SBI Research: Monsoon Progress and Kharif Sowing to Keep Inflation in Check for 2024-25

SBI Research indicates that satisfactory monsoon progression and increased Kharif crop cultivation will likely keep inflation within the RBI target for 2024-25. However, La Nina could lead to excess rainfall and potential crop loss, impacting food prices. Retail inflation for June breached 5 per cent.

SBI Research forecasts that with a 2 per cent surplus in monsoon rains and a 2.9 per cent increase in the area under Kharif crop cultivation, inflation is expected to stay within the RBI's target range for 2024-25. Authored by Soumya Kanti Ghosh, Group Chief Economic Advisor, the report warns of potential crop loss due to La Nina's excess rainfall, which could drive food prices higher.

Typically, La Nina events bring cooler temperatures and increased rainfall, affecting regional climates. Retail inflation is anticipated to average 4.6-4.7 per cent for 2024-25, despite breaching 5 per cent in June. As of August 02, 2024, cumulative Kharif sowing spanned 905 lakh hectares, representing 82 per cent of the normal acreage for the season and a 3 per cent increase from the previous year. Nevertheless, major foodgrain-producing states remain in deficit.

The Indian Meteorological Department's forecast of above-normal rainfall is expected to boost reservoir levels and Kharif sowing progress, per the SBI report. To date, farmers have sown Kharif crops over 904.60 lakh hectares, up from 879.22 lakh hectares the previous year. While paddy, pulses, oilseeds, millets, and sugarcane sowing have increased year-on-year, cotton and jute/mesta sowing have declined.

India's agriculture, which employs nearly 45 per cent of the population, is highly dependent on monsoon rains, making timely and adequate rainfall crucial. Rising food prices remain a concern for consumers; food inflation almost doubled to 8.36 per cent in June from 4.63 per cent in the same month the previous year. Retail inflation across various food segments also rose month-on-month, deviating from the moderation observed in recent months. The retail inflation data for July will be released early next week.

(With inputs from agencies.)