South Asia is suffering from unusually erratic annual monsoon rains this year, with India seeing the driest June in 83 years and a wetter than usual July, and conditions across the region varying from floods to drought. Through it all, however, domestic and international financial and commodity markets that would normally be sensitive to the threat of crop failure, lost rural income and economic headwinds have remained largely sanguine, with the exception of sugar, which has surged this year on a deepening Indian shortfall. The government on June 24 revised down its forecast for the full June to September monsoon season to 93 percent of the historical norm, the worst outlook in four years, potentially bad news for a country that relies on rains for 60 percent of its irrigation, and on agriculture for 17 percent of its economy. But analysts say conditions will need to remain better than average over the coming two months to meet Delhi's forecast. Four Indian states have been declared officially in drought, while parts of eastern India and neighbouring Bangladesh and Nepal have suffered floods. On a national basis, rainfall in the week to July 22 was 15 percent above the seasonal norm, but the monsoon remains 19 percent below normal for the full season to date. While the national averages are useful indicators, they can obscure the implications for markets, particularly in a year like this one where the distribution of rain has varied hugely. In Uttar Pradesh, which produces more than half of India's sugarcane, two-thirds of the districts have been declared drought-hit, with rainfall 40-60 percent short of average. The government has also declared a drought in the northeastern states of Manipur and Assam, and the eastern state of Jharkhand, but these states do not contribute significantly to India's crop output. Rains have been below normal in Punjab and Haryana also but these states have better access to irrigation facilities and the government has diverted electricity supplies from towns to farms to help farmers operate tubewells. The two states are key producers of wheat and rice. The worst monsoon in recent memory was in 2002 when rainfall was 19 percent below average and the summer-sown crop output fell 22.2 percent. The worst monsoon since 1901 was in 1972, when rains were a quarter short of average.But monsoon rains can also revive quickly. In 1995, after a 24 percent deficit in the first month, the season ended with a total shortfall of only 1.9 percent, while in 1958 monsoons began feebly with a 28 percent deficit in June but the following three months had surplus rains, ending the season with total rains being 10 percent more than average. The biggest impact would be on India's rice crop as it needs a lot of water in early stages. Sugarcane output will be hit in Uttar Pradesh, where vast areas are in the grip of a drought. Oilseeds sowing have been close to normal as the main cropping regions have received adequate rainfall in July. The sugarcane harvest is the most important for global markets at the moment, with India -- the world's biggest sugar consumer and No. 2 producer -- forced to make up any shortfall with imports, deepening a global supply deficit. The size of the crop is set to shrink for the second successive year after the government moved to raise minimum purchase prices for more critical food crops like rice and wheat, prompting farmers to switch to those more lucrative crops at the expensive of sugarcane.But there are also risks for winter-sown rapeseed and wheat crops. In the medium term, the wheat harvest could come under pressure if hydropower reservoirs that help irrigate the October-sown crop are not fully replenished. Reservoirs are now 22 percent below normal for this time of year. After two years of bumper harvests and export restrictions, India has record high domestic stocks of wheat and rice, enough to meet local demand for 13 months, precluding panic imports. Unlike sugar, inventories of which have more than halved in the past year -- stocks of wheat and rice have soared. On July 1, wheat stocks stood at 33 million tonnes, nearly double the buffer stock norm of 17 million tonnes, while rice stocks stood at 19.6 million tonnes, twice as much as the buffer stock norm of 9.8 million tonnes. Benchmark Chicago Board of Trade wheat prices have fallen nearly 25 percent from their 2009 high on June 1, just as the monsoon began to fall far short of its usual, while CBOT corn prices have tumbled nearly 30 percent. In the short term, meteorologists are expecting improved rainfall in key agricultural states of Uttar Pradesh and Punjab, where rains have been below normal. The development of a global El Nino phenomenon will be important for the next few months, with an intensifying condition likely to mean drier weather ahead. So far the messages are mixed, the U.S. National Oceanic Atmospheric Administration has declared a formal El Nino this year for the first time in three years, but the authoritative Australian weather bureau has said it is premature to declare an El Nino. Pakistan's meteorological office forecasts that this year's monsoon rains will be 30 percent below normal overall, affecting crops and reservoir levels at hydroelectric plants. But the sporadic nature of the rains makes their impact unpredictable. Heavy downpours caused deadly flooding in the commercial hub of Karachi this month, leading to protests over the ensuing power failures.Rice industry officials expect the harvest to be slightly below last year's roughly 6.9 million tonnes, as drier weather offsets the impact of an increase in planted acreage. Meanwhile, cotton industry officials say that if a rainy spell over the last several days persists, they might not be able to meet their target of 13.36 million cotton bales because of problems of pests and leaf curl virus (LCV).