Will the monsoon season shower the Indian economy with good fortune?

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Will the monsoon season shower the Indian economy with good fortune?
Women farmers planting saplings. There is a strong pointer to India receiving a healthy monsoon this year which could spark off an economic revival once again by rural India.Courtesy: ANI

IMD has predicted a ‘normal monsoon’ this year. Since the June-September rainy season recharges India’s water table and irrigates half of its farms, a good monsoon is considered a precondition for generating consumption and demand for a wide range of goods and services like steel, cement, two-wheelers, construction activities, etc.

At a time when the fate of the country’s economic recovery hangs in balance, as a result of the huge spike in Covid-19 cases, the Indian Meteorological Department (IMD) has calmed the nerves of both policymakers and analysts by predicting that the country will get its third straight normal monsoon this year.

The South West Monsoon, which lands on the Kerala coast in June and then spreads all over the country before withdrawing in September every year, accounts for 70-75 per cent of total rainfall in India and irrigates more than 50 per cent of the country’s farms.

“Monsoon will be 98 per cent of the long-period average (LPA) which is normal rainfall. It is really good news for the country and will help India have a good agriculture output,” M. Rajeevan, Secretary, Ministry of Earth Sciences, told the media recently. The margin of error in his forecast is plus-minus 5 per cent. The LPA for the southwest monsoon season, calculated over the 50-year period from 1961 to 2010, is 880 mm of rain.

This is the first of the two Long Range Forecasts (LRFs) that the IMD releases every year. The second one will be unveiled in June.

‘Monsoon will be 98% of the long-period average, which is normal rainfall. It… will help India have a good agriculture output,” said M. Rajeevan, Secretary, Ministry of Earth Sciences.
Union minister of agriculture Narendra Singh Tomar will be betting that the monsoon ensures that his portfolio brings home a good report card and sparks off a positive swing across the broader economy.
Union minister of agriculture Narendra Singh Tomar will be betting that the monsoon ensures that his portfolio brings home a good report card and sparks off a positive swing across the broader economy.Courtesy: ANI

Good monsoon augurs well for economy

Good monsoon rains are essential not only for the good health of the agriculture sector but also for the broader economy, as it prevents food price increases, and creates demand for a host of manufactured products and services made by the formal economy and helps sustain and boost consumption demand.

“It will be good for our agriculture,” Rajeevan said. “It has been observed that the all-India rainfall variability coincides with the variability recorded along the monsoon core zone by 85 to 88 per cent. Starting this season, IMD will issue a separate forecast for this region, which will be done in the second stage LRF,” Rajeevan said.

Good monsoons are good not only for the rural sector but also for the broader economy, as it prevents food price increases and creates demand for manufactured goods and services.

July, August receives the most rainfall

The months of July and August receive the most rain during this season (about 550 mm) and rains over the monsoon season replenish the ground water table and reservoirs that provide water both for farming and drinking.

So, the big question this year is the same as the one economists and policy makers were asking a year ago: Can another year of good monsoon, and an expected bountiful harvest, rescue the economy when the performance of the rest of manufacturing and services sectors could be a little patchy because of the second wave of Covid-19?

A woman farmer returns home from the fields. The Indian farm sector punches way above its weight class in the national economy.
A woman farmer returns home from the fields. The Indian farm sector punches way above its weight class in the national economy.Courtesy: ANI

Too early to be certain

Since the forecast by IMD is only the first of the season, it may be a little early to predict the growth trajectory of the economy with any degree of certainty but suffice is to say that it augurs well for the Indian economy in 2021-22.

That’s because the Indian farm sector punches way above its weight class in the national economy. Agriculture accounts for only about 15-16 per cent India’s GDP but supports 58 per cent its population, mainly in rural India and in Tier II and Tier III cities.

Since the forecast is only the first of the season, it may be a little early to predict the growth trajectory of the economy with certainty, but suffice is to say that it augurs well for India.

Rural India consumes 40% of India’s GDP

This section of the population accounts for 40 per cent of the total consumption demand in the Indian economy. It buys almost 100 per cent of all tractors, fertilisers and pesticides sold in the country. It also accounts for as much as 50 per cent of the sales of two wheelers, including motorbikes, scooters and cycles, half the leather goods, including footwear sold in India, and more than 40 per cent of all steel, cement and construction material consumed in the country.

Therefore, a good monsoon, which contributes significantly to increasing rural incomes across the country, plays a major role in shoring up the demand curve of a range of goods and services that, in turn, provide ballast to the urban economy and provide a fillip to the overall economic growth of the country.

So, at a time when some global agencies and domestic brokerages have begun to cut back the high double digit growth rates they had forecast for the Indian economy in 2021-22 because of Covid fears, IMD’s projection of a normal monsoon could help temper the negative fallout of the second wave of the pandemic.

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