El Nino threatens Modi inflation goal as monsoon rain curbed

[NEW DELHI] The El Nino strengthening across the Pacific Ocean is threatening to curb India's monsoon after a wetter- than-normal June and hamper Prime Minister Narendra Modi's chances of capping food costs.

The Indian Institute of Tropical Meteorology predicts a "large-scale reduction" during the first half of July following rainfall that was 24 per cent above average and caused Mumbai's worst floods in 10 years. The El Nino that forecasters are likening to a record event almost two decades ago may disrupt sowing and stunt growth of rice, cotton and soybeans.

Mr Modi is banking on a normal monsoon to help curb inflation and buoy sales of everything from smart phones to gold among the 833 million people who depend on farming in India. While the early downpours prompted the longest advance in Indian shares since January this week, the prospect of insufficient rain renews concern that damaged crops will boost food prices and prevent the central bank from lowering interest rates.

"If the prediction of weak rains prove correct, there's going to be an adverse impact on the economy as a whole, more so on agriculture," Shashanka Bhide, director of the Madras Institute of Development Studies, said by phone from Chennai on Thursday. "The government's worry last year was to keep inflation down. This year also the main worry would be the impact on prices."

The Reserve Bank of India said it's closely watching the rains after identifying a monsoon shortfall as the biggest risk to the economy because agriculture accounts for about 15 per cent of gross domestic product. RBI Governor Raghuram Rajan, who cut interest rates three times this year, has said further action hinges on the monsoon rain. Consumer prices in India, where food costs represent almost half of the retail inflation index, jumped more than 5 per cent in May, official data showed June 12.

Mr Modi has taken steps to control food prices during his first year in office. These include selling some wheat stockpiles on the open market, pushing states to let farmers sell fruit and vegetables directly to consumers, and capping growth of guaranteed prices for cereal crops.

"We still expect a below-normal monsoon season," Donald Keeney, an agricultural meteorologist at Gaithersburg, Maryland- based MDA Information Systems, said in an e-mail. "The outlook going into early July begins to dissipate the showers a bit, especially in south, central and western India" as the impact of El Nino is felt, he said.

The weather system can disrupt harvests around the globe by baking parts of Asia, dumping rain across South America and bringing cooler summers to North America. It poses a risk to the global economy in the second half as it threatens to hurt crops and boost food prices, according to Citigroup Inc.

This year's El Nino, the first since 2010, has strengthened and is showing characteristics similar to the 1997-1998 event, Australia's Bureau of Meteorology said Tuesday. That system was the strongest on record, according to the National Oceanic and Atmospheric Administration.

While the India Meteorological Department has forecast El Nino will curb this year's monsoon rains to 88 per cent of average for the first back-to-back shortfall in three decades, the start to the season has been better than expected. Precipitation since the beginning of the month was 24 per cent above normal, the department said Wednesday.

This month's deluge helped farmers accelerate planting across most of the country, the weather bureau says. Growers depend on the monsoon, which accounts for more than 70 per cent of rainfall, to grow crops, generate hydro-electricity and supply drinking water. Rain from June to September irrigates more than half the farmland, where sowing begins in June.

"The abundant rains early on in the season have allowed planting to progress very well in most areas," MDA's Mr Keeney said. "The dryness later this summer will take a toll."

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