NEW DELHI India is likely to avoid a drought this year as monsoon rains needed to irrigate 60 percent of the farmland in the major grains producer are likely to be average.
India is the world's second-biggest producer of rice, wheat, sugar and cotton.
Rains during the June-September season are likely to be 99 percent of the long-term average, Earth Sciences Minister Vilasrao Deshmukh said on Thursday, raising hopes for bumper harvests and a chance to rein in high inflation.
That falls within a "normal" range of 96-104 percent of a 50-year average of 89 centimetres for the four-month season used by the India Meteorological Department (IMD).
The last time there was a drought with rains below this range was 2009 and before that, in 2004.
"This year's monsoon is most likely to be normal," Deshmukh said at a news conference.
India will give its final monsoon forecast in June, IMD chief L.S. Rathore said.
Monsoon rains, vital for agricultural output and economic growth, irrigate about 60 percent of India's farmland. Farming accounts for about 15 percent of the nearly $2 trillion economy.
"Normal monsoon will boost food grain production and that should help in moderating food inflation," said Harish Galipalli, head of commodities research at JRG Wealth Management.
Higher farm output could encourage the government to allow more exports of sugar and grains, he added.
(For a graphic on India monsoon - forecast vs actual, click link.reuters.com/xux88r)
India has allowed 3 million tonnes of sugar exports so far this year and has removed a cap on wheat and rice sales overseas after a bumper harvest last year added to overflowing stocks.
After 2009's drought, the country had to import about 2.5 million tonnes of sugar, nearly 10 percent of the global surplus, sending international prices spiralling.
"Certainly (sugar production) will be more than our annual consumption of 22 million tonnes. India will remain a net exporter in 2012/13," said Ashok Jain, president of the Bombay Sugar Merchants' Association.
Higher output could also mean wealthier farmers and that might raise gold demand, industry players said.
"There will be more liquidity in the hands of farmers and that will increase demand for gold. The same thing applies to silver," said Kumar Jain, vice-chairman of the Mumbai Jewellers Association.
India was the world's biggest buyer of bullion last year, purchasing about 969 tonnes and prompting the government to slap duties on imports as it worried over the impact of such hefty dollar purchases on the current account.
About 60-70 percent of gold demand comes from rural areas.
Monsoon rains, however, slow iron ore shipments from India, which is one of the world's largest exporters, as roads become difficult to travel and ports close.
"The monsoon will impact iron ore shipments especially from Goa and Paradip in Orissa. Goa port will get shut in a month's time," said Dhruv Goel, managing partner of iron ore trader Steelmint.
Average monsoon rains would boost sales of seeds and fertiliser.
"Better monsoon means better business prospects. If a farmer thinks, more rains would bring good harvest, he will be happy to spend more on fertilisers and better quality seeds," said Naveen Kapoor, president of the agriculture business of Zuari Industries Ltd (ZURI.NS).
The latest government forecast is in line with comments from the IMD chief and a global weather forum earlier this month.
The government said there was a small chance the El Nino weather mechanism would emerge in the second half of the monsoon season. In 2009, that turned rains patchy and led to drought.
"The larger probability is that it is going to be a normal monsoon, but there is a slight chance or 24 percent chance that it could be below normal," said an IMD official, pointing to a 5 point margin of error in the forecast average rains.
(Additional reporting by the Mumbai commodities team; editing by Jo Winterbottom and Jason Neely)