What’s Happening?
Ongoing geopolitical tensions, rising COVID-19 cases and delayed monsoon threaten India’s agricultural sector and directly endangering the recovery of the economy that’s already reeling. Meanwhile, inflation is already eating middle-class people’s income. The policymakers this year are counting on monsoon rains to ease hot inflation. Monsoon boosts production and replenishes stockpiles that ease supply constraints and anchor price expectations.
This year, the RBI has aggressively hiked interest rates to take off some heat over the prices. But at the end of the day, it’s affecting the salaried professionals. Everything is getting pricier, and if the monsoon gets delayed, it will add to the existing pressures.
Monsoon Update
Rainfall this season starting from June is 36% lower than average. If this year's monsoon disappoints, analysts believe the government will have limited fiscal space to arrest prices. The government last month restricted wheat and sugar exports and announced a series of changes to commodity tax structures to insulate consumers. Less rainfall means higher retail inflation. FMCG companies have already factored in the input costs by lowering the quantity of packaged foods or hiking the product price.
Should This Concern You?
This year, the FMCG sector will be affected mainly if rainfall is on the lower side. Costs of vegetables, fruits, oil etc., will rise, resulting in higher prices of food items. Good rain boosts sectors like fertilisers, FMCG, two-wheelers, tractors and consumer durables. All eyes will be on these industries if monsoon fares well.
What Lies Ahead?
The monsoon hit Kerala on May 27 and parts of Telangana, Maharashtra and West Bengal. Meanwhile, heatwaves continue in Delhi. Unless entire India witnesses a normal monsoon, the agricultural process won’t kickstart. Any shortfall in rain will affect the overall Indian economy and could pressurise inflation.
