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India's GDP under threat as rain Gods play hooky

The country's growth prospects don't look too optimistic with nearly one fourth of the country is in the grip of a drought. The Govt has declared 177 of about 600 districts as drought-affected.

business Updated: Aug 16, 2009 16:05 IST

The country's growth prospects don't look too optimistic despite the good news on the industrial front as agricultural output may suffer because of the "rain Gods playing hooky," say experts.

Nearly, one fourth of the country is in the grip of a drought, with the government declaring 177 of about 600 districts as drought-affected.

To tackle the situation, the government has set up an Empowered Group of Ministers, headed by Finance Minister Pranab Mukherjee but the prognosis doesn't look too optimistic.

"Though a small negative effect on GDP growth from the poor monsoon can be offset by the combined effect of the ongoing improvement in industrial activity, a bigger hit to agriculture might warrant a downward revision to GDP," Global research firm Macquarie analyst Rajiv Malik said.

Edelweiss, meanwhile, in its recent report has revised down the financial year 2010 GDP estimate to around 5.5 per cent from its earlier 6-6.5 per cent, largely because of the monsoon's impact on agriculture.

Dun and Bradstreet India Head (Economic Analysis) Yashika Singh said "any deficit in the monsoons will not augur well for the Indian economy at this juncture and could prove to be an impediment in the revival phase."

A lower agricultural production will not only increase the already high food prices, but will also impact rural demand and therefore the demand in the economy as a whole.

"In a scenario that monsoon fail completely for the rest of the season, the overall GDP growth rate may fall to below 6.0 per cent during FY10," Singh added.

Food production in FY10 is likely to go down as sowing will be 20 per cent lower due to the weak monsoon. However Finance Minister Pranab Mukherjee claims that this is unlikely to dampen the overall economic scenario and that India is likely to clock six per cent and above for the current fiscal.

The negative impact on the agriculture sector may be offset by the non-agricultural segment of the economy, which is currently showing early signs of recovery.

The silver-lining in this grim scenario is the uptrend in industrial growth, improvement in core sector performance, rise in business confidence and better availability of finance.

Though agriculture's share in India's GDP has declined to a significant extent, monsoon rainfall still remains an important part. Nearly 55 per cent of labour force is employed in agriculture and only 42 per cent of the area under major crops is irrigated.

Besides, the swine flu pandemic has added another degree of uncertainty to India's overall economic performance. Swine flu can have some impact, on industries like software and IT-services, travel and tourism, hotels among others.