Abu Dhabi, UAEWednesday 21 August 2019

How India’s economy is suffering from lack of monsoon rains

The largely agrarian country relies heavily on ample rainfall for healthy farm yields

While some parts of India are devastating by heavy rains and floods, overall monsoon rains this year so far have been less than their long-term yearly average, a worry for farming community. EPA
While some parts of India are devastating by heavy rains and floods, overall monsoon rains this year so far have been less than their long-term yearly average, a worry for farming community. EPA

For Prahlad Devarhubli, a farmer in southern Indian state of Karnataka, watching the skies closely is a daily ritual during the monsoon season. So far this year, the rains have been less than what was expected for the area and he is worried about how this is going to affect his crops.

“I’m very much worried about the monsoon and getting proper farm income this year,” says Mr Devarhubli.

It is not only farmers who are concerned about the monsoon rains. How much rainfall occurs has implications for the wider Indian economy.

While the poor rains will have direct effect in terms of corp yields, income for farmers and rural spending, it can equally hurt people in urban cities as deficient rains can drive up food prices and push inflation higher.

“India’s economy is mainly driven by domestic consumption,” says Abhishek Bansal, the chairman of ABans Group of Companies, a Mumbai company with diverse interests including agricultural trading and investment management.

“A monsoon shortage leads to unemployment, shortage of food grains and also affects the day-to-day economic and social conditions,” he says.

India depends on the monsoon season between June and September for more than 70 per cent of its annual rainfall. Despite the fact that parts of the north and north-east have been reeling under devastating and deadly floods, the overall rainfall in the country has been patchy.

Data from the Indian Meteorological Department (IMD) show that rains were 20 per cent below average in the week to Wednesday. They are 16 per cent below average since the beginning of the monsoon season, which officially started on June 1. This year, the arrival of the monsoon rains was also delayed. The IMD defines normal rainfall to be between 96 per cent to 104 per cent of a 50-year average of 89cm for the four-month monsoon season.

“Different crops are sowed at particular periods to get optimum yield,” says Mr Devarhubli. “If you didn’t get the rains during that particular period, the farmer has to skip sowing that particular crop.”

Agriculture forms a major part of the Indian economy, accounting for 14.5 per cent of its gross domestic product, the World Bank data show. Almost half of the country’s workforce depends on agriculture for livelihood and most of the population still lives in rural areas, according to statistics by the Indian government.

The monsoons and its potential impact on the country’s economy is always a focus, but this year, the attention is sharper as India faces internal and external economic challenges.

Adequate rains, or lack of it, could play a critical role in how the economy fares going forward.

The latest government data reveals that India’s economy has slowed to a five-year low of 5.8 per cent in the first three months of the current financial year. Consumer spending has also taken a hit, suggests data. Car sales figures for June show a 24 per cent year-on-year decline to 139,628 vehicles sold, according to figures from the Society of Indian Automobile Manufacturers.

In addition, rural areas in particular are seeing weaker growth in everyday consumer spending, reveals a report released on Wednesday by global consumer insights company, Nielsen.

“Rural growth is slowing down at double the rate of urban in recent quarters,” according to the report. “As an agrarian economy, rainfall, or the lack of it, plays a critical role in defining India’s growth story.”

Rural India makes up 37 per cent of the country’s overall spending on fast moving consumer goods, which include items ranging from toothpaste to packaged foods.

Spending in rural areas has historically been experiencing growth levels that are 3 to 5 per cent higher than urban India, according to Nielsen. But the slowdown in the second quarter of this year brings its expansion rate down to a similar level to urban areas, the researcher says.

India is aiming to almost double the size of its GDP to become a $5 trillion (Dh18.4tn) economy by 2024.

But this “doesn’t appear to be feasible without the revival of the agricultural sector”, says Mr Bansal.

Rainfall during the monsoon last year was below average and a second year of poor rains would compound the problems for the farming community. In recent years, farmers have been grappling with drought and rising costs, and there is a surge in the number of debt-laden farmers committing suicide.

The government has, however, made promises to double income for farmers by 2022 and announced measures to help the sector, including cash handouts.

The government’s generosity may not be enough if the rains do not pick up as the monsoon season progresses.

Farmers typically plant crops such as rice, cotton, soybean, and corn in June and July, and the harvests are in October. However, due to the delay in rains, Mr Devarhubli says he has skipped sowing soybean, green gram and cabbage at his farm this year.

Seeds can all too easily be destroyed by heavy rains, he says.

“We received light drizzling for 15 days, which was helpful for sowing, but now in a single day or two, a whole week or sometimes a month’s rain hits the land damaging the top soil and the sowed seeds,” says Mr Devarhubli.

“Then suddenly there will be dry days for a week or more. This uncertainty is the worry for us,” he says.

Suvodeep Rakshit, a senior economist at Kotak Institutional Equities says that for now the “monsoon remains in deficit without much improvement”.

He cites data on crop sowing from India’s ministry of agriculture, which reveals that rice sowing as of July 12 was down by 11 per cent at 9.8 million hectares compared with last year, while pulses were down 25.2 per cent on last year, and seed oil was 9.7 per cent lower. If there is drop in seed oil production in particular, this is a concern because it means that India would have to rely on costly imports of vegetable oil.

The country’s annual imports of vegetable oil amount up to $10 billion, which makes it the third largest import item for India, surpassed by imports of crude and gold.

Although, the past week’s monsoon performance has been poor, IMD figures show that monsoon deficiency across the country has eased overall compared to the beginning of the season. Overall rain deficiency has dropped to 14 per cent as of July 16 compared to being down by 43 per cent earlier in the season.

“But delayed arrival [of monsoon rains] this year continues to weigh heavily on the outcome of agriculture output, and, hence, rural income,” says Sparsh Chhabra, an economist at Centrum, an Indian financial services company.

Tractor sales in India, often seen as a measure of the health of the rural economy, are down, indicating farmers have been holding back on buying this year. Tractor sales have contracted over the past five months compared to the high double-digit growth in second half of 2018. Sales were down by 13.6 per cent in June

compared to growth of 35 per cent in the same month a year-earlier, according to the Tractor Manufacturers Association in India.

“The recent ongoing moderation in rural economic activity is largely attributable to the overall weak macroeconomic scenario, lower government spending, and tighter liquidity conditions coupled with lower credit availability,” says Mr Chhabra.

With more than two months of the monsoon season left, there is a chance that things could turn around and give a much-needed boost to the rural economy, analysts say.

Mr Bansal remains optimistic this may turn out to be the case, saying that “there is a good chance of revival of the monsoon”.

Updated: July 21, 2019 08:41 AM

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