Farm distress on the horizon

by Mahesh Vyas

The BSE-CMIE-UMich Index of Consumer Sentiments seems to be stabilising at a little over 97 (base: 100 in September-December 2015) in July. If the index settles below 98 for the month, it would be lower than its level a year ago. Sentiments have been subdued.

During June and July, the most important factor influencing consumer sentiments is the progress of the southwest monsoon. Monsoons impact farmers directly and, they impact the rest of the economy as well.

Last year, monsoons turned out to be good after a gap of two years. At the end of July 2016, monsoons were 0.42 per cent higher than the normal. Kharif sowing had progressed well. It was 6.3 per cent higher than in the previous year and most pulses, oilseeds and some cereals had done very well. Expectations were positive. As a result, the index of consumer sentiments in rural India increased by about 2 per cent between May and July 2016. It went on to grow even more in August. This increase was significant because it came after four consecutive months of decline in rural consumer sentiments.

During the same period, sentiments in urban India had moved in the opposite direction. They were evidently adversely affected by Raghuram Rajan announcing his decision to quit as RBI Governor in June and the eruption of serious unrest in Kashmir following the violent death of Burhan Wani in early July. The index of consumer sentiments in urban India had declined by 4 per cent in June (when the rural index increased by 2.2 per cent). It recovered partially in July only to fall again, by 3.8 per cent in August.

This year, the monsoons have been erratic so far. The India Meteorological Department projected normal monsoons in 2017.

The southwest monsoon hit Kerala on time and progressed well in the first two weeks but, it lost momentum pretty soon thereafter. By the end of June, the cumulative precipitation was below the long period average. Rains have alternated from being good in one week to being poor in another. During the week of July 12, rains were 19 per cent below normal. Then, they recovered by 11.4 per cent in the week ended July 19.

By the end of the seventh week of this monsoon season, the cumulative precipitation was 1.5 per cent above normal. But, the temporal and spatial distribution has left many areas vulnerable this year.

In the east, West Bengal and Jharkhand have received very poor rains and in the south, Kerala, Tamil Nadu and Karnataka have seen big deficits. Bihar and Odisha have seen mostly poor rains although there was good precipitation in the second half of July.

Sowings are down in Maharashtra, Karnataka Tamil Nadu, Andhra Pradesh and Madhya Pradesh. By the end of the kharif sowing season, it is likely that the overall sowing would be about one per cent less than it was last year. Most of the fall is expected in oilseeds and pulses.

This year, rural India faces a double whammy. It faces prospects of a lower-than-expectations growth in output and it faces a deterioration in its terms of trade. Wholesale food inflation has turned negative since May this year. Many crops still fetch prices below their minimum support prices.

Rural India is not very happy about the way the monsoon season is panning out and the way prices of its commodities are moving relative to other commodities. The unhappiness can be seen in the BSE-CMIE-UMich consumer sentiment indices.

The index of consumer sentiments for rural India shrank by over eight per cent during the first eight weeks of the current monsoon season. In comparison it had fallen by only one per cent in the corresponding period of 2016. While the expectations index was flat during these 8 weeks last year, this year it fell by 8.1 per cent.

Urban India has offset part of the negative effects of rural India. The urban index of consumer sentiments grew by 3.5 per cent during the first eight monsoon weeks. This compares well against the negative trend in consumer sentiments in rural India and is also much better than last year’s flat growth. Nevertheless, urban India’s consumer sentiments are much lower than that of rural India.

The fall in rural consumer sentiments this kharif season foretells farm distress, again.

First Published in Business Standard Link

Unemployment Rate
Per cent
5.5 +0.1
Consumer Sentiments Index
Base September-December 2015
96.1 +0.6
Consumer Expectations Index
Base September-December 2015
96.5 +0.6
Current Economic Conditions Index
Base September-December 2015
95.5 +0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 17 Dec 17 Mar 18 Jun 18
New projects 1.26 1.49 3.43 2.27
Completed projects 1.25 1.16 1.43 0.82
Stalled projects 0.69 0.88 3.41 0.30
Revived projects 0.34 0.24 0.26 0.22
Implementation stalled projects 0.78 0.71 1.92 0.03
Updated on: 22 Jul 2018 8:20PM
Quarterly Financials of Listed Companies
(% change) Sep 17 Dec 17 Mar 18 Jun 18
All listed Companies
 Income 7.9 12.0 10.0 18.9
 Expenses 9.0 13.0 16.8 20.7
 Net profit -18.0 -14.3 -82.1 11.9
 PAT margin (%) 5.5 4.8 1.2 14.9
 Count of Cos. 4,502 4,493 4,288 134
Non-financial Companies
 Income 8.2 13.3 11.5 18.6
 Expenses 8.1 12.3 12.4 21.4
 Net profit -6.1 13.2 -2.6 7.5
 PAT margin (%) 6.2 6.4 6.5 14.4
 Net fixed assets 9.2 11.9
 Current assets 2.9 8.0
 Current liabilities 11.0 10.3
 Borrowings 3.4 1.8
 Reserves & surplus 7.9 7.8
 Count of Cos. 3,461 3,464 3,319 99
Numbers are net of P&E
Updated on: 22 Jul 2018 8:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.6 1.8 5.9 11.6
 Expenses 5.7 1.9 5.9 16.1
 Net profit 0.1 -9.7 25.3 -43.1
 PAT margin (%) 3.0 2.8 3.4 4.3
 Assets 9.5 10.2 7.4 14.3
 Net worth 8.5 11.3 7.6 13.7
 RONW (%) 5.8 4.9 5.8 5.3
 Count of Cos. 26,129 24,412 21,971 368
Non-financial Companies
 Income 4.9 1.0 5.7 9.9
 Expenses 5.0 0.3 6.1 9.2
 Net profit -8.6 19.9 20.2 8.9
 PAT margin (%) 2.0 2.4 3.0 12.1
 Net fixed assets 13.3 17.8 6.6 55.5
 Net worth 7.0 12.1 6.5 10.3
 RONW (%) 4.6 5.1 5.9 15.0
 Debt / Equity (times) 1.1 1.1 1.0 0.3
 Interest cover (times) 1.9 1.9 2.1 8.8
 Net working capital cycle (days) 66 65 62 7
 Count of Cos. 21,306 20,431 18,292 255
Numbers are net of P&E
Updated on: 20 Jul 2018 4:05PM