India monsoon woes mount, industrial growth cheers

NEW DELHI (Reuters) - India's monsoon rainfall deficit has widened further, increasing the risk of crop damage, but its impact on the country's economy was offset by high growth in June industrial output due to buoyant consumer demand.

The shortfall in rains increased by one percentage point from the previous day to 29 percent on August 10, with rains in the soybean-growing central region weakening, government sources said on Wednesday, raising the prospect of higher imports by the world's top edible oil buyer.

The deficit in the soybean-growing region of central India widened by 1 percentage point to 20 percent, while rainfall deficiency in cane-producing northwestern India remained unchanged at 42 percent.

In sharp contrast to the gloom in the farm sector India's June industrial output expanded 7.8 percent, its fastest pace in 16 months, beating forecasts by a wide margin as higher salaries of government employees and stimulus spending boosted consumer demand.

Industrial output expanded for the sixth straight month in Asia's third-biggest economy, and Finance Secretary Ashok Chawla said the trend would continue.

Analysts shared Chawla's optimism.

"Upside from industrial activity (is) likely to mitigate negative impact of poor rains. Several indicators of consumption and investment demand such as ... motor vehicle sales have been showing significant up-ticks," Goldman Sachs analysts Tushar Poddar and Pranjul Bhandari said in a report.

Analysts said weak monsoons may have helped increase mining activity but even electricity production rose 8 percent.

"This buoyancy is surprising given that weak monsoons would typically result in a downtrend in hydroelectric production, which comprises 25 percent of total electricity," Citigroup analysts Rohini Malkani and Anushka Shah said in a report.

Weak monsoon rains had sharply reduced water levels at India's main reservoirs in the driest June for 83 years but better rainfall in July helped fill up the tanks to near-normal levels.

India relies on rain for 60 percent of its irrigation and on agriculture for 17 percent of its economy.

CROPS

A government scientist said the sugar cane crop had already suffered, but the soybean crop could withstand the dry spell as it was planted late.

"The sugar cane crop has been hit badly but the soybean crop was planted late and it will gain from rains we are expecting soon," the scientist in the Ministry of Earth Sciences, who did not want to be identified, told Reuters.

The weather office has forecast good rains in cane and soybean regions in the next few days.

Trade officials have said low rainfall could slash the domestic oilseed supply and raise India's edible oils imports, although the international price and the country's winter-sown rapeseed output would be key factors.

"A weak monsoon will lower output of summer-sown oilseed crops, which would reduce domestic edible oil availability, but how much, we have to watch till the monsoon is over," said B.V. Mehta, executive director of the Solvent Extractors' Association of India.

India buys about half of its total demand from Malaysia, Indonesia, Brazil and Argentina.

(Writing by Himangshu Watts; Editing by Ranjit Gangadharan)