Heatwaves: Wait-And-Watch Mode For Food And Inflation Impact

The Indian Meteorological Department's caution about above-normal temperatures and heatwaves in several parts of the country may not be a reason for immediate concern; agricultural output and food inflation need to be monitored.

Most parts of the country may experience above-normal maximum and minimum temperatures during April to June, the IMD said in its outlook on Monday. Above-normal heatwave days are likely to occur over most parts of the south peninsula, central India, east India and the plains of northwest India, the IMD said.

This is especially true for many parts of the south peninsula and adjoining northwest central India, some parts of east India, and the plains of northwest India during April, it said.

The April to June summer heat poses a limited threat, according to Agricultural Economist and former Secretary in the Ministry of Agriculture Siraj Hussain. While there will be some concern around horticultural crops such as vegetables, the rabi harvesting season is already underway, and as long as the monsoons are not delayed, the cause for concern is limited, he said.

The impact of the heatwave on the rabi harvest will need to be monitored, said Gaura Sengupta, economist at IDFC First Bank. Currently, reservoir levels are lower than last year as well as the 10-year average, she said. The government's advance estimates indicate a decline of 1.7% in rabi food grain output in FY24. The heatwave conditions could represent further downside risks to rabi crop output.

Impact On CPI Inflation

From an inflation perspective, a potential impact on rabi output could keep cereal inflation elevated, Sengupta said. Even last year, rabi crop output was impacted, and cereal inflation has averaged 13% year-on-year over August 2022 to December 2023. Only the last two months, January and February, saw some easing of inflation pressure.

That said, one key support for the FY25 inflation outlook is the possibility of the development of La Nina conditions, which would be supportive for monsoons, unlike last year when we had a heatwave plus El Nino conditions, she said.

"Hence, for FY25, we continued to expect inflation at 4.5%."