Tryst with the Monsoon

The rains have implications beyond agriculture for the national economy as a whole, including boosting investor confidence in the stock market

N Chandra Mohan Delhi

India might soon become a global manufacturing hub but its economic fortunes still depend on its annual tryst with the southwest monsoon. Every finance minister is, in fact, a “prisoner to the monsoon”, to borrow an expression of P Chidambaram, the current occupant of that job. In fact, he alluded to the fact that the “monsoon has set in and is expected to be good”, besides listing other economic fundamentals, in his efforts to talk up investor sentiment when the Indian stock markets tanked during the third week of May.   

Although the country is industrialising rapidly, it still remains an agrarian economy with vast tracts of cultivable area still dependent on rains. The share of agriculture in the nation’s gross domestic product (GDP) may be only 20 per cent but 60 per cent of the workforce still lives off the land. It is this segment that gazes skywards and eagerly awaits the monsoon-bearing dark clouds crossing the coast of the state of Kerala in June; sweeping over the peninsula and blanketing the rest of India with rain till September.

Like the passage of the four seasons, the southwest monsoon too arrives with unfailing regularity although there is no telling exactly when it sets in or its dispersion over time and space. These uncertainties, however, don’t faze the India Meteorological Department or Met as it invariably forecasts that the rains will be normal, which is more than 90 per cent of the long-term period average of 88 mm. This year, too, the Met made its forecast of normal rainfall that is 93 per cent of the long-term period average. 

Naturally, all of this is music to the ears of the country’s policymakers like Chidambaram. A normal monsoon is considered a good augury for higher grain production in such an economy during the kharif or summer season (sown in June-July). Higher rural incomes, in turn, boost demand for industrial goods like fast-moving consumer goods, tractors and so on and raise overall industrial and GDP growth with a lag of a year. Good rains reinforce the current robust growth momentum of the economy.

On the other hand, if the rain gods are parsimonious, the spectre of drought and distress will haunt the countryside like in 2002.  There is already a serious agrarian crisis in several parts of the country. Farmer suicides are on the rise in even prosperous states like Punjab and Maharashtra due to indebtness arising from crop losses. A bad monsoon makes matters worse in the parched countryside as it spells distress conditions for agricultural labourers and small farmers subsisting on rainfed agriculture.

Unfortunately, there is no telling whether the highly complex, dynamic system like the southwest monsoon this year will conform to the Met’s predictions. While it has already lashed Kerala’s coast on May 26 this year, its actual onset over the last 50 years has ranged between May 14 and June 18. None of this has had a bearing on the total rainfall during the monsoon season as a whole. In 2005, for instance, the monsoon hit “god’s own country” seven days late on June 5 although the overall rainfall was normal. 

Even if the rains indeed are normal — as indeed was the case in 2005 — what is of concern is that some regions get less rainfall while others get excess precipitation. The northeast thus experienced a rainfall deficiency of 20 per cent while there were bountiful rains in central and peninsular India last year. While any shortfall in June due to a delayed onset can be made up in the remaining months, it is the rainfall during July that is critical for sowing during the kharif season. In 2002 and 2004, this crucial month was bereft of rains.

The delayed onset of the monsoon and its uneven distribution over time and geographical space thus affected kharif coarse grains, pulses and commercial crops like oilseeds and cotton. Total kharif food grain production thus is only modestly pegged at 108 million tonnes in 2005-06 or 5 million tonnes more than in 2004-05. A replay in prospect in 2006 naturally worries the Union finance minister as it has limited food grain buffer stocks to tide over shortages or for drought relief operations in the countryside.

Last year’s woes also extended to the rabi or winter crop front, which is less dependent on the monsoon. The expectation was that with post-monsoon rains and prevalence of cool weather conditions, a bumper rabi crop will more than offset a lacklustre kharif.  But higher temperatures (due to global warming) during the key months of January-February drastically affected yields. Rabi wheat output thus is expected to be no higher than 72 million tonnes, no different from the sluggish trend over the last eight years.

Such trends have contributed to the limited buffer stocks of food grain with the government at present. With rich farmers in Punjab and Haryana with marketable surpluses preferring to sell to private industry and trade than the Food Corporation of India, the government has not been able to procure adequate grain this year. Mistimed announcement of wheat imports earlier this year also contributed to a creating a scarcity psychosis. A less-than-normal monsoon in 2006 will only drive up food prices further.

What is noteworthy is that this below-par agrarian performance did not come in the way of the Indian economy registering robust growth of 8.1 per cent, up from 7.5 per cent in 2004-05 and 8.5 per cent in 2003-04. Growth in agriculture and allied activities as a whole thus rallied to 2.3 per cent after plunging to 1 per cent in 2004-05 due to erratic rainfall. But whether such high GDP growth despite a sluggish agriculture does indicate whether the Indian economy is monsoon proof is a different matter altogether.

To some extent, this is perhaps true as the bulk of rabi production in Punjab, Haryana and western Uttar Pradesh — the vanguard agrarian regions of the country — is resilient to the monsoon’s vagaries, thanks to canal-fed irrigation facilities. But productivity increases have tapered off and the reality of global warming has been felt in the sluggish wheat yields in 2005-06. The government is also making every effort to extend such irrigation facilities elsewhere in the agrarian economy to make it less monsoon-dependent.

Even so, the bulk of peninsular India still depends on the monsoon. Sixty per cent of the net cultivated area in the country of 142 million hectares, for instance, is rain dependent and the rest is irrigated. An erratic monsoon thus could result in serious drought conditions in these regions, aggravating the existing agrarian distress. The National Rural Employment Guarantee Scheme certainly can make a difference in this regard but it must be scaled up beyond the current 200-odd districts at present.

As noted earlier, the crucial link of a bad monsoon is on the demand side which impacts on India’s industrial and GDP with a lag of a year. As rural markets account for half of the demand for black-and-white TVs, pressure cookers, table fans, sewing machines and other consumer goods, another bad agricultural year due to a disastrous kharif due to deficient rains in July 2006 might affect the ongoing momentum of industrial and GDP growth. This is precisely the nightmare of every finance minister in the country.

As the Indian economy cannot forever buck the consequences of a truant monsoon, its overall performance is considered a gamble of the monsoons. Despite all the efforts the nation is making to extend irrigated agriculture beyond Punjab, Haryana and western Uttar Pradesh, the nation still beats to the rhythm of the falling rains between June and September every year.