By Arjun Talwar

Edited by Sanchita Malhotra, Associate Editor, The Indian Economist

Dependence of Indian economy on monsoon is no longer as abysmal as it used to be during the British era. Unlike the mid-twentieth century, a bad rainfall today will not prove hostile for the nation. We have galloped in terms of technology and grain management to make ourselves prone to droughts. However, bad monsoon still continues to be a bugbear for the common man and the farmers. As food inflation rises with respect to the low rainfall, so does the public anger against the authorities. Dismayed with the rising prices, people curse the government.

Let us have a look on how monsoon affects our economy and food inflation.

Economy

In the current year, rainfall was 43% below average for the month of June. However, the effect of such low rainfall was not as biblical as it is thought to be. There are a couple of reasons for the same.

One. The industry and the service sector are at the helm of the ‘ship of growth’. This has provided insurance to our economy against low rainfall. The agriculture sector contributes to only 15%-17% of the Gross Domestic Product (GDP). This directly implies that in the short run, a bad monsoon will have no or very little impact on the overall economy.

Two. India maintains an adequate buffer stock of critical grains such as rice and wheat. According to statistics provided by Food Corporation of India (FCI), the Union government has 206.45 lakh tonnes of rice and 415.86 lakh tonnes of wheat as buffer stock in the month of June, 2014 (stats at http://fciweb.nic.in/upload/Stock/6.pdf ). By maintaining a balanced stock of these essential grains, we have equipped ourselves even to face the worst.

Both these factors have lent stability to our economy. We are assertive that even if the ‘Rain Gods’ are not benevolent, we shall not face a crisis. We are self-assured of our growth despite a poor rainfall. A live example for the same is the growth of SENSEX. It continues to grow and approach the 26,000 mark irrespective of the mood of monsoon.

Food Inflation

Even though the economy at large remains unaffected by monsoon, the agriculture sector takes a bad hit with every drop of rain that doesn’t fall. Only 32.2% of the total agricultural land is under irrigation as of 2009-10, according to reports by Directorate of Economics and Statistics (report- http://eands.dacnet.nic.in/Publication12-12-2012/Agriculture_at_a_Glance%202012/Pages85-136.pdf ). It is projected to be around 40% for the year 2014-15. Hence, over half of the agriculture area relies on good monsoon.

Uncertain, untimely and inadequate rainfall makes a dreadful combination for perishable food products. Unlike food grains, vegetables and fruits cannot be stocked in advance. Hence prices of such products shoot skywards owing to less precipitation, burning a hole in the common man’s pocket. As of May 2014, Consumer Price Index stood at 139.9 and Food Inflation at 9.4%. If the monsoon continues to be mischievous, food inflation is bound to increase, making it certain that many Indians would have to recalculate their monthly budget.

Also, this situation of high inflation, if it continues to exist, is inimical to revive the stagnant economy. High inflation rates would reduce the purchasing power of the people and in-turn leading to decreased consumption. This is not healthy for any economy in the long run, specially for developing economies like that of India.

We can conclude that a slow and below average monsoon, like that of the current year, shall not prove catastrophic for the economy. Though, it can certainly sore the food inflation by a few basis points. Investment in infrastructure is necessary so as to improve the irrigation facilities. A total overhaul of the system is required, including rain water harvesting, availability of electricity for running tubewells and promotion of use of local water storage tanks. This would help to increase resistance against bad rainfall and would ensure the farmers of a good yield.


Arjun is currently pursuing Economics (H) from Moti Lal Nehru College, Delhi University. He has a habit to discuss politics and current affairs over the dining table (like most Indians!) He is a loquacious speaker yet an avid listener who loves to chill with friends. He is a debater at heart and desires of travelling long distances. Watching movies and cricket is what he craves for in his free time. He can be contacted at atalwar00@gmail.com

Posted by The Indian Economist | For the Curious Mind