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Crucial monsoon now sweeping across India

The monsoon in India is as eagerly anticipated in the retail and property sectors as it is by farmers, as the rains have a major effect on all faces of the economy.

A farmer ploughs a paddy field as the monsoon rains fall. Noah Seelam / AFP
A farmer ploughs a paddy field as the monsoon rains fall. Noah Seelam / AFP

The monsoon in India is as eagerly anticipated in the retail and property sectors as it is by farmers, as the rains have a major effect on the economy and spending patterns across the country.

The four-month wet season is off to a strong start this year, with rains progressing steadily across the country. Last year, the monsoon's slow progression left many areas in drought and was one of the factors that dragged India's economic growth to a decade low.

"The Indian economy is vitally linked with the monsoon," said Hanish Kumar Sinha, the head of the trade and commodity intelligence group at National Collateral Management Services, a commodities risk management company.

"A large part of the country gets more than 75 per cent of the annual rainfall during the four months, June to September. Indian agriculture has been consistently facing increased pressure on account of population growth and its extensive reliability on monsoon rains," he explained. "A lack of improved irrigation facilities has resulted in excessive dependence on the monsoon, and a slight variation in the amount and the timing of the monsoon has a serious impact on the overall food grain production of the country."

Almost 70 per cent of the country's population lives in rural areas. A weak monsoon season reduces the spending power among those who are employed in agriculture, while a strong monsoon boosts consumer spending.

Higher food prices that result from a poor monsoon mean that the disposable incomes of Indians across the country are reduced, which in turn affects retailers.

"The monsoon is absolutely crucial for the Indian economy," said Ankur Bisen, the vice president of retail and consumer products division at Technopak, a consultancy in India.

"Monsoon patterns do determine agricultural productivity, the spend of consumers in India, food security, and as a result has an impact at many levels. It is very, very important for the Indian economy how the monsoon turns out every year."

Higher food prices feed into inflation, which is already at uncomfortably high levels. "In the rural economy, if the monsoon is bad, [the] power to spend both on food and discretionary purchases decreases. Even in urban India, the fact that food prices go up, it does tend to play out in the consumption patterns in India."

Even the car industry is not spared from the whims of the rains.

"There is a correlation between the monsoon and the automobile sector," said Mitul Shah, an auto analyst at Karvy Stock Broking. "If the good monsoon comes, then it drives the overall economic growth in the rural area and this drives the overall sentiment and agriculture incomes also helps, particularly passenger vehicles and two-wheelers.

"Last year there was a drought kind of situation in the southern region and some parts of the western belt, so that affected the overall performance of the industry for the country.

"This year, if the monsoon plays out as expected with the positive forecast, that will help drive the positive growth for the overall industry also and the second half will be much better than the first half."

Even home purchases are influenced by the rains.

"Normal monsoon in India is very, very critical," said VK Sharma, the managing director and chief executive of LIC Housing Finance. "Once that increases, then all other industries will grow.

"When other sectors are affected, [potential home buyers] will delay their purchases. The monsoon is the crucial part of the entire economy in India."

Food grain production is expected to increase this year because of the anticipation of a normal monsoon, according to Mr Sinha. But he explained that there would be harsh implications should conditions deteriorate.

"The impact of the lower or poor monsoon is cascading because if the monsoon dependent arable land does not produce the optimum yield, not only the exports would suffer - in rice, wheat, sugar and cotton - but the domestic economy would have to undergo a financial regression for having to make room for payments of imports which results in the widening of current account deficits, and therefore affecting the economy adversely."