After facing drought for two consecutive years and 2015 being the driest year, rain showers for this year have brought along them a ray of hope not only for the farmers, but for whole economy as well. The MET department has announced ‘above normal’ rainfall between 104-110% of LPA (long period average). It would augur well for agricultural sector which is under stress due to poor seasonal rainfall for last two years. This has enlightened a kind of relief in the economy as the last two years conditions had made everyone worry about the agricultural sector and its affected areas.
National Council for Applied Economic and Research (NCAER) estimated GDP to grow at 7.6% in the fiscal yr 2015-16 and about 7.7% in 2016-17 due to favorable monsoon. Although the figures attract all, but there must be a note of caution as these figures are due to monsoon. Monsoon is likely to affect the economy’s various sectors in some or the other ways. Exports are expected to contract by 1.6%; wholesale price inflation is projected to grow at .9% during the year 2016-17. Low growth of agricultural sector during 2015-16 was due to bad monsoons. Agriculture in total constitutes 15% to India’s GDP and about 60% people are employed in agriculture; favorable monsoon this fiscal year would boost the GDP and prove beneficial to the people associated with this sector.
Above normal’ monsoon would not affect exports or income alone, but affect the share market as well. Anticipation of healthy monsoon itself boosted the market sentiments; stock markets saw a high in agriculture related shares after months. Agriculture sector has direct linkage with industrial and service sectors. This result in direct bearing on rural economy and consumption, meaning earning recovery will be seen in many companies. The linkages between these three sectors will turn out to be beneficial for all as hit monsoon will not only benefit agricultural sector. Another important thing that is marked by a good monsoon is a check on the inflation. As there is increased food articles supply, inflation is in check because of which the interest rates are lowered, and lower interest rates are beneficial for market and economy as it supports industrial growth. Favorable monsoon creates a positive market scenario and there is positive perception in the economy; this attracts investors not only from within the country but also catches the eye of foreign investors. As plenty of output is generated, domestic consumption boosts as rural income increases due to monsoon conditions. Due to huge output, India’s demand from foreign countries would decrease as well.
Not only this, but the automotive industry is affected too. Due to favorable monsoon, the demand for tractors increases. The expected sale of tractors this year is to be 25% more than the previous year. Not alone this, but the consumer sentiments in rural areas change as they earn more and hence their demand for a two-wheeler or even a low cost four-wheeler increases. Thus, it’s not only the agriculture sector that enjoys the monsoon but others gain from it as well.
An ‘above normal’ monsoon this year has definitely improved the situation, but it is too early to conclude that the economy is on a full-fledged recovery as improvement is not sufficiently broad based.1