Weak crop production to slow export recovery: Moody’s

August 6th, 2009 - 8:01 pm ICT by IANS  

New Delhi, Aug 6 (IANS) The delayed and deficient monsoon this year has not only hit India’s farm output but also complicated the recovery of its merchandise exports that have seen nine straight months of decline, global rating agency Moody’s has said.
The agency’s intelligence arm Moody’s Economy.com has also warned that the fall in the country’s food output may also accelerate the need for import even as the outgo of foreign exchange was expected to rise on account of hardening crude prices.

“The monsoon problem appears to be more severe than policymakers had anticipated,” Sherman Chan, an economist with Moody’s Economy.com, said.

“Amid lower farm output, the government has curbed exports of various food commodities such as wheat. The contraction in agricultural exports is expected to remain in double-digit territory in coming months,” Chan said.

The consultancy said it would take time for the export sector to return to the pre-crisis growth rate.

“Global demand is expected to gradually pick up, meaning that external orders may not return to the pre-crisis levels at least until mid-2010. Delayed and insufficient monsoon rains have complicated the recovery.”

On the other side, India’s imports are likely to rise in coming months.

The import bills for coming months will show a rise in both volumes and prices. The climb in oil import costs is expected to be the most noticeable as global oil prices continue to slowly rise.

In addition to stronger demand for construction materials, food import needs may also rise amid a fall in domestic supply, Moody’s said.

As India is one of the world’s largest exporters of rice and sugar, a notable fall in output this year due to scanty rainfall is putting upward pressures on both domestic and global prices.

As a result, according to Moody’s, the government may now have to allocate more funding, possibly via subsidies and loan waivers, to support struggling farmers.

“The authorities are also under pressure to ensure food security by building up reserves, which will also add to this year’s fiscal outlays,” Chan said.

“The bid to contain the damage caused by insufficient monsoon rains and maintain social stability has made fiscal management difficult. The budget deficit for fiscal 2009-10 is likely to be larger than the government’s current estimate,” he added.

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