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Patchy monsoon may hurt India economic recovery

A patchy start to India’s annual monsoon has raised doubts about a nascent economic upturn, as the poor rainfall in June could hurt growth, push up food prices and prompt more government spending to support farmers.

india Updated: Jul 04, 2009 02:41 IST

A patchy start to India’s annual monsoon has raised doubts about a nascent economic upturn, as the poor rainfall in June could hurt growth, push up food prices and prompt more government spending to support farmers.

The monsoon, crucial to a farm sector that accounts for about a sixth of economic output, has stalled after an early start. In the week ended June 17, rains were 51 percent below normal, the Meteorological Department said last week.

“Delay in monsoon will play the spoilsport and may hit GDP by at least 1 to 1.5 percentage points,” V.K. Sharma, head of research at Anagram Stock Broking in Ahmedabad.

“And a monsoon failure might see the government take more social security measures, which will widen the deficit.”

Recent data on growth, factory output and manufacturing have fanned hopes that the domestic-demand-driven economy, battling a widening fiscal deficit, may be on the mend.

The World Bank on Monday said India would grow 5.1 percent in 2009. While above the bank’s earlier forecast, it is still below 6.7 percent in 2008/09 and more than 9 percent growth in previous years.

The June-September monsoon rains are a major influence on the economy, as two-thirds of Indians depend on agriculture and large areas of the vast south Asian country suffer from a lack of modern irrigation facilities. The monsoon is crucial for summer-sown crops such as rice, soybean, sugarcane and cotton, and as temperatures rise across the country, Indians are getting desperate for rains.

The farm minister in central Chhattisgarh state held a prayer ceremony hoping the region would get rains soon, and media reported farmers in the western city of Nagpur organised a wedding of two frogs to please the rain gods.

Media reports also say several states are drawing up plans to counter the impact of paltry rains.

But Montek Singh Ahluwalia, a key official in Prime Minister Manmohan Singh’s government, said on Tuesday delayed monsoon rains may not impact the economy much.

EL NINO?

Forecasting the monsoon is one of the most important events in the country: while weather officials use scientific skills and data to track the rain, holy men and astrologers rely on traditional knowledge to make predictions.

“It appears El Nino has influenced the monsoon progress,” a weather office official, who did not wish to be named as he is not authorised to talk to the press, told Reuters.

When El Nino, a weather condition marked by warming of the eastern equatorial Pacific Ocean waters, hits the monsoon it can cause a lack of rains and even drought.

The weather office will review the monsoon’s progress on June 25, when it is expected to outline the impact of El Nino.

A delay in monsoon rains is bad news for policy makers, who were upbeat about the prospects of the farm sector, seen as a key motor for national demand in the economy.

The farm sector accounts for nearly 17 percent of India’s gross domestic product and provides a livelihood for most of the 1.1 billion population.

Poor monsoon rains could dent rural demand, hurt corporate profitability and undermine sentiment in financial markets.

Companies such as Maruti Suzuki India <MRTI.BO>, Hero Honda Motors <HROH.BO>, and Hindustan Unilever <HLL.BO> drew strength from a robust rural market during the economic slowdown.

Robust monsoon rains often leads to bumper harvests, which in turn raises farm incomes and increases demand for goods ranging from television to cars and lends support to factory output.

Some economists said it was too early to write off the monsoon, but the delay would cause some stress.

“The delay is not a good signal. Food prices are already high and any delay could push food prices higher. Food price inflation could emerge as a concern,” said D.K. Joshi, principal economist at credit ratings agency Crisil.

India’s wholesale price inflation fell in annual terms in early June, reflecting sharp price rises a year earlier when oil surged to a record high, but the price index has been rising since March due to a pick-up in demand and price pressures.

The government is due to unveil its 2009/10 budget on July 6, and is expected to spell out its spending plans to boost growth and revive sectors hit by the global slowdown.