labels: industry - general, economy - general, agriculture
Monsoon likely to effect India''s economynews
Shubha Madhukar
07 August 2004

Delayed monsoon will have far reaching effects on the economy this year, yet again

There isn't a country elsewhere, where the monsoons cause as much public concern, political unease and media interest as in the Asian sub-continent, particularly India. The reason behind the elusive attention is the fact that monsoons affect the economic growth of this country thus affecting you and me - and all of us. Hence, when the finance minister, P Chidambaram is "praying for a good monsoon", he is not alone.

For Chidambaram, it is all the more important as the growth rate he announced were based on the predictions of 'normal monsoon' from the India Meteorological Department (IMD). Earlier, IMD had forecast that the monsoons this year would be 96 per cent of the long-term average with an error of 5 per cent either way. That's a fairly good monsoon for all, Chidambaram feels.

Either the meteorological department got it wrong or the rain gods were not pleased, but the monsoons decided to go slow in the initial months, thereby ruining the hopes of the farming, industrial and the services sectors, along with government. Economists now forecast a modest growth of 5.5 to 6.5 per cent in the next 12 months, down from their previous predictions of seven to eight per cent. The government says it would be around 6.5 to seven per cent.

For the monsoon to be normal, there should be an average area-weighted rainfall of around 880mm during the four-month long monsoon season. After a slow start, the rains did pick up in the last week of July but according to economists, by then the damage had been done.

It impacted the sowing of groundnut in Rajasthan and Gujarat, soyabean in Madhya Pradesh and Maharashtra and paddy in Uttar Pradesh. Though there would not be a drought situation as the rains have been generous in Rajasthan, parts of UP, Maharashtra, and most of Gujarat, the kharif crop has been affected because of the delay.

As reported by the IMD, till August 4, 2004, rains were scanty or deficient in 44 per cent of the country's 524 meteorological districts, normal in 40 per cent and excess in the remaining 16 per cent. Overall, until now there is a deficit of ten per cent rainfall.

IMD has been ill-equipped to make correct predictions all the while but it is only now that both the meteorological department and the government have accepted the fact. A dig into the meteorological department shows it requires 1850 surface observatories to collect ground data but unfortunately, it works with only 182 of them. Eight of IMD's 10 cyclone-monitoring radars and all 35 of its storm-detection radars are also reported to be obsolete. There are no rain gauge stations.

Science and technology minister Kapil Sibal is seeking Rs500 crore to replace the 'obsolete' equipments and also the manpower. To add more trouble to the existing monsoon deficit and impending fall in crop output, inflation has touched the highest point in three and a half months crossing 7.5 per cent.

Despite the promising non-farming sectors of the recent years - mainly information technology - the economy still relies heavily on agriculture. And since only a third of the country is irrigated, Indian agriculture depends heavily on the monsoons.

In India, the monsoons directly impact agriculture and hence the economy, since the agricultural sector accounts for approximately 24 per cent of the GDP, provides raw materials for a fifth of the industry and generates demand for industrial goods. Besides, nearly sixty per cent of the population depend on agriculture for its livelihood and forty per cent of the manufactured goods depend on the rural markets.

This in turn affects the GDP directly. Growth has reportedly decelerated to sub-five per cent levels in years of decline in agriculture, while good agricultural years have enabled 6.5 per cent plus growth in GDP in the past.

A deficit monsoon results in shortage of agricultural raw material and also affects all industries that supply inputs to the farm sector. The edible oilseeds price for instance, has already gone up by eight per cent.

The inflationary impact reduces general disposable income and poor agricultural produce wipes out completely the disposable income in the rural sector. This drops consumer goods demand from the urban sectors and wipes out demand from the rural sector altogether. The brunt is felt by the service industry as well.

The industries to be directly hit with poor monsoon are automobiles - tractors, two-wheelers and commercial vehicles - cement, FMCG and metals. Rural demand for two wheelers, tractors are likely to plummet, affecting companies like M&M, Hero Honda and Bajaj Auto.

But the worst hit would perhaps be the FMCG companies like Hindustan Lever, Colgate, Godrej, Marico, etc as 50 per cent of their sales come from the rural areas. This sector, already in the midst of a fierce price war, would be impacted tremendously if sales were to drop as well.

The far reaching impact of the monsoons on India's economy does cry for the need of modernisation of equipment at the meteorological department for more accurate predictions. It also highlights the need for more government-led investments in irrigation systems in the kharif pockets on the lines of Punjab and Haryana rather than waiting year after year for Lord Indra (the rain god), to turn benevolent.

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Monsoon likely to effect India''s economy