Early start of monsoon season bodes well for Indian economy

Vijay Mansukhani, the managing director of one of India’s biggest consumer electronics brands, is closely monitoring the progress of the monsoon rains, which hit the coast of Kerala in south India last week. The rain can have a major impact on his company’s sales of products, including televisions and washing machines, in rural India.

"The rains make a big difference," says Mr Mansukhani of Mumbai-based Mirc Electronics, which manufactures goods under the brand name Onida. "Agriculture is one of the main growth drivers for India. If the rains are good, the economy is good. If the rains are bad, things will be extremely quiet for a year."

Farmers and the entire agricultural sector in India are dependent on good levels of rainfall during the four-month monsoon season to ensure good production of crops, which in turn impacts rural spending on goods ranging from cars to gold. The signs are good so far, with the rains arriving in Kerala a few days earlier than normal, before gradually starting to make their way across the country.  Positive forecasts have also been issued by India’s meteorological department.

“A good monsoon bodes well for the country’s economy,” says Sujan Hajra, the chief economist at Anand Rathi, a financial services company based in Mumbai. He is optimistic that the economic growth will accelerate and food inflation will remain low, thus bringing down overall consumer prices

The latest economic growth figures for India, released by the government last Thursday showed gross domestic product growing at 7.7 per cent in the quarter between January and March, the highest level since the shock demonetisation move in November 2016, when the two most valuable banknotes were banned. The monsoon season will be critical in determining whether this revival continues. India depends on this southwest monsoon for 70 per cent of its annual rainfall.

Agriculture accounts for 17.4 per cent of India’s GDP, according to the World Bank. Half of the workforce in India depends on agriculture for their livelihoods, while the majority of the population live in rural areas, according to the Indian government. The spending power of the rural population in India has been on the rise, and good rains this year will only help fuel economic growth.

“In the last decade, policies and huge research and development spends by agri-companies have resulted in more disposable income in rural areas,” says Siddhartha Choudhary, the chief executive of DestaGlobal, an Indian company which operates an e-commerce website for the agriculture sector and an online information portal for farmers.

“Therefore if one were to look at this paradigm shift through a sectoral lens, one would realise that a primary target for the fast moving consumer goods, consumer durables and electronics sectors are the rural populace.”

Data reveals that the growth in rural spending is outpacing that of urban consumption growth. Sales for fast-moving consumer goods companies – which sell everyday products such as packaged foods and toiletries – grew by 15.1 per cent in the year to the end of March in rural areas compared to 12.6 per cent in urban India, according to market research firm Nielsen.

Revenues from rural India make up 40 to 45 per cent of India's 3.4 trillion rupee (Dh186bn) FMCG segment, according to Crisil, a ratings and research firm which is part of Standard & Poor's,

“Disposable incomes and demand are expected to rise following higher minimum support prices for crops, more non-agriculture rural employment, and expectation of adequate monsoon,” analysts at Crisil wrote in a research note.

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This is good news for business leaders like Mr Mansukhani in India, who now hope that the weather forecasters’ predictions for the monsoon rains will prove to be accurate, helping to brighten sales and the overall economy.

In the southern state of Tamil Nadu, farmer Ravi Chandran is also rejoicing at the early arrival of the rains.

"Rain, rain, don't go away," he says. Mr Chandran grows crops including rice, and in previous years, he has seen his production and that of other farmers hard-hit due to poor monsoon. So he is hopeful that this year production will be much better. He describes the monsoon as "our lifeline".

The state-run India Meteorological Department is predicting the rains this season will be 97 per cent of the long-term average. This average has been calculated at 89 centimetres over a 50-year period. Rainfall between 96 per cent and 104 per cent of this average is considered "normal" by the meteorological department.

Over the past two years, India has received normal levels of rain during the southwest monsoon, but before that the country had two consecutive years of drought, which led to crop failure and resulted in a surge in the number of debt-laden farmers committing suicide.

Despite the encouraging weather forecast, there are no guarantees of a good season.

“We like weather forecasters because they make economists look better – because they are wrong more often than economists,” jokes Mr Hajra. But the matter has serious implications for livelihoods, he adds.

Ramnath Mahale, a farmer from Nashik in the state of Maharashtra in western Indian, says that he is burdened with the equivalent of hundreds of dollars of debt that he cannot repay because of crop failure due to weak rains in recent years.

“We depend on the rains,” he says. “We have to hope that this year will be good. It will be  hard for us to survive if we don’t have water for our crops.”

Pankaj Agarwal, the co-founder and managing director of Just Organik products company, says that the good outlook for monsoon rains means "the agricultural output is going to be better than what it was in the last few years".

He explains that minimum support prices for crops that have been promised by the government to farmers are due to come into effect this season and will help farmers in the event that there is an excess of produce, which would lead to a steep drop in prices.

While the monsoon is critical for farmers, they are facing a number of other challenges. Ahead of the general elections scheduled for next year, the government has had to focus on spending more of its budget on trying to win over these vital votes. But many farmers still do not seem to be satisfied.

In some parts of the country, such as Punjab, farmers began a 10-day protest on Friday, dumping milk and vegetables on the roads, and trying to block supplies to cities, as they made demands for loan waivers and higher prices for their crops. Though, a good monsoon season will help ease some of the problems the sector is facing and alleviate the pressure on the government.