Good monsoon to spur rural demand, economy 

After two consecutive years of poor rainfall in many parts of the country, good monsoon forecast is a good augury; it will not only benefit agriculture and farmers but will also give a boost to India’s economy. The Indian Meteorological Department in its latest update retained its earlier above normal forecast for this year’s southwest monsoon, at 106 per cent of the Long Period Average (LPA).

According to forecast, heavy rain is expected over northwest, central and south peninsular India and this might be the heaviest monsoon rainfall since 1994, and also distributed well. It is forecast that during the second half of the four month season that starts in June will have more than above normal rains. Here are five reasons that are indispensable to watch out for a good monsoon.

Impact on agriculture
In the last two years there has been rain deficit of 12% in 2014 and 14% in 2015 that led to a protracted period of drought and rural distress and spurt in farmer suicides with 3,228 farmers committing suicide highest in 15 years in Maharashtra followed by Punjab, Telangana, Karnataka and Andhra Pradesh, due to crop failure and water depletion.

A good monsoon means good, which will bolster farm income and boost rural spending. It will also mean less of suicides acts. According to statistics, the water storage available in 91 major reservoirs of the country as on 26thMay, 2016, was just 17% of the total storage capacity of these reservoirs. A good monsoon will revive the storage capacity and there by easing supply of water for farm sector.

Impact on inflation
Despite drought, the retail inflation remained under check last year; it has started inching up again. Consumer price index-based retail inflation quickened in April to 5.39% and food prices rose by 6.23%, mainly on account of a sharp increase in the prices of pulses, sugar, meat and fish. A good monsoon will ensure bumper crop production, keeping downward pressure on the overall inflation level in the economy.

Impact on interest rates
The Reserve Bank of India, on 7th June, during its monetary policy review, kept the key interest rate, the repo rate unchanged with expectation that there will be a good monsoon. Moreover, the RBI has set the retail inflation target at 5% for March 2017. If price rises remain within the comfort level of the central bank, it is expected to cut interest rates further, helping revive demand in the economy.

Impact on rural demand
The consecutive droughts in a row have also meant that rural demand has declined significantly, leaving urban demand and public investment to drive the economy in the absence of pick-up in private investment. A normal to above normal monsoon is good news for rural demand and for food prices. Particularly, a good monsoon is critical to keeping domestic rural demand strong and would help bolster farm productivity, alleviate rural distress; boost rural income and consumption demand even while augmenting food supplies and keeping inflation under check.

Moreover, bumper crop production could also put downward pressure on prices, meaning less gain for farmers. For any gain, farmers also have to wait at least till end-October when the rain-fed Kharif crops are harvested.

Impact on economy
Due to back-to-back droughts, the farm sector growth contracted by 0.2% in 2014-15 and is estimated to grow at a poor 1.2% in 2015-16. Normal monsoon will mean better support to the economy from the farm sector. In fact, economists believe a good monsoon will be the swing factor this year, giving a one-time boost to the GDP number which is expected to be close to 7.8% in 2016-17 against 7.6% in the previous year and agriculture and allied activities, industry sector and service are expected to grow by 2.9 per cent,7.6 per cent and 8.8 per cent respectively.

By Gudipati Rajendera Kumar