“To everything there is a season and a time to every purpose under the heaven….a time to be born & a time to die; a time to plant and a time to pluck up that which is planted.”
Thirsty eyes quietly gaze the skies. Time passes… the farmer waits for just one drop to emerge out of oblivion and graze his face, to quench his soul. He stands for a while as if his whole life depends on the rain. Then slowly, his sweat replaces the anticipated drop as he leaves towards his home after another tiring day.
This is what happens to an Indian farmer every year in numerous parts of the country. We become spectators and watch our farmers eagerly wait. If it doesn’t rain, they suffer. When they suffer, the whole economy suffers.
This article aims to discuss the monsoon, its impact on the Indian Economy and Capital Markets, and the recent predictions by the Indian Meteorological Department regarding the year’s monsoon.
Monsoon in India
The monsoon rains bring multiple emotions. It starts with Indian mothers yelling that their children would catch a cold if they would keep ‘bathing in rain’. The children, out of habit, disobey, floating their boats in the turbulent rainwater. The impact of this rain is felt widely across the nation.
The word monsoon has been derived from an Arabic word ‘mausam’ meaning season. It has been defined in multiple ways. Traditionally, it was defined as the seasonal reversal of wind with changes in precipitation. In the recent times, it has been defined as “seasonal changes in atmospheric circulation and precipitation” due to non-symmetric heating of sea and land. In the modern context, stating plainly, it refers to the rainy part of the seasonal pattern.
For an Indian farmer, the monsoon rains bring tremendous relief. Though the modern irrigation technologies ensure that shifts in monsoon timings don’t ensue famines, any such shift does impact the farmers, the government, and the politicians.
The system of winds in the “South Asian Monsoon” reverse direction around the same time every year. These winds carry fresh water as they move up and down, splattering the subcontinent.
Two phases split the Indian Monsoon:
“First Phase” carries moisture ‘up’ from the Arabian Sea to the Indian Subcontinent. It starts from June and covers most of India by September end. By the end of the month (September) the winds reach the Himalayas and hit it to turn around. The monsoon in this phase is called the ‘Southwest Monsoon’. India receives nearly three-fourth of rainfall in this period. Hence this monsoon heavily decides the agriculture sector and in turn the whole economy.
In the “Second Phase”, the monsoon turns around and from October to December, goes back into the Indian Ocean, gripping the whole subcontinent in another round of rains. This monsoon, in the second phase, is called as the ‘Northeast Monsoon’.
Predictions for 2018
The recently released forecasts by the Indian Meteorological Department(IMD) which come under the Ministry of Earth Sciences, shows that the Indian monsoon rains are going to be normal for the year 2018 at 97 percent of the long period average (LPA).
At the beginning of this week, the IMD, India’s official weather forecasting agency issued its first stage long-range forecast for this year’s southwest monsoon. The second stage forecast as an update to the first stage will be issued in early June.
Long Period Average: The weighted average of rainfall that India received in the first phase from 1951 to 2000 is considered as LPA. It is which is at 89 cm. Thus the predictions are that this year it’s going to be 97% of LPA.
Anything between 96%-104% of the LPA is considered as the normal rainfall. Less than 90% of the LPA is defined as deficient rainfall and more than 105% of the LPA is defined as the excessive rainfall.
Skymet, a private Indian firm that provides weather forecast also predicts the Monsoon 2018 in India is likely to remain normal at 100% of LPA. According to Skymet, the chances of India going drought this year is zero.
Going by stats, Monsoon 2017 was below normal for India with the countrywide rainfall standing at 95 percent of the long period average (LPA).
Impact of Monsoon on the Economy
India is a sizeable, dense and diverse country. With a nominal GDP of over 2.45 Lakh crore USD (source: Investopedia), the country stands tall as the sixth largest economy in the world. Agriculture accounts for nearly 18% of India’s GDP and employs (directly or indirectly) more than 50% people of India.
Further, India has around 550,000 villages where more than 80% of the total population lives. Agriculture is the main occupation of the people in these villages.
For these people, the monsoon is the lifeline. It acts as the main source of water for 55% of the country’s land. This makes monsoon crucial for the whole economy.
In past, seasonal fluctuations instated the possibility of a perilous situation for an Indian farmer. A bad monsoon meant famine, deaths and a huge hit on the economy. The improvement in technology has improved supplies even in the case of a shifted/ poor monsoon.
According to a paper by Saha and Mooly, despite improving tremendously on the technological forefront and adopting modern technologies through irrigation, fertilizer use and improved variety of seeds used, the technological advancements have not been able to offset the harmful effects of overpopulation. There is still not enough food around to cater millions of people. The technology improvements have been offset by population boost.
Further, the farmers need to have the power to have irrigation. Thus, they need the diesel. Diesel accounts for over 40% of India’s oil demands. The farmers are also very large in number and thus, no politician wishes to pressurize them. This impacts the Indian budget as India needs to import more crude oil to generate diesel for farmers. It becomes hard for the government to bear these necessary subsidies (as it increases the fiscal deficit), but politically, it is equally hard to lift them.
There are various other impacts, but we will leave them for now.
For Firms and Stock Markets
A good monsoon improves rural demand. Products of companies like HUL, Dabur, etc. sell more. Thus, the share price for consumer good firms that sell in villages usually increase.
More tractors are sold and auto firms like Mahindra and Mahindra, Maruti, Bajaj benefit. Thus, the share price for auto firms that sell in villages increases.
Further, with a good monsoon, the farm production increases, leading to low raw material costs for food companies like ITC, Nestle, and Britannia among others. The Share price of these firms also increases.
Fertilizer and irrigation firms get a boost as their products sell more. Share price increases.
However, excessive rains cause water logging and other problems, and thus, reduces productivity. This may lead to a negative impact on share prices.
Good rain brings a lot more than just a rain for India. At a time when India faces weak macroeconomic data from growing inflation and fiscal deficit, a normal monsoon could be a respite for us as it would ease the food inflation.
We wish the ‘normal monsoon’ predictions hold true for India and put a happy smile on farmers face. The real Indian growth should be seen in the farmers’ growth as they comprise the larger proportion of India. This increases the consumer spending which in turn lifts the Indian economy.
Remember how the Indian govt. cares about the farmers? The budget promise of the minimum support price (MSP) at 1.5 times the input cost assures farmer of minimum losses…
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