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HindustanTimes Sat,23 Aug 2014

Monsoon effect key to economic turnaround

HT Correspondent, Hindustan Times  New Delhi, November 29, 2013
First Published: 23:36 IST(29/11/2013) | Last Updated: 00:46 IST(30/11/2013)

A normal June-September monsoon, as is expected, could be crucial for the UPA government ahead of a general election in 2014, helping it focus on growth, while curbing inflation and keeping its borrowings under check.

The government is pinning its hopes on the strong summer rains this year — the best in half-a-dozen years — to aid a much-needed turnaround in the Indian economy.

The government expects growth to improve from a dismal 5% year-on-year in 2012-13 to more than 5% 2013-14, aided by a normal monsoon and falling inflation.

With good rains, spending by rural consumers on manufactured items such television sets and gold jewellery goes up, boosting factory output.

India’s agriculture output grew 4.6% during July-September this year, up from 1.7% in the same period of the previous year, while overall gross domestic product (GDP) grew at a four-year low of 4.8% during the quarter.

A good monsoon raises food output and improves farm income, which supports a third of Indians, or about 800 million people.

This aids economic growth, keeps jobs and investment going. A sharp rise in rural consumer spending explains why India’s rural markets are important.

This creates demand for manufactured goods, which, in turn, helps the general economy.

A normal monsoon could, thus, well turn out to be the perfect antidote for an economy hit by an industrial slowdown.

For instance, rural buyers account for close to 40% of India’s total motorcycle sales. Likewise, about 40% of India’s cement demand comes from rural housing.

Some experts , however, said that the agricultural sector accounts for just 15% of India’s GDP and is alone not strong enough to pull the economy from the crippling deceleration.

“The two drivers of growth this year — good monsoons and exports — are insufficient to pull the economy out of the current slowdown, as mining, manufacturing and service sector output remains subdued,” said Chandrajit Banerjee, director-general of industry chamber Confederation of Indian Industry (CII).

The government needs to address the problem of food inflation by infusing efficiency in the food supply chain, Banerjee added.

Skyrocketing onion and vegetable prices and costlier staples such as rice pushed India’s wholesale price index (WPI)-based inflation to an eight month high of 7% in October, while retail inflation has quickened 10% during the month as rising cost of living, flat income growth and shrinking job opportunities made getting by even harder for millions of Indians.

Wholesale food inflation rose a staggering 18.19% in October, compared with 18.4% in September, latest price data showed. Vegetable prices leapt by 78.4%. Fuel prices also went up sharply by 10.3% in October. Onion prices soared 278.2% during the month, lower than the previous month’s 323%.


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