Economy romancing monsoon: a perfect antidote to deal with industrial slowdown
India has been hit by a crippling industrial deceleration as factories, squeezed by high borrowing and raw material costs, are producing less.Can monsoon rain turn the economy around?business Updated: Nov 01, 2013 09:38 IST
There is more to the summer rains than the romance of pitter-patter.
Besides providing relief from a sticky summer, the monsoon is also the life-blood of India’s economy.
India has been hit by a crippling industrial deceleration as factories, squeezed by high borrowing and raw material costs, are producing less.Can monsoon rain turn the economy around?
The Reserve Bank of India (RBI) believes it can, but only just.
“A good monsoon and pick-up in exports, if sustained, could provide some momentum. At this stage, demand management requires balancing fiscal consolidation with investment support,” RBI said.
India’s agriculture output grew 2.7% during April to June this year, down from 2.9% last year, while overall GDP grew at four-year low of 4.4% during the quarter.
A good monsoon raises food output and improves farm income, which supports a third of Indians, or about 800 million people.
Rural spending on most items —from television sets to gold — goes up with adequate rains and farm output.
This aids economic growth, keeps jobs and investment going.
A sharp rise in rural consumer spending explains why India’s rural markets are important.
When rain-dependent farm output is robust, rural income and therefore spending on almost everything — TV sets to gold, from personal care products to processed food — goes up.
A normal monsoon could, thus, well turn out to be 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.
Skyrocketing onion and vegetable prices and costlier staples such rice pushed India’s wholesale inflation to a seven-month high in September to 6.46%, while retail inflation quickened 9.84% during the month as rising cost of living, flat income growth and shrinking job opportunities was making getting by get harder for millions of Indians in a festive month.
The government is hoping food prices will start falling on the back of a good monsoon this year, but cyclone Phailin, which left a trail of destruction along the eastern coast, has wrecked a fertile rice-growing belt, where the main summer crop is at a ripening stage, which could have a bearing on cereal prices.