The official 4 month monsoon season (June – September) has ended and the cumulative rainfall falls into the “average” category (from -20% to + 20% of the long-term average), but only just, at -14% for the country as a whole. Rainfall was high in June, quite low in July and August and recovered somewhat in September. Good rainfall continues in October as the monsoon withdraws. Much of this is in deficient regions of Central and South India which will further mitigate the deficiency numbers.
There is some relief that in spite of 2015 being an El Niño year, the overall picture is one of some deficiency but no disaster. Locally there have been wide variations, even between contiguous regions:
- Jammu & Kashmir recorded 15% excess rains, while next door, Himachal Pradesh was 23% deficient.
- West Rajasthan recorded 46% excess, while East Rajasthan ended 10% down.
- Telangana remained rain deficit to the tune of 20% and Andhra Pradesh recorded 10% excess.
- West Madhya Pradesh recorded normal rains and was at +4% while East Madhya Pradesh was 29% in deficit.
- West Bengal recorded 8% excess while adjacent Jharkhand was 14% in deficit.
- Both Marathwada (-40%) and Vidarbha (-11%) were in rain deficit but the variation was large.
From a growth perspective, the 2015 monsoon will be a neutral event (i.e. it will make its “normal” contribution to the economic cycle). The impact will not provide any additional impetus to growth but will not hinder growth either.
As the Reserve Bank has now reduced its reference interest rates by 50 basis points and most of the banks now seem to be passing on about 40 basis point reductions to their lending rates, the cost of lending is likely – for this year – to be have a much greater impact on the economy than the effects of the monsoon. But at least the monsoon will now play its “normal” part in feeding the economic cycle. The monsoon deficiency should not contribute too much to inflation in food prices.
The immediate impact of a good monsoon is increased employment in rural areas (September – October) followed by increased rural consumption of consumer goods (October – December) and even sales of two-wheelers and tractors (November – March). Pesticide sales increase during the monsoon and again in the following pre-monsoon period. Fertiliser sales pick-up strongly in the pre-monsoon period following a good monsoon. The December – June period following a good monsoon is when rural “investments” are mainly made (machinery, equipment, construction, consumer goods). The indirect effects of agriculture on the services and manufacturing sectors are critical. However, even more important is the effect of a good monsoon on food price stability and general economic sentiment.
But I foresee no booms or fireworks in Indian economic activity over the next 6 months. That requires – among other things – the “feel-good” factor that a bumper monsoon brings. Still, 12 months of steady, sustainable growth is probably more valuable than some short-lived volatile balloon of activity.
After the China circus, steady rather than spectacular will be a welcome relief.