Monsoon - A Crucial Determinant of Economy

Posted in Finance Articles, Total Reads: 1159 , Published on 04 November 2013
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In economic slowdown, high food inflation, plummeting rupee, high deficits it is not completely wrong to assume that the India’s growth story is a thing of the past. Various planners are looking of determinants that are yet to be experimented and would put the economy back on the track of high growth.

 The one such determinant is ‘monsoon’. So far, the monsoon is 8% above its long period average in the period June-September, 2013. Of the 36 meteorological subdivisions, 30 have had normal or excess rainfall. The water level in 85 reservoirs is 129% of the storage in the corresponding period last year. This could be termed as the best monsoon in the last 17 years. So, how can India fully utilize the opportunity thus created by generous volume of rainfall? As it turns out, the opportunities it offers are plenty. Some of them discussed are as follows.

image:samuiblue, freedigitalphotos.net


BRINGING DOWN FOOD INFLATION

As more than India’s half cultivated area is rain-fed, there would be a significant amount of increase in the harvest. The increase in harvest would come from crops like oilseeds, pulses, cotton and coarse cereal. With food inflation in double digits, the increased agriculture output has the potential to bring it down. For it, the government needs to sell excessive grain stocks in order to make way for this year’s harvest. Hence, the growth in supply with the demand almost same would help bring the prices of grains and other farm products down. This would ultimately decrease the food inflation from a high 12% to at least a single digit.

CURRENT ACCOUNT DEFICIT

The current account deficit stands at a record high. So, how could monsoon bring any belief? Well to start, a good harvest would mean excess of grains, wheat and rice in the market. As the government also needs to clear the existing stock, there would be excess of these crops in the market. The government could thus focus on exporting these crops to give a boost to the agricultural imports and lowering the current account deficit. Once the food inflation goes down, the government could even think of reducing the subsidies on fuel and fertilizers in order to bring down the deficit.

AUTO AND MANUFACTURING SECTOR

After an abysmal growth rate in the manufacturing sector, the monsoon is helping a great deal to put it back on track. That’s right, the amount of rainfall is pushing the farmers to make the most of it. The farmers are fully utilizing the opportunity by purchasing tractors to increase their harvest further. Last year, tractor sales dipped by 2% due to erratic monsoons but the tractor sales in the April-June quarter this year have grown at a tremendous 23%. It is now up to the various tractors companies to devise a strategy to maintain the growth rate set by monsoon. One of them could include easy lending to the farmers. Below is the data reflecting the impact of monsoons on the sales of tractors in Q1.


POWER SECTOR

Every crisis offers an opportunity. The 1991 crisis gave us economic reforms. Discussing about the effects of rainfall on the power sector makes me remember my group discussion for admission at the prestigious University Business School, Panjab University. The topic was “climate change not a threat, but an opportunity for green business” to which I spoke mostly in favor of. The climate change or to be specific, high rainfall is considered to be an opportunity. The water level being 129%of the storage compared with last year offers more than what hydro plants could ask for. They could finally operate at their full capacity. The high generation and profits extracted from hydro plants would also help a great deal to strengthen the interest of the investors in the green business. Hence it would increase the power generation capacity and would bring about investment and employment thereby boosting the economy.

It could thus be seen, that rainfall would help lower the food inflation, create employment, decrease the current account deficit, increase the investment, increase the growth rate of auto, manufacturing and power sector. The generous amount of rainfall has laid the groundwork for a kick start of the economy. It is now up to the government to make the most of the vast potential that monsoon offers to the ailing Indian economy.


The article has been authored by Shukrant Jagotra, University Business School(UBS), Panjab University


REFERENCES:

  • www.imd.gov.in/
  • http://cvblog.in/2012/03/tractor-manufacturers-association




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