1. How a good monsoon in India can spur economic growth ; 5 key takeaways

How a good monsoon in India can spur economic growth ; 5 key takeaways

A normal monsoon would go a long way in reining in food inflation. Well-dispersed rainfall is also likely to increased farm income, which will lead to increased demand for consumer durables...

By: | Updated: July 19, 2016 8:25 AM
Monsoon, 7th Pay Commission Good rainfall over the past month and a half has ensured that the water level in the 91 reservoirs across the country stands at 45.49 billion cubic metres (bcm), which is 29% of the total live storage capacity of these reservoirs. (Reuters)

A normal monsoon would go a long way in reining in food inflation. Well-dispersed rainfall is also likely to increased farm income, which will lead to increased demand for consumer durables, two-wheelers and FMCGs. In addition, GDP is expected to grow at 7.9%, as against the earlier estimate of 7.6%, if the monsoon is normal and the global situation does not deteriorate.

How good has been the monsoon until now?

After two consecutive drought years, the monsoon has been on course this year, as predicted by the India Meteorological Department (IMD). Though it hit the Kerala coast on June 8—a week behind schedule—it covered the entire country by July 14, two days before normal. While the IMD has predicted it to be 106% of the long period average (LPA) of 89cm, in the first 45 days, it is already at 31.3cm (35%). The best part is that the rainfall has been widespread. Of the 36 meteorological subdivisions in the country, as things stand, there is a deficit in only five, which account for 14% of the land area—Bihar, Gujarat, Saurashtra & Kutch, Assam & Meghalaya and NMMT (Nagaland, Manipur, Mizoram and Tripura). In 23 subdivisions, the rainfall is normal, while it is excess in eight.

What impact will a good monsoon have on agriculture?

Thanks to the widespread rainfall in July, the total sown area, as of July 15, was 559.76 lakh hectare, against 548.38 lakh hectare at the same time in 2015-16—an increase of 2.1%. The big shortfall at 19% this time round is in cotton, thanks to deficient rainfall in the Gujarat region and parts of Rajasthan that account for the bulk of the cotton crop. The good news for the Indian consumer is almost 40% increase in crop area under pulses. For a product that has seen prices rise sharply over the past few months, the hope of a better crop this season should temper prices in the months ahead and lead to lower food inflation.

According to a Crisil report, a normal monsoon would go a long way in reining in food inflation. After a record foodgrain production of 265.04 million tonnes in 2013-14, it fell to 252.02 million tonnes in 2014-15 and 253.23 million tonnes in 2015-16. That should change for the better in this fiscal.

What is the water situation in the reservoirs?

Good rainfall over the past month and a half has ensured that the water level in the 91 reservoirs across the country stands at 45.49 billion cubic metres (bcm), which is 29% of the total live storage capacity of these reservoirs. This is currently lower than the 54.93 bcm at the same time last year, but is more than the 10-year average of 45.07 bcm. That’s almost double the 23.94 bcm that accounted for just 15% of the storage capacity at the end of June. Of the 91 reservoirs, 46 had more than 80% of the storage capacity. In the balance 45 reservoirs, 27 have storage at less than half of the normal storage.

How does it impact economic growth?

According to a Crisil report, GDP is expected to grow at 7.9%, as against the earlier estimate of 7.6%, if the monsoon is normal and the global situation does not deteriorate. Going by the current strength of the monsoon, it is expected to lift sagging rural demand over the past two years and, by extension, GDP growth, it says. Better agricultural growth could also provide the much-needed impetus to overall economic growth.

Which all industries could benefit with good rainfall?

Well-dispersed rainfall is likely to lend to increased farm income. At a time when close to 10 million government employees are getting increased wages thanks to the implementation of the Seventh Pay Commission award, the increased farm earnings would provide another booster shot, leading to more demand for consumer durables, two-wheelers and greater consumption of FMCGs. As consumption rises domestically, it will, in turn, spur industrial growth over the next few months. Much of that should be visible by the coming festive season.

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