Pressure On Pulses Amid Scanty August Rains, Say Economists

Following the surge in milk prices earlier this year and the recent rise in vegetable costs, pulses could become the next food group that triggers inflation.

Deficient August rains across the Indian subcontinent could further add to the list of risks that may keep inflationary pressures elevated for longer than anticipated in the country, according to economists.

Reduced sowing areas, inadequate precipitation, volatility of global agricultural commodity prices, and drier times ahead owing to the El Nino phenomenon are some of the factors fuelling concerns regarding domestic pulses' availability.

"The fear of a deficient monsoon in the second half of the season is now materialising," ICRA's Chief Economist Aditi Nayar told BQ Prime. "We need to be watchful over the next couple of weeks to understand the impact this will have on pulse prices over the next few months."

In July, CPI inflation rose to 7.4% from 4.8% in June 2023. Of this, pulses inflation was at 13.27% in July from 10.53% in June, fuelling the concern. These figures, along with scanty rain, further amplify risks.

The impact of deficient rains is being felt on ongoing and impending crop cycles. With the sowing season for pulses between August to September, this puts much of their production yield for the year at risk.

"We’ve already seen that in pulses, the sowing has been impacted. With close to 90% of sowing of pulses happening by August, this is likely to impact production output for the year," according to Rajani Sinha, chief economist at CareEdge Group. "In September, the rainfall may or may not improve, but the damage is already done in terms of sowing."

According to the data from the Department of Agriculture and Farmers Welfare as of Aug. 25, the quantum of area sown for pulses is lesser by 10.63 lakh hectares in 2023, as opposed to 2022, showing a lag of 8.3%.

Pulses like urad show the maximum lag where the area of crop sown is lesser by 4.98 lakh hectares than in 2022, resulting in a deficiency of 13.8% as compared with last year.

HDFC Bank Ltd.'s Principal Economist Sakshi Gupta said that while there is a shortfall in the current sown area, if yields are also lower then it would impact the production estimates, opening the door for more imports.

As a supply-side measure, amid inflationary pressures in December 2022, the government had already allowed for 'free' import of tur and urad until March 31, 2024, which may help augment domestic supply. Stock limits were also imposed on the two pulses on June 2 till Oct. 31 this year.

"We would have to wait another month to see final production estimates as there are some pulses-producing areas that are well irrigated," Gupta told BQ Prime.

According to the Indian Meteorological Department, the overall monsoon rainfall deficiency recorded during the southwest monsoon season in the country was 8% between June 1 and Aug. 28.

However, the rainfall spread tended to be better in northwest India, with parts of Gujarat and Rajasthan getting more rains due to Cyclone Biparjoy earlier this year. Rajasthan is the top pulses-producer state in the country.

The pressure is more sharply felt in the southern part of the country according to NR Bhanumurthy, vice chancellor at BR Ambedkar School of Economics. "Rainfall timing is crucial for southern states that are primarily semi-arid and rainfall dependant," he said. "The states down south received lesser rainfall and this translated to the fields."

According to data from the Department of Agriculture and Farmers Welfare, Karnataka—which is among the top five pulses-producing states in the country—covered lesser sown area this year at 16.43 lakh hectares in 2023 as against 19.58 lakh hectares last year, down by 3.84%.

"Data on net sown area, cross-crop data will show crop production level realities. But as of August, the sown area is a little diminished," he said.

Gupta said that cereal and pulses-led inflation, which is an emerging concern, is unlike that for vegetables as it tends to be relatively more persistent.

"Supply shortages and price rises in cereals and pulses also have a lagged impact on feedstock availability, animal protein, and milk production, stretching the timeline of their impact."

CareEdge's Sinha said that a price rise in global agricultural commodities also lends to the current concerns.

Russia's withdrawal from the Black Sea grain deal contributed to the volatility in global agri-commodity prices. A pass-through of global tension is another risk to domestic pricing, particularly for commodities like edible oil.

"So far in India, the edible oil price has been contracting and that’s a big support. However, if we see a pass-through of geopolitical tensions to Indian markets, this could adversely impact edible oil supply as India has a high import-dependence for edible oil."

CareEdge forecasts that the current 10% spike in food inflation will moderate in Q3, FY24. Meanwhile, food inflation in Q2 is expected to be around 9%. "For the full year, our average estimate for food inflation is 6.6%. This case scenario does not account for further sharp spikes or spillover effects from global commodity prices," Sinha said.

Bhanumurthy noted that an "impending food crisis" in the current year has been a very real possibility from as early as February. The supply-side measures taken by the government signal equal seriousness, he said.

Experts concurred that the next 6-8 months signal the risk of repeated food inflation-driven shocks. The only silver lining is the current downward momentum of core inflation. Targeted supply-side measures will be a key determinant of price stabilisation and domestic availability in what promises to be drier times ahead, they said.