Commodities

Monsoon, a key driver of Indian economy

Naveen Mathur | Updated on August 27, 2014

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Below normal rainfall will result in agricultural production declining



India, predominantly an agriculture-based economy, is largely dependent on the monsoon. The agriculture sector is the backbone of the Indian economy and thus, monsoon should be considered as the backbone of agriculture. The four-month South-West monsoon season, accounts for nearly 75 per cent of the country’s total rainfall and plays a crucial rule as about 55-60 per cent of the area sown is still rain-fed. India gets nearly 53 per cent of its agricultural produce from the kharif season (June-September) compared to the rabi season (November-February), where the production is around 47 per cent. The impact of the monsoon is also crucial for rabi crops as it has an impact on the ground water and also reservoirs which are critical for rabi crops irrigation.

. Agriculture contributes some 14 per cent of gross domestic product (GDP) in Asia’s third-largest economy and any divergence from the normal progress or distribution will have direct impact on the agricultural output and a cascading effect on the overall economy, food inflation and therefore, consumer spending in India.

The onset of monsoon this year is behind schedule and the rainfall from the start of the season is 43 per cent below normal. The Indian Meteorological Department initially forecast monsoon below normal at 95 per cent of the long period average (LPA) and then revised it to 93 per cent of LPA in its second long range forecast. Skymet, a private agency, forecast monsoon at 94 per cent of LPA initially. However, with monsoon advancing slowly, Skymet has lowered its forecast to 91 per cent of LPA, a cause for concern. Weather forecasting agencies across the global have forecast 60-70 per cent chances of El Niño emerging later this year and this could further affect the latter half of the monsoon. Now, we have to see the severity of El Niño.

Deficient monsoon from the start of the season has not only delayed sowing but also led to a decline in the acreage of most kharif crops viz rice, pulses, cereals, oilseeds and cotton. Total area sown is nearly 34 per cent lower compared with the corresponding period a year ago.

The NDA Government has hardly been in power for a month-and-half and has accorded priority to taming surging inflation and food prices. However, deficient monsoon is playing a spoilsport as it is leading to a spurt in prices of fruits and vegetables. The Government has been proactive and has taken a slew of measures such as increasing the MEP of onions to discourage exports and restricting fresh positions in potatoes on the futures market among others. The Government has also warned of strict action against hoarders.

A weak monsoon this year can lead to a decline in agricultural production. Lower output of pulses and oilseeds will lead to increased imports, denting the food import bill which in turn will impact the fiscal deficit and economy. Earlier expectations that the RBI may cut the interest rates may now take a backseat.

It is now important to track the further advancement of the monsoon in the days to come. The IMD expects a revival in the coming days. Apart from monsoon, the distribution across regions and its withdrawal will also play a crucial role in determining production of agricultural commodities.

Published on July 08, 2014

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