By Mansha Bajaj

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

Monsoon is traditionally defined as a seasonal reversing wind accompanied by corresponding changes in precipitation. To the “aam aadmi”, monsoon might mean just ‘rains’ without having any knowledge of the fact that monsoon not only brings changes in the precipitation, but also in the income and spending level of the ordinary people, especially in India, where a large part of our economy is vitally linked to agriculture due to its water resources. And agriculture depends on the amount and distribution of monsoon rainfall over the country.

It’s a well known fact that a large part of our country gets more than 75% of the annual rainfall during the four months, June to September. If India suffers from rainfall fluctuations at any time during the year, what does this really mean for the Indian economy? The first and the direct impact of this rainfall fluctuation can be seen on the agricultural output since, as pointed out earlier, a large part of the agricultural produce comes from the monsoon fed crops. Good monsoon means a good harvest and brings in cheers all around India and vice-versa is the case for a weak monsoon. A weak or bad monsoon is always considered as a big setback to India’s economy and always results in a big loss in the country GDP levels. There could also be below normal rainfall in the initial months of the season followed by above normal monsoons in the later months. A delayed monsoon may lead to delayed sowing, and thereby impacts yields.

The impact of monsoon on agriculture, and thereby on our country’s economy can be studied for two different types of crops- ‘Kharif’ crops and ‘Rabi’ crops. Also known as the monsoon crops, Kharif crops are usually sown with the beginning of the first rains towards the end of May in the state of Kerala during the advent of south-west monsoon season. Rabi crops, on the other hand, are grown between mid November to April. Rainfall has a great influence in the kharif (summer season) because about 55% of the cropped area is dependent onthe monsoon rains and does not have irrigation support. While the impact on monsoon crops may be direct, there is also an indirect impact on rabi or winter crops. Ramesh Chand, director, National Centre for Agricultural Economics and Policy (NCAP) says, “Rainfall during June-September season impacts ground water and reservoir levels and is also critical for the irrigation of rabi crops”.

Another aspect of the impact of monsoon rains on the Indian economy is the generation of hydro-electric power from monsoon rain water. Hydro-electric power constitutes about 40% of power from all sources. With proper surveys and planning of additional hydro-electric power projects this percentage could, perhaps, be further substantially increased. A distinct advantage of hydro-electric power over all other types of energy is that its source, monsoon water, is perennial, although it shows some fluctuations from year to year. The wind power can be used for electricity, drawing water and grinding corn.

In 2011-12, despite good monsoons, production of pulses, oilseeds and coarse cereals were low as the spread of rainfall in the western belt was affected, points out Ashok Gulati, chairman of Commission for Agricultural Costs and Prices (CACP).The great drought of 2009 points to another case where food grain production actually marginally increased compared to the 2003 drought when food grain production declined by 17%. Why? This was because the 2009 drought was concentrated in areas around Punjab and western UP and crop output in the heavily irrigated regions wasn’t much affected. So, we can conclude that the impact of rainfall on agricultural production also varies depending on how rainfall is distributed across states and the distribution over the months.

We are acquainted with the fact that agriculture contributes to 17% of India’s GDP and provides employment to 58% of the population. It means that any impact of monsoons on the agricultural growth would feed into prices, incomes and GDP growth.  Economists say that the relationship between monsoons and rural incomes is tenuous at best and the impact on income varies from crop to crop. For instance, according to NCAP’s Chand, in years of good monsoons, farmers tend to shift towards production of high-income crops like wheat and rice from low-income crops like coarse cereals, so there is definitely some income effect.

Also, rainfall can have an impact on the storage of agricultural output. For instance, with a record production of food grain estimated in 2011, normal monsoons put further pressure on its storage. By June 1, 2012, there were 75 million tonnes of food grain stocks while the total storage capacity was less than 50 million. The rest were more or less exposed to rain damage.

The substantial increase in the price of food articles has been a key driver of inflation in recent years. Food prices increase due to the shortage of supply of food grain. This shortage can be due to various reasons, some of them being due to rainfall fluctuations. Though, India is largely self-sufficient in major food grains such as rice and wheat, but drought can send the country to global markets. In 2009, India had to import sugar, sending global prices to record highs and pushing up inflation. However, normal rainfall tends to have a moderating effect on agriculture prices. But a normal monsoon is not the only factor. YK Alagh, an agriculture expert, says, “Food inflation is due to articles like vegetables, fruits and milk which depend on the demand side of the economy and monsoons have a much lower impact on these”. And government policy plays a big part too. For example, if the government accepts the CACP recommendations of an increase in the minimum price to be paid to farmers, prices could be pushed higher as well. Another point to note in this aspect includes that monsoon rains also impact the demand for gold in India, the world’s top consumer of the metal, as purchases get a boost when farming incomes rise amid high crop output.

This year, India’s June monsoon rain has been below normal, threatening efforts to revive the sluggish economy and raising the sceptre of high prices. The major crop-growing states of the north are witnessing rainfall deficit by almost 42%. The rainfall in June is among the lowest in a decade. But India may be lucky enough to escape the worst that can be caused by a severe El Nino (El Nino is characterised by unusually warm ocean surface temper). The World Meteorological Organisation (WMO) said that the weather phenomenon’s intensity may be moderate rather than strong or weak. The India Meteorological Organisation is already expecting better rainfall in July than in June.

Fears about a below-normal monsoon have spooked policy-makers and farmers with large parts of the country having received deficient rain in the first month of the monsoon season. A hit to agriculture this year will have a direct impact on India’s $2-trillion economy and companies that depend directly or indirectly on the farm sector and rural consumption. Ten stocks that are likely to be vulnerable if monsoon fails are- ET Intelligence Group, Jain Irrigation, Kaveri Seeds, M&M Financial Services, Hindustan Unilever, Escorts, Kirloskar Brothers, Rashtriya Chemicals & Fertilisers, Balrampur Chini and Hero Motocorp.

India’s new Narendra Modi government will be tested as the country’s critical monsoon rains are delayed. Fears are that the hold-up could lead to a huge rainfall deficit. The tardy, weak rains have caused a near drought as fields have dried up under the scorching heat. The sowing of main crops such as corn, paddy and sugarcane could be delayed in a rain-dependent country where about half of all the farms lack irrigation systems. Reservoir levels are only one fourth of last year’s levels. A weak monsoon is already sending food prices shooting up and sparking inflation. The price of onions has climbed over 20% in the past weeks. The government has restricted export of the commodity while attempting to crack down on hoarders. The rising prices will hit India’s poor, and the resulting inflation will also impact interest rates. This might put additional cost burdens on the industry and have an overall effect on the new government’s plans for an economic revival.

Also, the population of India is increasing at a much faster rate than the total food grains production and soon the country may be facing a serious economic crisis. A large part of the monsoon water which is currently unutilized should be held at suitable locations for irrigation and possible power generation. Also, we hope that the monsoon is just delayed and will revive in July.


Mansha is currently pursuing B.com (H) from Shri Ram College Of Commerce. She is a passionate writer who wishes to bring change in the world through her writing. Feminist by nature, she takes keen interest in issues relating to women. She finds pleasure in reading novels, specially those written by Sidney Sheldon and Nicholas Sparks. Her other interests vary from dancing to sports, particularly table tennis.

 

Posted by The Indian Economist | For the Curious Mind