India may need major rainfalls to reverse its economic slowdown

  • India’s agriculture sector accounts for around 14% of the country’s $2.7 trillion economy and 42% of total employment, said Rajiv Biswas, chief economist in Asia Pacific for consultancy IHS Markit.
  • With around 55% of India’s arable land dependent on precipitation, the amount of rainfall during the current monsoon season could sway economic activity in the agriculture sector and industries linked to it.
  • That slow start to the monsoon harvest season has prompted the government to raise minimum support prices for all of the current season’s crops to help support farmers’ incomes, according to local media.

needs this year’s monsoon season to deliver heavier rainfall that will boost farm output and economic growth — but the country has been disappointed so far.

Asia’s third-largest economy ended June — the first month of the monsoon season — with total rainfall 33% below its 50-year average, according to Citi, which cited data from the India Meteorological Department. Rain has picked up in July and the total rainfall this month will affect India’s agricultural output and overall economic momentum, analysts said.

“Major crop-sowing takes place in July. This is the critical monsoon month for the agriculture sector when more than 50.0% of the Kharif crop sowing takes place,” analysts from Citi wrote in a report last week. Kharif crops include rice, maize, sorghum and cotton, and are planted during the monsoon season.

The agriculture sector in India is both economically and politically important. The industry accounts for around 14% of the country’s $2.7 trillion economy and 42% of total employment, according to Rajiv Biswas, chief economist in Asia Pacific for consultancy IHS Markit.

About one-third of India’s manufacturing output — which makes up around 18% of the country’s gross domestic product — is linked to turning agricultural products into food, Biswas noted. And with around 55% of India’s arable land dependent on rain, the monsoon season could sway economic activity in the agriculture sector and industries linked to it.

India’s economic growth slumped to 5.8% in the January-to-March period compared to 6.6% in the previous three months due in large part to poor performance in the agriculture and manufacturing industries.

“The overall Indian economy remains very vulnerable to the monsoon, since poor rainfall can significantly reduce agricultural production,” Biswas told CNBC in an email.

“If farm incomes are reduced by a poor monsoon season, it also impacts negatively on agricultural processing output (as well as) retail trade and other services in rural regions,” he added.

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