How dependent is India on Good Monsoon !

Since prehistoric times, Indian economy was often called the ‘monsoon economy’. It reflects the critical role of the monsoon in Indian agricultural economy. Few days back, I read this newspaper headline ‘ Higher planting and renewed rainfall was expected to boost sugar output and create a surplus for exports, reversing India’s massive deficit and imports that helped New York raw sugar futures surged to the highest in nearly three decades’.

I was wondering how dependent is India still on monsoon?

According to Dr M.S. Swaminathan Research Foundation (MSSRF), Chennai, the decline in the annual per capita food grain production in the country— from 207 kg in 1995 to 186 kg in 2006, with the present per capita food grains availability at 155 kg against 177 kg during 1989-1992 — all of this is attributable to the frequent weather aberrations and lesser capital investment in agricultural research and development. No doubt, the monsoons have a central role in defining the climate and, in turn, the agricultural production in India.

How important is Monsoon to us?

• Agriculture contributes around 17% to GDP
• India is the 2nd largest producer of rice and wheat in the world
• 3/5th of arable land dry and parched due to low penetration of irrigation system leaves
• Monsoon acts as a controller of prices of primary articles such as food grains, etc.
• It impacts industrial production with nearly 40% of the raw-material coming from the farm sector

GDP growth projections (based on Monsoon severity)

GDP Components	Weight in GDP  (last three years average)	Scenario -1   Growth (Y-o-Y) if monsoon deficiency is 7%	Scenario -2   Growth (Y-o-Y) if monsoon deficiency is  15%	Scenario-3  Growth (Y-o-Y) if monsoon deficiency is  22*%
Agriculture	18	2%	(-)2%	(-)6%
Industry	19	5%	4.5%	4%
Construction	7	9%	8.5%	8%
Services	56	8.5%	8%	8%
Overall GDP	100	6.7%	5.6%	4.7%

Source: ASSOCHAM Projections

Technically, The rain-fed agriculture constitutes about 60% of India’s total net sown area, wherein food grains such as rice, bajra, maize, jowar, and pulses such as tur and gram are grown. India gets nearly 53% of its food from the Kharif season (June-October) as compared to the Rabi season (November- February), where the production is around 47%.

The constraints for production of food grain during the Kharif season is soil moisture (influenced by the seasonal rainfall from the SW Monsoon), and for the Rabi season it is the minimum temperature and stored soil moisture. (Reports)

How about other sectors?

You might argue, if agriculture contributes so little to our GDP, why do we still see newspapers carrying news on monsoons. Let us look at other sectors which directly or indirectly gets influenced by Rains

• Automobiles – With rural income going up, demand for motorcycles, bicycles, cars, tractors may go up
• Banks – May start rural penetration and banks which have higher rural exposure may see lower number of NPAs
• Cement – Increased infrastructure spending and construction activities will lent support after monsoon season.
• Consumer Durables – Demand might increase as good agriculture output increases rural consumption
• Fertilisers – Agriculture output to improve sales in this sector.
• FMCG – Demand may increase due to increase in rural income
• NBFC – Companies with rural exposure may be impacted in the positive manner.
• Seeds – Good monsoon, increased demand.
• Pesticides – Sales may get impacted positively
• Power – Hydro power due to increase in water level in dams.
• Telecom & Media – Rural demand may increase, and advertisers may like to woo rural consumers to increase sales.

And many more such instances can be extrapolated. The monsoon essentially shows it is a key to determine agricultural output, inflation, consumer spending and overall economic growth. A good monsoon can positively impact capital markets, boost power sector, raw materials, etc.

In a gist, Monsoon still is the economic lifeline of our country – A bad monsoon can spell trouble and hinder India’s economic growth, while a good monsoon has power to catapult it to fastest growing economy on Earth…

Your thought?