Abnormal rainfall and an early onset of a long and scorching summer threaten to slowdown India’s rural economy, disrupting dependent sectors such as tractors and farm equipment as well as demand for entry and mid-level automobiles across segments.
After four consecutive years of good monsoon, three of which were La Nina (excess rainfall) years, the country will most likely face El Nino (deficit rainfall) this year. US weather agencies reiterated for the third time the possibility of El Nino conditions for India even as February 2023 became the country’s hottest month in its 122-year recorded history.
Market watchers have warned of an impact of the heatwave and El Nino on the country’s economy which is buffeted by high inflation, expensive lending and slowing private investment. The tractor industry, which clocked three consecutive years of growth before closing 2022 as its best-ever year, could face the impact of the weather anomaly.
Hemant Sikka, president, Farm Equipment Sectors, Mahindra & Mahindra said, “While there is a high probability of an El Nino developing in this season, it is too early to make any predictions in terms of its intensity, with better clarity emerging around the end of April.” State-controlled IMD has said it will issue its own El Nino projections in April.
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This financial year, Uttar Pradesh, Bihar, West Bengal and Jharkhand reported rainfall deficit that affected paddy sowing. “The El Nino conditions remain a key monitorable that can hinder rural slowdown turnaround in India,” said Nuvama analysts Abneesh Roy and Rushabh Bhachawat.
According to the Central Water Commission, the live water storage available in 143 reservoirs of the country as of March 9, is at 92% of the live storage of corresponding period of last year. But when compared to the average of the last 10 years, the same is at 115% storage.
The rural market is a big draw for economy motorcycles having engines upto 110cc. For Hero MotoCorp, India’s largest two-wheeler manufacturer, February clocked 26% growth in dispatch volumes for such budget two-wheeler models including Splendor and HF series.
Manish Raj Singhania, president, federation of automobile dealers association said, “Weather disruption will affect the entry-level two and car segments. These two segments get most affected by the slightest change in the productivity of crops, product prices and interest rates.”
But analysts also believe that this being a pre-election year, the spending by the government, especially targeting rural India, will be higher than the normal thereby making up for the economic impact created by climatic disturbance, to some extent.
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Hemal Thakkar, director, CRISIL, said, “This is a pre-election year and if there is a good amount of revenue expenditure that gets spent in the rural side then we will see commercial demand for tractors also picking up which has been relatively muted for the last couple of quarters. Right now, there is nothing to get panicky about El Nino and we should continue with the forecast we have.”