India: rains could play truant

All eyes are on India’s gross domestic product (GDP) data for the April-June quarter that would be released later this month amid hopes of a strong economic rebound after the country’s factory output rose 7.8 per cent in June, the strongest growth in 16 months.

Manufacturing, which accounts for 80 per cent of overall industrial output, grew by 7.3 per cent. Consumer durables sector that grew by a healthy 15.5 per cent reflecting a rise in consumer demand and spending on goods such as televisions and refrigerators.

Scanty rainfall, however, could upset the recovery, as agriculture that accounts for around 17 per cent GDP would be vulnerable to a monsoon shock. Almost a third of all districts have been declared drought-hit.

The country’s GDP grew by 6.7 per cent in 2008-09, lower than the government’s earlier estimates but still high enough to ensure that India remains among the hottest growth economies in the world, second only to neighbouring China that grew at 9 per cent in 2008.

Latest national income figures showed that the country’s GDP grew by 5.8 per cent in quarter ending March 31, down from the 8.6 per cent in same quarter of last year.

“Given our risk scenario of a 5-8 per cent decline in agricultural GDP, we can expect this year’s shortfall to shave 1 percentage point from overall GDP growth,” Standard Chartered economist Samiran Chakraborty said in a latest research report.

“The risk of a deficient monsoon hurting industrial output growth through lower rural demand for consumer goods is real,” said Sonal Varma, analyst with Nomura Financial Adivosry Securities.

 

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