Monsoon Watch 2023 | Rains progressing well; rural demand should emerge with a lag

Highlights

• Rainfall departure from LPA is now at a 7 percent surplus


• Area sown under kharif crops stands 1.2 percent higher than last year


• Water storage in reservoirs is 26 percent lower than last year


• A ‘weak’ El Nino could mean a normal monsoon for India


• Rural demand should pick up in the coming quarters

Kharif sowing is progressing well, with a 1.2 percent surplus in the total area sown as on July 21, 2023. The rice deficit is also behind us as the acreage for rice is 4.7 lakh hectares higher than last year.

The overall advancement of the southwest monsoon till date and the development of a weak EL Nino condition over the tropical Pacific region suggest a greater likelihood of an overall normal monsoon in India this year.

 However, the reservoir storage level is worsening, which is not a good sign for the Rabi season (winter cropping season).

 Overall cultivation is improving….

The total area sown under Kharif crops has seen significant improvement in July. The largest deficit of 35 percent in paddy (as on June 23 this year) is now behind us as the total rice acreage stood 4.7 lakh hectares (up 2.7 percent YoY) higher compared to the same period last year.

While most other crop acreages are also in the surplus, pulses sowing continues to remain affected at a 10 percent deficit YoY. The cultivation of pulses is primarily impacted by Arhar (tur dal), which was 18 percent lower than last year as key arhar-producing regions of Jharkhand and east Uttar Pradesh have received deficit rainfall so far.

 …however, reservoir level is turning weaker

The reservoir level, as on July 20, 2023, stood at 39 percent (as a percentage of total capacity) compared with 52 percent last year and the 10-year average of 36 percent.

Out of the 146 reservoirs in the country, the west (Gujarat, Maharashtra) has 49 reservoirs – the highest by region, followed by 40 in the south. Both these zones have had the lowest water storage so far. The southern region is at 23 percent of the total capacity against 68 percent in the same period last year. It is also quite low compared with its 10-year average storage of 37 percent. The western region is at 40 percent storage against 58 percent last year and only slightly better than its 10-year average of 35 percent.

More than 50 percent of our country’s agriculture relies on irrigation (primarily Rabi crops); thus, reservoir storage level is important and if it doesn’t catch up in the coming months, it could pose a challenge for the Rabi season (winter cropping season).

 How are the rural-centric companies fairing?

 HUL’s domestic volume growth in the June quarter (Q1FY24) of 3 percent was the weakest in 5 years (excluding the pandemic hit June’20 quarter). The weak performance was driven by subdued growth in Foods and Beauty and Personal Care. Rural demand remained subdued. The major cause of the weakness could be attributed to the high inflationary market.

Demand for tractors and 2Ws has also not shown any major sign of strength so far as sales volume for the Apr-June’23 quarter stood ~3 percent lower YoY, both for tractors and 2Ws.

Adverse and uneven rainfall in many states led to a surge in the prices of many essential commodities, vegetables, milk etc, thereby leaving a negative impression on the overall demand environment, more so in the rural markets.

 With rains picking up, many of the initial concerns with respect to monsoon this year are gradually subsiding. However, it could take some time for rural demand growth to return.