New Delhi: India’s economic growth would suffer “significantly”, though not “catastrophically”, and inflation would rise, if delay in monsoon causes reduction in farm produce, Moody’s said.
“The monsoon problem has negative implications on economic growth... the damages will be significant, though not catastrophic,” Moody’s economy.com economist Sherman Chan said when asked about economic implications of delay in monsoon.
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Moody’s said that as the monsoon is crucial to the farm business, the downside effect of its delay will be evident in the agricultural component of the GDP data.
Agricultural output typically represents less than 20% of the country’s GDP compared with service-related sectors which account for more than 50%, Chan said.
However, there would also be a spillover effects to other sectors, she said.
“For instance, a slump in agricultural output will hurt the income of some businesses and households. This will in turn weigh on business investment and household consumption, so service-related sectors may also feel a bit of the squeeze caused by the monsoon problem,” she explained.
Moody’s further said that delay of the monsoon also an upside risk to Indias inflation outlook.
“As crops are affected by the lack of rainfall, supply of agricultural goods may fall, subsequently putting upward pressure on prices,“ she added.
Even after rising moderately, inflation still stood in the negative zone at 1.14% for the week ended 13 June. However, prices of food items like pulses, cereals, fruits and vegetables increased compared to last year.
Planning Commission deputy chairman Montek Singh Ahluwalia had also admitted that delayed monsoon is a matter of concern.
However, he had also said, “I think it is too early to say so. If it revives tomorrow and becomes normal, then the impact would be very very small.”
Monsoon, he added, “is a very complex system and the fact that it delayed by two weeks does not mean that it is not going to recover”.
Earlier this week, earth sciences minister Prithviraj Chavan had said rainfall for the country as a whole is likely to be 93% of the long-period average. This is 3% less than what the India Meteorological Department (IMD) had forecast in April.
According to the forecast, the north-western region is likely to get deficient rainfall while monsoon is expected to be below normal in the north-eastern and peninsular India. Central India, which is yet to receive rains, is likely to have a normal monsoon.