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Agriculture: Monsoon and its impact on India`s backbone

The share of agriculture to the gross domestic product (GDP) has dropped from 25% in 2002 to 17% currently. Yet, agriculture contributes a huge chunk to the GDP, making it a very important sector for India's growth. The performance of this sector is very crucial to the Indian economy not only with regard to GDP but also as a huge chunk of the Indian population is dependant on agriculture. Rainfall in India so far this year is 28% below par and this is a major cause of concern as the impact could be devastating. Monsoon in the northwestern region of India, the main growing area, is 40% below average. If agricultural production goes down in India then the direct impact would be a decline in the income of people. The economy as a whole and the GDP will get affected. This factor could lower production of food but raise the prices. Hence, the significance of the monsoon for the economic system cannot be under-estimated. The monsoon can directly affect government savings, public investment and foreign exchange reserves.

It is not only important for the monsoon to commence, but the time of commencement is also important. For farmers, it is highly critical to know when the onset will occur as this affects the timing of the planting of crops. If rainfall is deficient then more than two-thirds of the seedlings can die. To prevent this, the prediction systems play a very important role.

Global warming, as well known has resulted in the shift in the monsoon patterns which has adversely impacted the agriculture. Since the beginning of the monsoon, its advancement became slow into the nation. If, we see from the above charts the rainfall in the month of May 2009 was scanty over the regions but has gained momentum since the beginning of July 2009. India being an agri nation and farmers majorly relying on monsoon farmers stand handicapped if the rains are not in time. If we see the overall distribution of rainfall the northern region has not received adequate rainfall for its kharif sowing. Crops which stand at risk are as follows Paddy, pulses, bajra, cotton, Soy bean and sugarcane. Most of the farmers being small and marginal holding small lands depend entirely on the rains. They have poor irrigation facility. India, have done less on the monsoon management and rain water conservation. Power and water have been misused by many and it has been left unnoticed.

Monsoon - a major climatic occurrence
No other climatic occurrence affects the lives of so many people around the world than the monsoon. Economies that are dependant on agriculture critically depend on the rains. India primarily depends on the rains for its agricultural produce as ninety-five percent of all rice is produced during monsoon. Though rice is cultivated under a variety of conditions, it performs well in the monsoon climate. The impact of an abnormal monsoon can be tremendous and the damages can cost in millions. An abnormal monsoon can result in the loss of seasonal employment, shortage of food and income, spread diseases and have an impact on agricultural growth, inflation, economic activity and overall market sentiments. Hence, an abnormally wet monsoon could be better than a dry one. India's rice production is directly proportional to the rains.

A historical snapshot of monsoon and its impact on the Indian economy

In 1965-66, rainfall was about twenty percent below normal in 14 of the 32 meteorological subdivisions on India. This led to a substantial decrease in rice production and food crisis. An abnormally wet monsoon is beneficial as it improves ground water availability and allows growth of good crops.

In the recent years, 2002 witnessed one of the worst droughts resulting into loss of grain production and dragged agricultural growth. On the backdrop of this, the GDP growth slowed from 5.8 to 3.6%.

Sufficient food grain stocks - could prevent a highinflation situation

Poor rainfall can have an obvious impact on food prices, thereby impacting inflation. However, India has some respite in the form of comfortable levels of food grain stocks. In 2002-03, the release of these stocks helped to contain rise in inflation, mainly in food grains. The government has declared that it has sufficient food grain stocks to meet demand under the public distribution system (PDS) and other welfare schemes during 2009-10. Food grain stocks as on June 1 stood over 535 lakh tonnes against the government's annual requirement of 496 lakh tonnes. The break up of the food grain stocks constitutes - 204.03 lakh tonnes of rice and 331.22 lakh tonnes of wheat. At the current level of allocation, the annual requirement of food grains is around 446 lakh tonnes of PDS and about 50 lakh tonnes under other welfare schemes. Hence, even if the impact of poor rainfall in India will be negative, prices will be controlled from spiraling as India has adequate food stocks to manage the situation.

Further impetus to growth

The Indian government is aiming at a better environment for farmers. Initiatives like improving upon the value chain in terms of infrastructure facilities in rural areas, accelerated irrigation provisions, easier borrowing mechanism, increasing the warehousing/cold storage facilities to reach across the country by providing incentives etc. shall go a long way. Further, to bridge the rural-urban divide and ensure that the aam aadmi (common man) remained at the centre of the development process and its programmes and schemes, budgetary allocation for all rural-focused schemes have been increased by 45% - 144%. The aim of the Budget is to further stimulate demand in rural India, which has also been responsible for perking up many industrial sectors recently, despite the economic downturn.

Policies in favour of agricultural growth

The goal and decision of the Indian government is expected to go a long way in transforming the Indian agricultural sector. It will help in developing the spot markets, mandis and lead to better and efficient price discovery in agri commodities. We expect this to lead to steady growth in the agri commodity futures volumes on the exchanges. The development schemes announced by the government are aimed at providing support to the agricultural sector and could help boost production is respective commodities, thereby bridging the gap between demand-supply.