By Debiprasad Nayak & Arpan Mukherjee
   Of DOW JONES NEWSWIRES


  NEW DELHI (Dow Jones)--A late revival in monsoon rains in India has fueled
hopes that it will help limit damage to the country's summer crops and prevent
further increases in food prices, but it may be too little and too late to
lower prices substantially, industry participants said Thursday.

  Following scanty rains in the first half of the June-to-September monsoon
season, prices of staple food items such as sugar, edible oils, vegetables and
pulses have risen by an average 30%, stoking fears of a return of inflation
that could hurt a quick economic rebound in Asia's third-largest economy.

  As of Aug. 17, monsoon rainfall was 27% below the 50-year average, resulting
in 246 of the country's 625 administrative districts officially being declared
drought-hit.

  But there has been some respite after monsoon rains returned late last week.

  The revival of rains "may limit damage to the sugarcane crop (and) improve
the sucrose content in cane," said C.B. Patodia, president of the Uttar Pradesh
Sugar Mills Association. Late rains will also help reduce pest attacks on sugar
cane, he said.

  Heavy rains in the last four to five days over the grain bowl states of
Punjab and Haryana, and the country's second-largest sugar producer, Uttar
Pradesh, have improved the outlook for rice and sugar cane, traders said.

  According to India Meteorological Department, the country's western region, a
key producer of cotton and sugarcane, is likely to get more rains from
Thursday. Major rice producing states such as Uttar Pradesh, Punjab and Haryana
are also likely to get more rains during the next 24 hours.

  Sugar prices in local market have declined by INR80 or 3% per 100 kg to
INR2,970 on the news, while pigeon pea prices have eased by 2% to INR5,400/100
kg in the last one week.

  Prices of pulses may also soften a bit on hopes of better-than-expected
production, but a major decline is not likely due to strong festive season
demand and low carryover stocks, said Chowda Reddy, an analyst with Karvy
Comtrade Ltd.

  Moreover, it may be too late to salvage crops that have been severely damaged
or make up for lost acreage.

  "If rainfall continues like this, there is a possibility that yields would be
a little higher, but we can't increase the area (under paddy cultivation) at
this point of time," said Sonal Varma, an economist with Nomura Securities.

  As of Aug.12, summer-sown rice acreage in the country was down 18.8% at 24.73
million hectares, compared with 30.45 million hectares at the same time last
year.

  Federal Agriculture Minister Sharad Pawar Wednesday said he expects summer
rice output to fall by 10 million tons this year.

  The minister said sugar production in the marketing year from Oct. 1 is
likely to be 15 million tons, compared with an annual demand of about 22.5
million tons.  Production of pulses is expected to drop by 11% to 13 million
tons while demand is estimated to be 17-18 million tons.  India is the world's
biggest consumer of sugar and pulses.

  In a report earlier this week, Standard Chartered Bank said India's
summer-sown crop, which accounts for 52% of the total agriculture output in a
year, could shrink by 20%, similar to what happened during the last drought in
2002-03.

   Govt To Take Further Measures To Ease Prices


  The federal government, which has already announced a slew of measures such
as allowing duty-free import of sugar and pulses until March 2010 and
re-imposition of export restrictions on most agriculture products, is expected
to take further measures to control prices by ensuring domestic supply.

  Pawar has said the government is considering a plan to extend a subsidy
scheme for the distribution of imported pulses. India's food subsidy bill in
the 2009-10 fiscal year ending March is estimated to cross INR600 billion, up
nearly 38% from INR436.27 billion last year.

  Finance Minister Pranab Mukherjee said the government may extend its national
rural employment scheme to keep more cash in the hands of drought-hit villagers
to help cushion the impact of the loss of farm incomes amid a prolonged dry
spell.

  The government has said it has enough stocks of rice and wheat, but price
pressures have prompted officials to offload some of that in the open market.
Usually, government stocks are used to run welfare schemes for the poor through
the state-run public distribution system.

  This year however, the cabinet has approved the sale of 3 million tons of
wheat and 2.5 million tons of rice in the open market, according to a senior
farm ministry official.

  The ministry has also asked provincial governments to take action against
hoarding of food grains by traders and remove a state tax on sugar.

  "The government is considering increasing the percentage of levy (subsidized)
sugar to make more sugar available through the public distribution system,"
Pawar said at a meeting Wednesday. Currently, sugar mills are required to sell
10% of their output at subsidized, below-market prices.

  "The moves may be able to bring down prices in some major markets," said
Mukesh Kuvadia, secretary of Bombay Sugar Merchants Association.