Home >market >mark-to-market >How much can the rains help GDP growth?

The one ray of hope for economic growth this fiscal is the good monsoon, which is the best in about 15 years. Good rainfall has a positive correlation with agricultural gross domestic product (GDP) and, by extension, the rural sector. It also has a host of spin-off benefits for industries such as tractor makers. In the years when rainfall has been above the long-term average, tractor makers have reported sales growth of 13.4%. That is a clear 9 percentage point difference from the years which have had scanty rains.

Even for other industries which are increasingly deriving a greater proportion of their sales from rural areas, such as four wheelers and two wheelers, the effects of a good rainfall are evident.

But it would be premature to conclude that overall economic growth would be triggered off by just a rural sector boost. The average increase in private final consumption expenditure in years of above average rainfall is 5.7%—10 basis points lower that recorded in years of below average monsoon. That’s because consumption depends on a whole lot of other factors as well. In 2009-10, for instance, private consumption grew by 7.4%—even when rainfall was a massive 18.6% below average—solely because of a government stimulus. With such sops missing this year, any boost in rural consumption could very well be offset by a decline in urban areas.

The investment implication: focus on consumer companies that get a large proportion of their sales from rural areas.

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