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Below normal monsoon may slowdown the recovery

June 25, 2009

The much awaited monsoon is now likely to be three weeks late and will be below normal compared to the long term average. The development may slowdown recovery of the Indian economy, which, otherwise has been rather rapid than in most of its peers.

According to the Indian Meteorological Department (IMD), 2009 monsoon rainfall would be 93% of the long-term average, lower than an earlier forecast of 96%. Even worse part of the development is that the north-western region, which includes India’s food-basket region of Punjab and Haryana, could be the most affected one.

The agriculture sector accounts for 17% of the gross domestic product (GDP), and more importantly, provides livelihood to more than 60% of India’s 1.1 billion plus population.In this wake, current year’s monsoon becomes even crucial for the economy as buoyant rural consumption has been a key driver of growth during the economic downturn. Even the partial failure of monsoon can result in significant decline in farm income, which will hit rural demand. Further, while the country has sufficient food stocks to tide over any crisis, the macro economic situation may worsen further with food inflation rising even higher from the present levels of close to 9%.

Another calamity of the delayed rain would be power availability in the country. Summer months are the peak power demand months due to greater demand from both the domestic and the farm sectors. However, delay in rains will lower the electricity production, thus raising the supply-demand gap in energy availability.

The overall impact of poor monsoon on agriculture, industry and broader economy can be substantial. If there are choppy rains this season, it will bring down the newly found momentum in economy and the GDP growth for the present fiscal, which is expected to range between 6.5-7% may fall down to 5% or even lower levels.

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