Home / Economy / Will normal monsoon boost the economy amid surge in covid cases in India?

MUMBAI: Monsoon rainfall, crucial for India's agriculture, is expected to be normal this year, with experts believing that good rains will lead to higher sowing of crops, boost farm income, and in turn, the rural economy, and also help rein in food inflation. A rise in global food prices and government spending though are critical factors to watch out for, they said.

According to Aditi Nayar, chief economist, Icra Ltd, the forecast of a normal monsoon comes as a relief, given the early rise in temperatures and reservoir storage that is trailing year-ago levels by a margin of 8 percentage points. “Nevertheless, the temporal and spatial distribution of the monsoon rains will remain crucial. A normal pattern of monsoon rainfall should also help to rein in food inflation, although the global trend in the prices of edible oils, as well as domestic demand-supply disruptions for perishable items such as vegetables, will continue to play a critical role," she said.

As of now, Nayar expects a moderate 2% growth in agricultural gross value added (GVA) in FY2022, following two years of above average rainfall and healthy output expansion. GVA is the measure of the value of goods and services produced in an area, industry or sector of an economy.

The Indian Meteorological Department (IMD), in its first-stage projection, has forecast ‘normal’ rains for the 2021 June-September southwest monsoon season. Rainfall activity is likely to be 98% of the long period average (LPA) compared with 9% above normal rains recorded last year, which was third consecutive year of normal monsoon.

Details of spatial and temporal distribution will be available in IMD’s June forecast.

Private weather forecasting agency Skymet also expects the monsoon to be normal at 103% of LPA, with a model error of plus or minus 5%. Skymet said there was a 60% probability of normal monsoon this year; 15% chances of above normal rains; 15% for below normal monsoon; and 10% for excess rainfall.

According to the agency, there is zero possibility of a drought this year. As per Skymet’s temporal forecasts, monsoon is likely to be 106%, 97%, 99% and 116% of LPA in June, July, August and September 2021, respectively.

“A normal monsoon will certainly boost farm sentiments. However, as highlighted by us in the past, global food prices are the most critical determinant of rural incomes and hence it remains key monitorable going ahead," said Kapil Gupta, chief economist, Edelweiss Financial Services.

International prices have risen in the recent past due to supply disruptions. However, given high inventories, this surge is likely to be temporary and not a structural up-cycle, Gupta added.

Over the last few months, India’s macro indicator had weakened with the rapid rise in covid cases. Retail and wholesale inflation have risen significantly over the last three months, reaching 5.52% and 7.39% respectively in March.

“Clearly, food inflation plays a critical role in anchoring the overall inflation levels and that is where lies the importance of monsoon. Needless to say, a favourable monsoon will lead to a healthy crop output and cool down food inflation. Our base scenario of 11% GDP growth and 5% average CPI inflation in FY22 also takes into account a conducive monsoon season with a balanced geographical and temporal distribution," Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research said.

Chowdhury feels that the forecast of a normal monsoon in 2021 augurs well for the Indian economy which continues to be impacted by the coronavirus pandemic and increased inflationary pressures.

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