How a good monsoon can help Indian economy recover from the pandemic

·Columnist
·4 min read

The India Meteorological Department has predicted a normal monsoon for 2021.

Most parts of the country can expect to get normal to above-normal rainfall, while the East and North East regions may get less rain.

Seasonal rainfall is likely to be 101% of the long period average (LPA) of 880 mm for the entire country. LPA is the average rainfall recorded over India between 1961 and 2010 and considered the normal rainfall. IMD’s forecast comes with a model error of plus and minus 4%.

IMD declares a monsoon season ‘normal’ when rainfall is between 96% and 104% of the LPA. The last two years, India recorded excess rainfall of 110% and 109% of LPA during the monsoon season.

Monsoon is likely to be normal this year in India, marking a hat-trick, as per Skymet. It has also said that the southwest monsoon in 2021 is likely to be ‘normal’ at 103% of the Long Period Average (LPA). Skymet’s forecast comes with a model error of plus-minus 5%.

The four-month-long southwest monsoon, which starts from June, brings India 70% of its annual rainfall.

Monsoon is making good progress in India after arriving a couple of days late. The season has begun well, with rainfall since June 1 being 21% above normal.

A good monsoon plays a very important role in Indian economy due to the following reasons:

  • 50%-60% of our population is dependent on agriculture.

  • 56% of India’s net sown area (land on which cultivation is done at least once a year) is dependent upon monsoon for watering the crops.

  • 56% area produces around 44% of India’s agricultural output.

A good monsoon results in a good harvest and bumper production. For the past two years 2019-20 and 2020-21, foodgrain production in India has touched record highs. Last year despite COVID, our output increased by 2.66%.

Bumper production increases food security of the country, This leads to an increase in stocks which are then used to provide free ration to the poor.

India currently has 3.5 times more stocks than the buffer norms fixed in January 2015.

These stocks were used last year to provide free ration to 80 crore beneficiaries for 8 months to help them tide over the economic devastation caused by the pandemic and the lockdowns. This policy is being implemented this year in the second wave as well.

A normal south-west monsoon along with comfortable buffer stocks should help to keep cereal price pressures in check. The weightage of food items in the Consumer Price Index which is used to measure inflation is 50%.

Hence a normal monsoon would ensure that inflation remains in the band of 4%-6% as targeted by the Reserve Bank of India.

Low inflation will help the Reserve Bank of India to continue with its stance of keeping interest rates low. Generally, central banks resort to an increase in interest rates to tackle high inflation.

Low rate scenario is required at a time when Indian economy is battling from the economic fallout of the pandemic. This will help fuel growth as it makes credit affordable. High rates will be a dampener at this juncture.

Normal monsoon will also improve the sentiment in rural India which has witnessed many coronavirus cases and deaths. It will lead to an increase in income of farmers and provide a boost to rural demand which has been facing pressure in the second wave.

India is a predominantly rural economy with 65% of the population residing in villages. The rural economy contributes 45%-50% to our gross domestic product. India is a predominantly consumption dependent economy unlike China which is export oriented.

A higher rural income after a good harvest will boost demand for consumer goods, two-wheelers, and tractors.

Consumption accounts for 55% of GDP, however, growth has been impacted in the last year due to the pandemic. Normal monsoon will provide a boost to rural incomes, rural demand, overall consumption and hence to the GDP as well.

A normal monsoon will also lead to reservoirs across India, which are responsible for water supply in cities, filling up. This will ensure that India does not suffer from the water crisis and cities do not face water cuts.

A good monsoon will also lead to an increase in production of hydro power which is a cleaner form of energy.

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