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Monsoon booster for rural demand

Monsoon booster for rural demand
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First Published: Sat, Apr 18 2009. 01 15 AM IST

Updated: Sat, Apr 18 2009. 12 43 PM IST
New Delhi: The country’s average annual monsoon is likely to be near normal this year, though less than the 89cm recorded last year, a government forecast said.
Economists welcomed the forecast put out by the India Meteorological Department (IMD) on Friday, since agriculture has been an island of good news in an economy in the midst of a severe slowdown.
The annual June-September monsoon generates nearly 80% of the annual rainfall over the country and is vital for the economy, being the main source of water for agriculture, which generates about 17% of India’s gross domestic product (GDP). Other than the 60% of the country’s workforce that depends on agriculture, the rains are also important for traders dealing in food and cash crops as any shortfall can inject volatility in the markets.
Also Read Upbeat Estimate (PDF)
The agency defines normal rainfall as when the country, between June and September, gets an average of 89cm of rainfall, called the long period average (LPA), which is basically a 50-year average of rainfall. Anything between 85.4-92.5cm (or 96-104% of LPA) is classified “near normal”, as this year’s forecast says. Rains less than 90% are called droughts. Importantly though, IMD’s forecast models have an in-built error range of 5%.
“A near normal monsoon is good news for rural demand and for food prices. Particularly in FY10 when global demand remains weak and investments are sluggish, a good monsoon is critical to keeping domestic rural demand strong. We are expecting GDP growth at 5.3% in FY10, assuming normal monsoons,” said Sonal Varma, economist at Nomura Holdings Inc.
Arguing similarly, Gajendra Nagpal, CEO, Unicon Financial, maintained that a sizeable market for consumer goods has been created in rural India. “Companies like Hindustan Unilever are pushing for expansion of market in rural areas. Steel, cement are absorbed in rural areas. So a near normal monsoon will definitely bring cheer for the markets.”
The BSE Sensex, which was up 3% immediately after the forecast, ended the day 0.7% higher at 11,023.09 points.
Economist and Planning Commission member in charge of agriculture Abhijit Sen, said, “It (the forecast) is in the normal range. But the problem is not the quantity of monsoon, but the erratic behaviour of rain that we have been experiencing in last few years where we do not have rainfall for a full month during the monsoon period. That is more disturbing. Good monsoon is not so important for GDP growth as it is for employment and welfare.”
IMD has, over the last few years, been using a two-stage forecast. The first stage in April and an update around end of June. Though the June update is more informative, in that it indicates how the rain will pan out over major geographical regions in the country, the April forecast is a bellwether for the overall health of the monsoon.
“Though it theoretically means that we could have rains as less as 91% of the LPA, it’s unlikely that will happen,” said D.S. Pai, director of forecasting at IMD Pune.
Weathermen, however, are concerned about two atmospheric phenomenon that have a significant bearing on Indian monsoon, a La Nina and the Indian Ocean Dipole, determined by varying surface temperatures in the ocean.
“A strong La Nina means good rains, and a negative Dipole means bad rains,” said Pai, “The La Nina is weakening and some Japanese scientists have predicted a negative Dipole. However, a weakening La Nina only means that it’s hard to use it as a pointer to the monsoon. When La Nina’s give way to an El Nino, that’s a sign of bad rains,” he added.
An El Nino, though isn’t around the horizon, Pai added.
El Nino and La Nina are periodic, temperature fluctuations in the Pacific Ocean that form heat currents and affect the movement of the monsoon.
However experts say that the quantum of rainfall is not as important as farmers being informed in advance, of breaks in the rainfall—periods within the monsoon when it suddenly stops raining for a couple of weeks.
Reuters and Asit Ranjan Mishra also contributed to this story.
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First Published: Sat, Apr 18 2009. 01 15 AM IST
More Topics: Weather | Monsoon | Rural | Met department | Markets |