The Indian Meteorological Department in its first forecast for 2015 on Wednesday said that rainfall in the monsoon season running from June to September is expected to be below normal.
It said El Nino conditions are likely to persist during the South-west monsoon season.
Observations from the IMD report highlighted that the rainfall is likely to be 93 per cent of the long period average. The report forecast a probability of 68 per cent for the rainfall to be below normal and deficient while the probability for normal rainfall was placed just at 28 per cent.
Indian agriculture which employs about two-thirds of the population is highly dependent on monsoons as channels of irrigation in the country are limited. Deficient rainfall last year had led to drought conditions in various parts of states including Uttar Pradesh, Punjab, Haryana, Maharashtra, Madhya Pradesh and Telangana.
This spells bad news for consumer goods firms who depend on rural demand for their sales.
They were already facing a demand crunch as the recent unseasonal rains had destroyed large tracts of cultivated land and thereby the rabi crop adding to the distress of the farmers.
IMD forecast would add to the woes of the government which is already facing a tough opposition due to its land bill reform which the opposition parties have deemed as anti-farmer.
The below normal monsoon is also a concern as the government is looking to kick start growth in the economy while keeping the inflation under check. Inflation figures are also affected by low rains.
RBI released projections of inflation in the monetary policy report earlier this month indicating that would rise up to 5.8 per cent by the end of this financial year. The central bank also indicated that there are upside risks to this from possible intensification of El Nino conditions leading to a below normal monsoon; large deviations in vegetable and fruit prices from their regular seasonal patterns, given unseasonal rains; larger than anticipated administered price revisions; faster closing of the output gap; geo-political developments leading to hardening of global commodity prices; and spillover from external developments through exchange rate and asset price channels.
IMD's forecast are in contrast with those of private forecaster Skymet, which predicted a normal monsoon for the country.
If the monsoon's are below normal for the year, it would derail the government's growth process and pressure on inflation would put a halt to more policy rate cuts by the RBI, seen as crucial for investments to pick up in the economy.
Economists expect RBI to deliver another rate cut by June, but the monsoon prospects may lead the RBI to hold on to the rate cutting exercise.
