The prediction on Wednesday of sub-normal monsoon by the Indian Meteorological Department this year came on the back of unseasonal rains over the last month that have caused widespread damage to crops across the country.
IMD’s prediction could now pose a challenge to the government’s hopes of a rebound in the economy this year and a targeted GDP growth of anywhere between 8 per cent and 8.5 per cent in 2015-16. Ratings agency Crisil on Wednesday said that a deficient monsoon would shave-off 50 basis points from its GDP forecast of 7.9 per cent for 2015-16. This comes as a major concern for the economy that is still suffering from drag in earnings growth, weak investment, consumption and relatively high interest rates.
“It is a cause of worry. Rural demand has already been weak and this will make things worse. Now, growth in this fiscal will depend on how strongly the non-agriculture investment picks up,” said Pronab Sen, chairman, National Statistical Commission.
Experts feel that while markets have already been reeling under pressure of lower-than-expected earnings growth for the fourth quarter of FY15, the IMD prediction comes as another dampener.“The fact that the first assessment of IMD is gloomy, itself, raises concern. At a time when corporate investments are not happening and consumption has been weakening, a good monsoon would have lifted rural consumption. Nothing seems to be working for the markets right now,” said Ritesh Jain, CIO, Tata Mutual Fund.
Farm sector growth was already subdued on the back of a weak monsoon and is estimated to have grown a mere 1.1 per cent in 2014-15 as against 3.7 per cent in 2013-14.
In the hopes of boosting rural growth, the Budget had also increased the allocation for farm loans by Rs 50,000 crore to Rs 8.5 lakh crore in 2015-16. A new interest subvention scheme for short-term crop loans is also on the anvil. IMD’s prediction comes on the back of concerns around El Nino — low rainfall in tropical pacific region due to abnormal warming in the eastern Pacific region and heavy rainfall in South America — that have been raised earlier.