IMD forecasts normal monsoon for another year

Don't rejoice yet; watch out for El Nino risks

by Manasi Swamy

The India Meteorological Department (IMD), today, projected south-west monsoon in 2017 to be normal. The official weather forecaster expects rainfall to be 96 per cent of the long period average (LPA) with a model error of +/-5 per cent.

While the news is positive for the Indian economy, we believe that it needs to be taken with a pinch of salt. IMD has had a track record of overestimating rainfall. Rainfall has been below normal (lower than 96 per cent of the LPA) in seven out of the last 16 years. The IMD managed to get the direction right only in two years - 2014 and 2015. However, in these years too, the IMD’s projections were eight percentage points higher than the actual rainfall deviation.

While international weather forecasters like Australian Bureau of Meteorology (ABM) and National Oceanic and Atmospheric Administration (NOAA) continue to say that there are 50 per cent chances of El Nino developing from August 2017, the IMD, in its release, has stated that chances of El Nino developing in 2017 have gone down from 50 per cent to around 30 per cent in the last few months.

The IMD has not found much success in projecting impact of El Nino on India’s south-west monsoon in the past. In the last five El Nino years - 2002, 2004, 2009, 2014 and 2015, it projected below normal rainfall only for two.

South-west monsoon rainfall as % of LPA
Years      IMD’s first forecast           Actual rainfall
2001 98 93
2002 101 79
2003 96 102
2004 100 87
2005 98 99
2006 93 99
2007 95 105
2008 99 98
2009 96 78
2010 98 103
2011 98 101
2012 99 92
2013 98 105
2014 95 87
2015 93 85
2016 106 97
2017 96  

Moreover, IMD’s forecast for 2017 looks quite tentative with the department itself attaching only 38 per cent probability to the projection of a normal rainfall. Private weather forecasters have already warned about the impact of El Nino on south-west monsoon this year. Skymet has projected rainfall during 2017 to be below normal due to El Nino - a phenomenon associated with warming of Pacific waters. Another private forecaster Weather Risk is also of the opinion that El Nino will have a negative impact on the latter part (August-September) of the south-west monsoon in India. These two months account for nearly 50 per cent of total rainfall during the south-west monsoon season.

South-west monsoon has been severely affected by El Nino in the past. In the last 40 years, 14 El Nino instances have happened. And, on 10 of these, the south-west monsoon has been below normal. Average deviation of rainfall from LPA during the El Nino years has been -10.2 per cent.

Despite falling contribution of agriculture to GDP, India’s economic growth is still quite vulnerable to the vagaries of nature. Poor rainfall during the El Nino years has not only affected agricultural output, but has also dented consumption demand and overall economic growth. During these years, kharif foodgrain output saw an average year-on-year contraction of 5.7 per cent. The average growth in GVA of agriculture, private final consumption expenditure (PFCE) and overall GDP at three per cent, five per cent and 4.4 per cent, respectively, was also significantly lower than the 5.8 per cent, 6.6 per cent and 6.1 per cent growth seen during the non-El Nino years.

Impact of El Nino on India’s GDP and agriculture
Years Rainfall deviation Kharif foodgrain production Agriculture GVA    GDP    PFCE
  % % % % %
El Nino -10.2 -5.7 3.0 5.0 4.4
Non-El Nino 1.2 6.9 5.8 6.6 6.1
40-year average -2.8 2.5 4.8 6.0 5.5

References
1. http://www.imd.gov.in/pages/press_release_view.php?ff=20170418_pr_107
CMIE STATISTICS
Unemployment Rate
Per cent
3.8 +0.1
Consumer Sentiments Index
Base September-December 2015
99.3 -0.2
Consumer Expectations Index
Base September-December 2015
101.7 +0.3
Current Economic Conditions Index
Base September-December 2015
95.5 -0.9
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 16 Sep 16 Dec 16 Mar 17
New projects 1.45 2.35 1.42 2.82
Completed projects 0.90 2.19 0.88 1.41
Stalled projects 1.40 0.64 1.01 0.32
Revived projects 0.43 0.51 0.17 0.62
Implementation stalled projects 0.50 0.57 0.80 0.26
Updated on: 30 Apr 2017 12:20PM
Quarterly Financials of Listed Companies
(% change) Jun 16 Sep 16 Dec 16 Mar 17
All listed Companies
 Income -0.9 2.1 6.3 12.5
 Expenses -0.3 1.9 6.6 16.1
 Net profit -4.1 14.7 36.5 5.4
 PAT margin (%) 6.9 6.9 6.0 13.8
 Count of Cos. 4,489 4,473 4,435 185
Non-financial Companies
 Income -2.5 0.6 6.1 13.2
 Expenses -2.9 -0.2 7.6 18.1
 Net profit 9.6 26.8 20.7 5.1
 PAT margin (%) 7.4 6.9 6.1 13.7
 Net fixed assets -9.2 1.7
 Current assets 8.1 4.1
 Current liabilities 11.6 12.1
 Borrowings 3.1 10.6
 Reserves & surplus 8.4 18.5
 Count of Cos. 3,498 3,482 3,460 127
Numbers are net of P&E
Updated on: 30 Apr 2017 12:29PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.0 9.6 4.9 0.8
 Expenses 12.2 9.5 4.9 1.0
 Net profit 1.2 -3.7 2.2 -13.7
 PAT margin (%) 3.6 3.2 3.2 3.1
 Assets 14.1 12.3 9.1 8.2
 Net worth 9.5 9.6 8.5 7.2
 RONW (%) 6.8 6.0 6.0 5.4
 Count of Cos. 23,921 21,271 20,226 16,111
Non-financial Companies
 Income 11.3 9.3 4.0 -0.3
 Expenses 11.6 8.9 4.1 -1.0
 Net profit -8.5 -5.0 -4.1 11.3
 PAT margin (%) 2.4 2.1 2.1 2.8
 Net fixed assets 12.8 11.5 12.9 12.4
 Net worth 7.7 8.5 7.0 6.5
 RONW (%) 5.5 4.8 4.8 5.7
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 1.9 1.9 2.1
 Net working capital cycle (days) 72 69 68 68
 Count of Cos. 18,454 16,748 15,978 13,008
Numbers are net of P&E
Updated on: 21 Apr 2017 9:39AM

Southern states still have reason to worry

Investments concentrated in a handful of big-ticket projects