ET Now Agricultural failure is a big risk, says Mahesh Vyas, CEO & MD, CMIE. In an interview with ET Now, Vyas says that it will take a while for the cash flow to reach rural population. Edited excerpts:
ET Now: IMD has predicted normal rains this year. What is the probability that the rain gods may actually disappoint, given that conditions in the past have not been quite favourable?
Mahesh Vyas: Well, the rains have a probability of trending out to be good this year. There is a tendency of the monsoons to move towards the long period average. Given this tendency, there is a very high likelihood of the monsoon turning out to be normal.
What is unusual though, in a very positive way, is that at least from 1990 if you look at the data, the IMD has never given a prediction which is as strong as this one. A 106 over the LPA. This has never been the case ever in the past. This is a very, very strong indication from the IMD compared to its historical past that the rains are going to be above normal this year.
I will take this real seriously that the monsoon is going to be good this year. We should worry more about floods in certain regions than about drought this year.
ET Now: What is your own estimate of how much of aid or a boon could a good monsoon after two years of a drought could be for the GDP numbers and 0the overall macroeconomic health of the Indian economy?
Mahesh Vyas: One important thing is that the risk caused by agricultural failure. That risk is mitigated to a great extent and that is itself the most important take away from this.
You see a situation like we see in Latur, you see a situation in other parts of the country where water is in huge scarcity. That has a big impact upon demand in the interiors and the big takeaway is not how much is going to be the uptick as much as how much is going to be an erosion of the fear of severe drought and distress in the country as a whole.
We need to worry and it is important to focus on the points and be prepared to take care of those problems, that the reservoir levels as of March 2016 were 24% of their full reserve levels. This is the low that we have ever seen, and it will take a while for these reservoirs to come back to good levels and be able to provide the requisite water for the rabi crop as well.
There is going to be an increase and I agree that the first quarter will not see any increase in GDP and cash flows. It is what the second quarter will bring, which is going to harvest start and the cash flows starts coming in.
Historically, whenever there is a recovery from low base, particularly two years of drought we see easily over 7% to 8% growth in agricultural sector and that obviously has a significant contribution to overall GDP growth. Purely in terms of GDP growth, yes, there will be a significant increase.
In terms of cash flow available to the rural folks, that will take a while for it to come. They still need to overcome their debt problems of the past. They require to deal with the past losses before they will be able to be in a position to start spending. While GDP growth numbers may show a big increase, I am little less sanguine on the impact of cash flows and the interiors. It will take a little while. We require three consecutive good crops before farmers or rural folks will start spending aggressively.
ET Now: IMD has predicted normal rains this year. What is the probability that the rain gods may actually disappoint, given that conditions in the past have not been quite favourable?
Mahesh Vyas: Well, the rains have a probability of trending out to be good this year. There is a tendency of the monsoons to move towards the long period average. Given this tendency, there is a very high likelihood of the monsoon turning out to be normal.
What is unusual though, in a very positive way, is that at least from 1990 if you look at the data, the IMD has never given a prediction which is as strong as this one. A 106 over the LPA. This has never been the case ever in the past. This is a very, very strong indication from the IMD compared to its historical past that the rains are going to be above normal this year.
I will take this real seriously that the monsoon is going to be good this year. We should worry more about floods in certain regions than about drought this year.
ET Now: What is your own estimate of how much of aid or a boon could a good monsoon after two years of a drought could be for the GDP numbers and 0the overall macroeconomic health of the Indian economy?
Mahesh Vyas: One important thing is that the risk caused by agricultural failure. That risk is mitigated to a great extent and that is itself the most important take away from this.
You see a situation like we see in Latur, you see a situation in other parts of the country where water is in huge scarcity. That has a big impact upon demand in the interiors and the big takeaway is not how much is going to be the uptick as much as how much is going to be an erosion of the fear of severe drought and distress in the country as a whole.
We need to worry and it is important to focus on the points and be prepared to take care of those problems, that the reservoir levels as of March 2016 were 24% of their full reserve levels. This is the low that we have ever seen, and it will take a while for these reservoirs to come back to good levels and be able to provide the requisite water for the rabi crop as well.
There is going to be an increase and I agree that the first quarter will not see any increase in GDP and cash flows. It is what the second quarter will bring, which is going to harvest start and the cash flows starts coming in.
Historically, whenever there is a recovery from low base, particularly two years of drought we see easily over 7% to 8% growth in agricultural sector and that obviously has a significant contribution to overall GDP growth. Purely in terms of GDP growth, yes, there will be a significant increase.
In terms of cash flow available to the rural folks, that will take a while for it to come. They still need to overcome their debt problems of the past. They require to deal with the past losses before they will be able to be in a position to start spending. While GDP growth numbers may show a big increase, I am little less sanguine on the impact of cash flows and the interiors. It will take a little while. We require three consecutive good crops before farmers or rural folks will start spending aggressively.
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