New Delhi, April 18 (IANS) India faces risks to inflation emanating from 25-70 per cent lower buffer stock of wheat in March/April 23 amidst crop loss due to bad weather and poor procurement last year, sustained milk inflation due to loss of more than 0.15mn cattle (lumpy skin disease) and high input costs and volatility in global crude prices, broking firm Prabhudas Lilladher said in a note.
A strong El-Nino coupled with other two factors can push inflation higher than RBI suggested levels and put an end to pause in repo rates.
“We believe lower wheat procurement and EL Nino has the potential to impact food security and inflation in the coming year which can impact demand,” the brokerage said.
The report said GOI through FCI and state agencies has procured between 22-43MT of wheat between FY 2017-23, except FY 2023 when procurement was just 18.9MT.
Given that India has extensive program of distributing free/subsidized food grains to poorer sections, annual requirement of food grains for social schemes is 52MT. This grain distribution not only keeps inflation low but cushions bottom end of pyramid from price fluctuations.
The Central government procured just 18.9MT of wheat in FY23 as against 43MT and 39MT in past two years. This coupled with subsidized and free food grain distribution under various social schemes has resulted in significant dip in wheat buffer stocks at 11.6MT in March 2023 which is 50 per cent lower than 2022 levels and 50-68 per cent lower than the numbers in past 6 years, the report said.
The Centre has estimated wheat production at 112MT this year, however there has been damage to crop due to unseasonal rains and hail storms. We believe target procurement of 32-34MT looks challenging.
The report added that past trends suggest negative impact due to El Nino. India had 12 El Nino years out of last 38 years, while we had 5 such events in past 20 years.
In aggregate rainfall was 9.7 per cent lower than LPA, with moderate and strong years having 10.7-11.7 per cent lower rainfall than normal.
Out of 5 El Nino events in past 20 years, 3 years reported a double digit decline in rainfall, 8 moderate to strong EL Nino years have resulted in 10.7-11.7 per cent decline in rainfall with 7-9.3 per cent decline in Kharif production.
In last 20 years, 4 out of 5 occasions have seen decline in Kharif output and same years have a decline in Rabi output as well.
“We note that soil moisture post monsoons and water reservoir levels drive winter crops and Rabi output. Thus poor monsoons can not only impact kharif but Rabi output as well,” the report said.
IMD and various bodies are indicating El Nino developing this year which is indicated in higher than normal temperatures and untimely rains and gusty winds in various parts of the country. global weather patterns in North America, Africa and elsewhere are also showing abnormal signs.
Skymet and IMD have indicated monsoons to be 94 per cent and 96 per cent of LPA with deficit in mid months of August and September, the report said.
–IANS
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