Mumbai: India’s weak monsoon has begun to worry economists and policy makers, who fear it could drag down the nation’s resurgent economic growth.
“The monsoon problem is unlikely to be strong enough to derail India’s economic recovery, but it could drag on the pace,” Sherman Chan, an economist with Moody’s Economy.com in Sydney, said Thursday. “India’s rural population accounts for a large share of total consumption.”
June rainfall was 46% below normal, its lowest since 1926. Though the rains have picked up in July, rainfall through 22 July is 19% below normal for the nation as a whole.
That’s becoming an increasing threat to growth because over 55% of India’s population relies on farming for its livelihood, and only 40% of farmland is irrigated. In addition, 17.5% of the gross domestic product comes from agriculture and related industries.
India’s economy grew by 6.7% last fiscal year, better than most analysts had expected, but lower than the 8.8% average annual growth the country enjoyed from 2003 to 2008.
The upside surprise was largely due to a turnaround in agricultural output during the fourth quarter, the central bank, the Reserve Bank of India, said in its quarterly economic review this week.
Industrial and services growth have continued to slow, and India’s much-ballyhooed domestic demand has also dropped off, prompting the government to sharply boost its own spending to 32.5% of GDP growth last fiscal year from an average of 5.9% over the last five years, the Reserve Bank said.
Now, dry skies are threatening what has so far been the most resilient and countercyclical pillar of the nation’s private sector: farming.
Citigroup says weak rains could knock India’s GDP growth from an estimated 6.8% this fiscal year to as low as 5.2%.
Overall, summer crop sowing is off by 8.5% and planting of rice is down by 21.4%, according to Indian research and ratings agency Crisil.
Insufficient crops could also add to inflation pressure.
India’s headline Wholesale Price Index has been negative since June, largely because of a statistical anomaly caused by the exorbitant price of commodities this time last year.
The ministry of commerce said on Thursday that WPI stood at minus 1.54% for the week ended 18 July.
Food price inflation, however, remains stubbornly high at 8.9% as of 11 July, the Reserve Bank said on Monday.
The Reserve Bank was worried enough about poor rains further exacerbating food prices coupled with rising global oil prices and the inflationary potential of months of fiscal and monetary stimulus that it raised its inflation outlook for the fiscal year to 5% this week, up from an April projection of 4%.
Experts say poor rains could also further widen the gap between the rich and poor.
Crisil did a regional analysis of the impact of India’s tardy monsoon by looking at rainfall deficiency and vulnerability, measured as the percentage of non-irrigated land in a given state. It found that Bihar and Uttar Pradesh, two struggling states in India’s north which together account for about 16% of India’s agricultural GDP, have been the worst hit by the laggardly rains, largely because they’re so sparsely irrigated.