India’s economy could grow by 7.5-8% in FY16 despite deficient monsoon rains as most sectors of the economy have shown an uptick in recent months, Niti Aayog member Bibek Debroy told FE.
“With the exception of the railways, I don’t see any sector performing remarkably badly,” Debroy said. Debroy expects economic growth in the second half of the year would outpace that in the first half, as recent policy steps and a step-up in public spending would start showing results in the later part of the year. The first-quarter GDP data is scheduled to be released on August 28. In its latest report, Moody’s Investors Service on Tuesday trimmed India’s growth forecast for FY16 to 7% from 7.5% predicted earlier due to drier-than-usual weather conditions. It is lower than the government’s forecast of 8.1-8.5% and the Reserve Bank of India’s 7.6% for the year.
The country received 10% less than the average levels of rainfall from the start of the monsoon season in June until August 17, according to official data. The below-average rainfall, though lower than anticipated earlier, has clouded prospects for farm output, which could hurt rural incomes and weigh on consumer demand, Moody’s said.
Debroy, however, has a different take on the impact of the deficient monsoon on growth. “It is a different matter that drought may lead to human tragedy in some states. But in terms of affecting the value of agricultural output and, therefore, affecting the value of GDP, (it would do less harm),” he said.
He gave three reasons to buttress his point. Firstly, it is not the overall rainfall level that matters, but the timing and sequence. Secondly, empirical data suggests that sometimes when the kharif crop is bad, the rabi crop compensates. Thirdly, the value of agricultural output mostly comes from irrigated states.
“Everything that I have seen so far, there is no reason to think that the monsoon is going to have any particular adverse effect (on farm output),” he said.