release of food grain buffer stock, crackdown on hoarding, lower transportation losses, and imports to contain food inflation.

"But the Reserve Bank of India (RBI) has raised its CPI inflation forecast up by 20 bps to 6 per cent for January 2016, which is significantly influenced by its higher forecast on food inflation. But, this, too, will depend on government action on food supply management."

( See: Australian weather bureau sees hope for Indian monsoon from MJO wave )