All the bluff and bluster of services driven, $1 trillion economy comes apart, almost minute by minute, as the monsoon gets delayed.
Unlike the G 7 countries, where a miniscule per cent of people survive on the farm, in India and China more than one thirds of people survive on the mercy of the land. And unlike China, India is a democracy. Already there are protests in Uttrakhand and Madhya Pradesh on water shortages, these could just be starters should the Monsoon fail. The Monsoon is the umbilical cord of the Indian economy - even 60 years after independence - that cord has not been cut.
While estimates differ, there is a broad agreement among economists that the monsoon determines at least two per cent of GDP growth for India. In the context of the slowdown, a bad monsoon can be a disastrous. Even more so because so far buoyant rural demand has allowed India to grow at more than 6 per cent per year.
The share of the Monsoon fed agriculture in total output in India according to official statistics is at 18 per cent. The trick is the number of people dependent on it - and that is overwhelming. A government that swears by the national employment guarantee scheme cannot afford bad rains.
A failed monsoon will put pressure on FMCG’s, the sensex as well as tertiary sectors such as transport and storage. It will also curtail any food grain export hopes India may have harbored and put pressure on the trade deficit by encouraging imports.
“Monsoon is critical. It is a trigger not just for the FMCG sector but also for the economy. I believe that if the Monsoon fails, it shaves off the demand. At the end of the day a good one percent of the economy as a whole gets written off.”, comments Chennai based C K Ranganatan of Kavin Care, India’s second largest shampoo firm.
And it is not just the shampoo or the soaps we may suffer. We could be all in the dark. After all that fancy engineering with massive dams like Tehri, there is a 34 per cent deficit in India’s dammed reservoirs already. Bad rains will mean North India in a partial eclipse.
India’s hope of keeping the recession away was counting on the fact that we have robust domestic demand - but that too may be hit with a bad monsoon. The cumulative effect of an economic slowdown and a bad monsoon can be deadly.
To sum up, if as you read this and if it is not raining, be prepared for a longer economic downturn. A lack of money supply can be made up with the monetary policy, lack of bank loans interest rates can take care of – but short of hiring the American Indians - rains will be tough to come by.
