Widget Image
HomeEconomicsImpact of Monsoons on the Indian Economy

Impact of Monsoons on the Indian Economy

By Parvathy VK

Monsoon refers to the big seasonal winds blowing from the Indian ocean and the Arabian sea bringing heavy rainfall. The term ‘monsoon’ was first used in the Indian subcontinent. This season lasts from June to September of each year. Indian economy is often called as ‘monsoon economy’. It is often stated that ‘agriculture is the backbone of Indian economy’. If so, it is then to be added that ‘monsoon is the backbone of Indian agriculture’. Indian agriculture is heavily dependent on monsoons. The production of crops like rice, cotton, oilseeds and coarse grains varies according to the arrival and availability of rainfall. Half of India’s farm products come from crops planted during the first half of June to September season. Now, the most important part, the relationship between a seasonal natural phenomenon and the growth of trillion dollar Indian economy- Good monsoons correlate with a booming economy, thus, giving signs of improved economic conditions and growth prospects. On the other hand, a week or failed monsoon can result in declined agricultural output, poor economic conditions, poverty and substantially hinder overall economic growth.

Agriculture sector accounts for around 17-20% of the GDP. 75% of Indians are directly or indirectly dependent on agriculture. If a good harvest brings prosperity in the economy, people’s standard of living and per capita income will be increased. Similarly, increased output reduces the nation’s dependency on import of food grains, thus enabling domestic producers to gain out of this situation.  India is regarded as world’s second largest producer of rice, wheat, sugar and cotton. Higher farm output will be reflected in food prices and help the government to take steps to cut the fiscal deficit and farm subsidies. It can also impact the demand for gold in India. Despite the economic slowdown and depreciation of Indian rupee, India continues to be a major importer of gold in the international market. Higher rainfall facilitates the irrigation of farm lands without depending on the motors which are run by using diesel and other oil products. Thus, the demand for subsidised diesel which is used for irrigational purpose and makes up for around 40% of India’s oil product demand can be controlled.

As per Indian meteorological department, monsoon is considered normal if rainfall is 96% to 104% of the long period average (50 years average). If the rainfall is 104% to 110% of LPA, it is above the normal level and a rainfall of 90% to 96% of LPA is regarded as below the normal level. Indian meteorological department in April this year predicted the monsoon to be normal at 98% of LPA. To add on to the expectations, this year we have a timely arrival of monsoon. Last year the availability of monsoon was 92% of LPA, which was below the normal level. As per the report by global research firm Ipsos, India’s economic confidence improved marginally despite the uncertainties that has affected our country, due to the prospect of good monsoon.

Despite significant advances in technology, Indian agriculture continues to be rain dependent and fluctuations in agricultural production continue to be driven by variations in the intensity of rain. In 2009, the availability of monsoon was not up to the mark and we had to depend on import of several food grains such as sugar. This resulted in the shoot up of global sugar prices to record highs pushing up inflation. Interestingly, the master brains at the apex bank and the key policy makers of the country are also chasing the monsoon like the millions of farmers in the country. Monsoon outlook and its impact on inflation would be a key factor in the central bank’s monetary policy actions.

Every year, the economy’s prospects and downfalls are being reflected in the gift of nature- monsoon.

In India, monsoon is the key to determine agricultural output, consumer spending, inflation and overall economic growth. If we are blessed with timely normal monsoons, it can definitely bring prosperity in our economy.