This is the time of the year when India's weakest spots are exposed; despite our high growth and emerging economy status, we continue to depend on the rains to boost rural incomes and provide a cushion in a slow economy. All eyes are now on rainfall in July, which is so crucial for the kharif crop that accounts for about half the food-grain output. The consequences on inflation are of course obvious.

Every month the economy is struck with 'unexpected' shocks but the last month had a few too many, the delayed and weak monsoon being the latest. Another 'unexpected' shock last month was the RBI staying on rate cuts, despite the poor IIP growth numbers. A third was the government's and RBI's pathetic attempts at supporting the rupee. A fourth was that the frontrunner to the President's post has no replacement - and now our hugely ineffective PM, Planning Commision Chairman and head of the PMs Economic Advisory Council will get to increase the scope of their ineffectiveness into the Finance Ministry. But Indians are an optimistic lot as many surveys show and the stock market reversed its fall somewhat on the mere promise of correcting one tax related anomaly.

It is now clear that India is unlikely to have a full time FM, and the PM will run the Finance Ministry. One of the first results of this is for everyone to see, the government has announced yet another welfare program in the name of National Urban Health Mission priced at slightly above 20,000 crores annually. And it has also given in to the TMC on service tax in railways. But the PM did not get anything in return, neither on Teestha water sharing from the TMC nor on petro pricing or subsidies from the NAC. If this is how the PM plays his politics, we don't expect any important reform to occur.

On the monetary side, the RBI changed track and refused to loosen interest rates. Why is the RBI so fearful of inflation? Growth is down, international commodity prices are down, new hiring is down and so inflation is unlikely to get out of hand. True food inflation continues its marathon run, but it has a mind of its own and is not impacted by what the RBI does with interest rates.

Meanwhile the slowdown is spreading, construction activity is down, auto sales are down, hiring has slowed down - all of these are caused by and cause of a definite slowdown across urban India. Rural markets are holding up in part due to massive transfers and subsidies by the government and partly due to the major construction boom in rural India. But if the monsoons do not show up in July and August, even rural India will be hit.

Investment is already hit, government expenditures will hopefully not grow too much more, exports are being hit due to international conditions though the weaker rupee is helping a bit. That leaves domestic consumption, for the last two years it is this segment that has been leading the Indian economy, but it can't hold for long.

Meanwhile from the West comes one positive stroke to sentiment as Indian equities are being upgraded. The oft-repeated 'strong fundamentals' seem to be making a comeback on the rating scene, but again, that is the stock market, not the real economy.

Tracking inflation in real time

The real time monitoring of primary food items at Indicus has consistently shown the pressure on prices in various commodities - oilseeds, pulses, potatoes and so on - before they turn around in the WPI. As has been mentioned before, due to differences in methodology, while the levels of inflation and index may differ between the Indicus Price Monitor and the WPI, the broad trends are in sync. June is a critical month for the kharif crop sowing and this year the delay in the monsoon has spelt gloom for the farmers. Rainfall has been deficient all over India by 49% on an average, making July rains extremely crucial for price trends. This month two trends have been highlighted, one for oilseeds and the other for rubber.

Oilseeds have been on sustained price pressure for more than six months now. A recent uptick has been seen again in June as the impact of the poor monsoon has shown up in expectations of low kharif crop, especially for ground nut. Gujarat which accounts for a third of the ground nut crop in the country has seen sowing down and the farmers are looking to move into dry crops like millet, tur etc. Andhra Pradesh, contributing close to quarter of the total ground nut production, has seen very sluggish sowing in June as well.

In the case of rubber, that has seen consistent decline in inflation over the past two years, prices that had reached a peak of Rs. 24.300 per 100 kgs in April 2011 have now stabilised. Inflation has plateaued since March this year, though there is no uptrend in the inflation towards any positive level. Moreover, imports are expected to be lower this year as local production has increased, with output coming in now from non-traditional producers from the north-east. The price trends here have been very favourable for companies like tyre manufacturers.