Explained: Why monsoon is so important for the Indian Economy

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New Delhi | Updated: June 04, 2018 4:23 PM

Rains in India is mostly restricted to the monsoon season every summer. Hence, all variations in the summer monsoon affect agriculture and economy of the country.

southwest monsoonTwo adults and a child stand next to red warning flags erected on the beach as monsoon clouds gather above the Arabian Sea coast in Thiruvananthapuram, Kerala on Sunday, June 3, 2018. The southwest monsoon arrived in Kerala at the southern tip of India this week, starting the crop-planting season in a four-month journey from the south to northern India. (AP Photo)

Rains in India is mostly restricted to the monsoon season every summer. Hence, all variations in the summer monsoon affect agriculture and economy of the country. In many ways, the monsoon is the lifeblood of India’s farm-dependent economy.

The Indian Metrological Department (IMD) has predicted monsoon rains will be 97% of its long-term average in 2018. Rainfall between 96 percent and 104 percent of a 50-year average of 89 cm (35 inches) by the fourth month of the monsoon season, starting from June, is considered normal or average.

As of today, IMD says the southwest monsoon has further advanced into some more parts of Tamil Nadu, southwest, west-central, east-central and the northeast Bay of Bengal, most parts of Tripura, remaining parts of Nagaland, Manipur and Mizoram and some parts of Assam and Arunachal Pradesh. The southwest monsoon irrigates over 50% of India’s farmlands.

Monsoon importance for agriculture growth, addressing farm distress

India gets around 70 percent of its annual rainfall during the monsoon season, which also affects the yield of some key kharif or summer crops like rice, pulses and oilseeds such as soybeans. Farmers start planting these crops with the arrival of monsoon rains in June.

Union Ministry of Water Resources says, “India receives an average rainfall of about 1170mm which corresponds to an annual precipitation of about 4000 BCM(Billion Cubic Metre) including snowfall. ”

south west monsoon mapAdvance of southwest monsoon 2018. PTI Graphics

“Nearly 75% of this i.e., 3000 BCM occurs during the monsoon season confined to 3 to 4 month (June to September) in a year,” it adds.

Around 50% of India’s total food output comes in the form of summer crops. A delayed monsoon can lead to supply issues and even accelerate food inflation. Below normal monsoon can also lead to drought, which India witnessed during the first two years of Narendra Modi government’s rule.

Just 15% of the $2 trillion Indian economy is accounted for by the farm sector but it employs over half of the total population of India, as per estimates.

Effect on demand

In a good monsoon season, farm output goes up, boosting demand for consumer goods as well as income of rural people. All of this leads to a stronger economic outlook that in turn help lift equities, especially of companies selling goods in rural areas.

However, a poor monsoon season weakens demand for FMCG products, tractors, two-wheelers, rural housing. Also, it forces the government to spend on the import of food as well as take measures like farm loan waivers.

The Monsoon rains in India also replenish reservoirs and groundwater that helps in improving irrigation and also boosts hydropower production. Moreover, a good Monsoon season can reduce demand for subsidized diesel used for pumping water from wells, ground, ponds or rivers for irrigation.

Monsoon effect on inflation, RBI policy

A good Monsoon season leads to bumper farm output that keeps food prices under control. This is so because food accounts for 50% of the country’s consumer price index, which is closely monitored by RBI.

During droughts, the government has to support farmers through incentives, subsidies. These widen fiscal deficit. Good monsoon season, hence, also checks government spending.

A poor monsoon season can have a rippling effect on India’s economy and growth.

A strong correlation between rainfall and agriculture GDP has been established by data analysis in past.

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