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Why monsoon is the life-blood of Indian economy

The southwest monsoon begins its 4-month journey across India by hitting Kerala in early June. Monsoons are more than relief from a blazing summer, it’s the life-blood of Asia’s third-largest economy.

business Updated: Mar 12, 2014 00:08 IST

What brings it on?

The monsoon, which spans from June to September, is essentially a reversal of wind patterns: cool oceanic breeze blows over the hot Indian landmass, resulting in rainfall. It starts over Kerala, its first port of call in the Indian mainland, in the first week of June. The rain-bearing system typically covers the whole of India in a month.

How are rains recorded and the progress monitored?

Scientists can now fairly determine the monsoon’s course and quality. Monsoon is said to be normal when rainfall is between 96-104% of 80 centimetres, which is the 50-year average of rains during the season. Rainfall above 110% would mean surplus monsoon.

Why are the monsoons so important for India?

Two-thirds of Indians depend on farm income and over 40% of our cropped area does not have any form of irrigation other than the rains. Millions of farmers wait for the rains to begin summer sowing of major staples, such as rice, sugar, cotton, coarse cereals. Half of India’s farm output comes from summer crops dependent on the monsoon. For good farm output, the rains have to be not just robust but also evenly spread across states. The monsoon also replenishes 81 nationally-monitored water reservoirs vital for drinking, power and irrigation.

How does monsoon impact the economy?

When rain-dependent farm output is robust, rural income and therefore spending on almost everything — television sets to gold — goes up. This creates demand for manufactured goods, which in turn helps the general economy. For example, 48% of all motorcycles and 44% of TV sets are sold in rural India. Without this demand, industrial growth would slow down. Normal rains act as a strong check on inflation through plentiful food stocks.

How does deficient rainfall lead to higher prices?

Normal rains act as a strong check on food inflation by increasing food output and availibility. A drought instantly puts pressure on prices. Food inflation, if unchecked, can push up core inflation, such as prices of manufactured goods. The 2009 drought resulted in one of the highest inflation levels seen in almost a decade. Lower food output, a possibility if rains are deficient during June and July — the most crucial sowing months — could knock up retail food prices.

How critical are this year’s rains for the broader economy?

The government has estimated that India’s economy will grow at 4.9% in 2013-14, the second successive year of sub-5% growth. With the manufacturing sector showing little signs of revival, all hopes rest on this year’s monsoon rains to turn the economy around. Adequate rains, apart from acting as a strong check on inflation by boosting farm output, are critical for swift recovery, as India’s gross domestic product slowed down sharply to 4.7% in the quarter ending December. A strong farm sector output is critical to bring down food inflation. High inflation limits scope for the Reserve Bank of India (RBI) to cut high interest rates, which hamper business activity by making borrowing costlier. A good monsoon raises rural incomes, which helps the economy by fuelling demand for manufactured items.