August 11, 2009 / 6:15 AM / 10 years ago

Drought fears rise, soybean crop on brink

NEW DELHI (Reuters) - Fears of slower economic growth and lower yields of key crops rose in India on Tuesday as the weather office cut its monsoon forecast and the government said more than a quarter of districts were prone to drought.

A man walks through the parched banks of Sukhana Lake in Chandigarh in this May 19, 2009 file photo. Fears of slower economic growth and lower yields of key crops rose in India on Tuesday as the weather office cut its monsoon forecast and the government said more than a quarter of districts were prone to drought. REUTERS/Ajay Verma/Files

While many of these districts are not major crop producers, most sugarcane and soybean areas remain parched and total rainfall since June 1, the start of the four-month monsoon season, has been 28 percent short of normal.

The cane crop has fallen for the second straight year, and trade sources said India’s sugar stocks on July 31 were 60 percent lower than a year ago, a bigger year-on-year decline than the 54 percent drop a month ago.

Traders said the stock drop would raise local prices to a level that makes imports viable.

The weather office, which initially predicted normal monsoon rains, has forecast widespread rains in central India, the main soybean-producing region that has seen virtually no rain in the past three weeks.

The forecast will ease concerns of soybean producers and traders, who fear that crop yield may drop up to 7 percent if rains are delayed further.

Finance Minister Pranab Mukherjee said 161 districts were drought prone and sowing of crops was down 20 percent from last year.

The minister’s statement underscored growing government concern that a weak monsoon could reduce crop output and dampen economic growth already hit by a global downturn.

The rain deficit since June 1 worsened to 28 percent at the weekend, raising fears that the season may turn out to be as bad as 2004, when summer crop output fell 12 percent after a drought. GDP fell to 7.5 percent that fiscal year from 8.5 percent in the previous year.

The rains are vital for sugarcane, oilseeds and other crops, although the impact has been more severe for certain crops — particularly rice — than for many others. A feared shortfall in the sugar harvest has lifted global prices to near record highs.

Mukherjee said the government was ready to manage a drought and a contingency plan was also in place.

Weak monsoon rains have also dented Indian shares, which fell 5.6 percent over three days before recovering 0.4 percent on Tuesday.

(Additional reporting by Ratnajyoti Dutta)

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