Monsoon and evaluation of its Effects on Indian Economy

 10/13/2015  715

Deficit Monsoons

The arrival of monsoon and its evenness plays a very crucial role in determining the growth and inflation prospects of the Indian economy in a particular year.However, in the months of June and July 2015, the rains have been 9% lower than normal, with sharper deficits in some areas. Further, as per Indian Meteorological Department (IMD), rainfall during August-September 2015, the remaining two months of the rainy season, would be poor at 84%. Rainfall is said to be normal when it falls between 96% and 104 % of the long term average. Kerala, where the monsoon hits first and has traditionally seen rains much higher than national average, has also witnessed a 30% rain deficit this season. The distribution of rains so far have been uneven in terms of geographical distribution. Yet, plotted on a rainfall map, at least 35% of the country’s area appears to be in the deficient category, while 35% has received normal rains. In another 30% area, rainfall has been surplus.

Impact of uneven monsoon on various parameters

It is expected that at the end of the ongoing year growth in agricultural sector would reduce by 5% from the previous year. This will also take away 0.7% percentage points from the overall GDP growth of India. This will also have a detrimental effect on demand in the non-agricultural sector

India being an agricultural country where around 60% of population depends on agriculture for their livelihood and also its contribution is around 16% to the GVA. The importance of monsoon cannot be overlooked. 40% of the cropped area in our country depends entirely on rain water. Even though cumulative rainfall is only 4.1% below normal (till 24 July 2015), we believe the shortfall in rains over the first three weeks of July will dampen food grain production to some degree. Sowing of rice -- the main kharif staple -- has progressed well because of good rains in the northwest which accounts for 29% of rice output. In states like Andhra Pradesh and Telangana sowing of rice has been badly hit. Not only rain deficit, uneven distribution of the showers has also turned out to be an issue, as in West Bengal where floods affected sowing of rice. However, coarse cereals, pulses and oilseeds could suffer from poor rains and low reservoir levels in Maharashtra and Gujarat. Also deficient monsoon will make soil drier compared to normal and there will also be lesser water to be used for irrigation. All these factors will mean that there is lesser production during the Rabi or winter season as well.

In March and April 2015, unseasonal and pre summer rains damaged crops in regions already reeling from inadequate monsoons. A second year of weak monsoon will decrease the efficacy of India’s irrigation system and hit farm output and farmers. Already rural wage growth has plummeted to around 8%. This will adversely affect rural demand.

Poor monsoon could stoke food prices, which have been increasing steadily, with retail price inflation quickening to 5.4% in June 2015, compared to a 4.8% rise in April 2015.

Poor monsoon has a lot of detrimental effects on the industrial sector. The demand goes down, volume growth in sales of industrial products is around 11-13% but the weak monsoon could drag it down to 8-10%.

Since the water levels will be lower than normal in several hydroelectric dams, there will be lesser electricity. Across 91 water reservoirs touched 87.09 billion cubic metres (bcm), down 13.2% from 100.36 bcm a year earlier and even lower than the normal 10-year average of 90.68 bcm. During the intense heat of May and June, rains act as a cooling factor and without enough rainfall, there will be greater usage of electricity

Given the current situation, a multi-pronged strategy to permanently deal with monsoon deficiency requires exploring newer drought tolerant and climate-conducive crop varieties, reducing dependence on rainfall by increasing irrigation ecosystem, enhancing employment opportunities to non-farm poor, improving skill sets at the farm gate, bringing sea change in farm-to-fork transaction chain etc.

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