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Business News/ Industry / Weak monsoon to hurt India’s rural economy: Moody’s
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Weak monsoon to hurt India’s rural economy: Moody’s

A worrisome factor is this year's strong El Nio weather phenomenon, which is likely to continue through the season

The government forecaster last week said the monsoon will be weak in the crucial first half of July, and Pune-based Indian Institute of Tropical Meteorology predicted that there will be large-scale reduction in rainfall in this period. Photo: Vivek/MintPremium
The government forecaster last week said the monsoon will be weak in the crucial first half of July, and Pune-based Indian Institute of Tropical Meteorology predicted that there will be large-scale reduction in rainfall in this period. Photo: Vivek/Mint

New Delhi: A below-par monsoon will further hurt the distressed rural economy if the forecast of the India Meteorological Department comes true, rating agency Moody’s Investor Service said on Tuesday.

“A weak monsoon would hurt India’s agricultural output, which 68% of rural Indian households rely on as their primary source of income," the rating agency said, calling it a credit negative to its positive outlook for India’s lowest investment grade.

Rainfall in June was 16% more than normal, with northwest India receiving 31% more than normal rainfall, central India receiving 23% more than the normal, the south peninsula receiving 19% more and east and north-east India receiving 1% more than normal rainfall.

However, the government forecaster last week said the monsoon will be weak in the crucial first half of July, and Pune-based Indian Institute of Tropical Meteorology predicted that there will be large-scale reduction in rainfall in this period. Private forecaster Skymet, however, has reaffirmed its forecast of a normal monsoon this year.

A worrisome factor is this year’s strong El Niño weather phenomenon, which is likely to continue through the season. The phenomenon is usually associated with drier than normal conditions in India.

Moody’s said for the country, a real contraction in rural wages as a result of bad monsoon would act as a drag on household spending, government tax revenues and, ultimately, real gross domestic product (GDP) growth as agriculture makes up approximately 18% of GDP. “Furthermore, as noted by the central bank, a weak monsoon could also lead to higher inflation, which in turn would limit the scope for further monetary policy stimulus to support growth," it added.

The rating agency said for India’s banks, non-performing assets in the agricultural sector have been generally trending higher, and persistent weakness in rural incomes would further undermine the debt servicing ability of such borrowers.

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Published: 01 Jul 2015, 11:16 AM IST
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