13/01/2025
The severe floods that have swept across various regions of India in recent years, particularly during the monsoon season, have raised significant concerns about their economic impact, especially their potential to drive inflation. As of August 2024, several Indian states, including Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh, and Tripura, have been grappling with intense flooding caused by heavy rainfall. The monsoon season, which typically spans from June to September, brought significant precipitation to these regions, leading to widespread inundation and disruption.
One of the most significant economic consequences of these floods is the potential rise in inflation, particularly food inflation. Floods often result in widespread damage to crops, leading to reduced agricultural yields. This scarcity of food supplies can drive up prices, particularly for essential commodities like rice, wheat, and vegetables. In addition to crop damage, floods also severely impact infrastructure, including roads, bridges, and transportation networks. The resulting disruption in supply chains can cause delays in the delivery of goods and services, further contributing to price increases.
Amid these challenges, a new report by HSBC Global Research has highlighted a pivotal shift in the factors driving food inflation in India. Historically, rainfall and reservoir levels have been the primary predictors of food inflation. However, the report reveals that rising temperatures have now surpassed rainfall as the key driver of food inflation, marking a crucial turning point in the country’s economic landscape. This shift is particularly concerning given the sweltering summer temperatures in India, which have approached 50°C in some regions.
According to the report, when temperature data is included without considering reservoir levels, the model’s predictive power for food inflation improves significantly. This suggests that temperatures have overtaken rainfall as a more accurate predictor of food inflation for several reasons. The report notes that while the arrival of the southwest monsoon and the heavy rains it brought have provided some relief, the underlying temperature trends continue to play a dominant role in shaping food prices.
In July 2024, food inflation fell to a 13-month low of 5.42%, following eight consecutive months of staying above 7%. This decline was largely due to the arrival of the monsoon and the subsequent heavy rains. However, the situation remains precarious, as prices of meat, fish, eggs, spices, sugar, and confectionery products increased in July, while those of cereals, fruits, vegetables, and pulses declined sequentially.
Looking ahead, above-normal rainfall due to the delayed withdrawal of the monsoon could further impact India’s summer-sown crops, such as rice, cotton, soybean, corn, and pulses, which are typically harvested from mid-September. Crop damage could fuel another surge in food inflation. However, the rains may also benefit the planting of winter-sown crops like wheat, rapeseed, and chickpea by raising soil moisture levels.
The weather office has warned of potential heavy rainfall in Uttarakhand, East Rajasthan, Odisha, Tripura, Konkan, Manipur, Mizoram, Nagaland, and Goa in the coming days. An orange alert has been issued for these regions, signaling the possibility of continued severe weather. As rainfall levels across India in July and August 2024 have already surpassed the long-period average, concerns about the economic fallout of these floods, particularly on inflation, remain pressing.