How dependent is India on monsoon rains?
India Today
Monsoon rains have an impact on water levels, temperature and prices of essential commodities in India. Here’s how the monsoons affect major economic indicators in the country.
India’s dependence on monsoon rains is quite high. The monsoon rainfall is essential to maintain an optimum level of storage in 140 reservoirs. It brings respite from the scorching summer heat. Further, fodder and milk prices have shown a strong correlation with monsoon rains. But does it directly affect the leading economic indicators in a short term?
Analysis of recent data shows that when it comes to impacting foodgrain production or deciding the course of inflation trajectory, abundant or deficient rain is only one of several factors.
"To meet the growing demand for water from the agriculture sector, irrigation infrastructure has expanded at a considerable pace, making India a food sufficient nation by reducing its dependence on monsoons," RBI said in its May bulletin.
Data shows that foodgrain production has grown even in monsoon deficient years. Monsoon rainfall was consistently less than normal during the financial years 2017, 2018, and 2019. But the overall foodgrain production kept rising every year.
Reserve Bank of India’s analysis shows that what matters is the net area sown and not so much the extent of monsoon rain. The central bank noted, “A 34 percentage point change in the SWM (southwest monsoon) can affect the growth of agricultural production by about eight percentage points while a six percentage point change in the net sown area could change agricultural production by seven percentage points.”
The effect of less rainfall doesn’t quickly show on inflation but it may come with a lag, rating agency Crisil’s chief economist DK Joshi told India Today. More than 40 per cent of the sown area depends on monsoon rain but it is not only that the average monsoon rainfall can make a difference. The distribution of rainfall is important, which means that the right amount of rain should pour when the crops need them the most, he added.
One of the other reasons for the feeble relationship between monsoon and key economic indicators could be the reducing salience of agri-economy even in rural areas. While agri-economy contributes nearly 20 per cent to India’s gross domestic product, it accounts for around a fourth of the rural economy.
