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Monsoon and the Economy: Takeaways from Southwest Monsoon
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0.3%
Food inflation has a 40% weight in the Consumer Price Index (CPI). This has come down and touched a low of 0.3% in August. This is despite the deflation in terms of food prices witnessed last year. However, this clearly has an impact on total inflation, at the time when crude oil prices and overall inflation are witnessing a sharp surge.
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Publish date: 12th October, 2018
The turmoil in the stock market means it is time to step back a bit and review the macros and micros influencing share price. Doing that may allow you to review the situation and decide your future investment strategy. You will read a lot about the global share selloff and concerns about the future profit growth of businesses. A key factor in influencing rural consumption in India is the monsoon.
The Indian Meteorological Department (IMD), has declared this year’s monsoon as ‘normal’. This is the third consecutive year of adequate monsoon. The last time India witnessed four consecutive years of normal monsoon from 2010-2013, the average agricultural GDP grew by 4.7%. India’s GDP grew at a nine-quarter high of 8.2% in Q1 2018-19. Let us see how this year’s normal rains affect the economy. Here are a few takeaway points on normal monsoon and its impact on Indian economy.
Click here to read more about the Q1 GDP data.
Here are a few positive takeaways on rupee depreciation for investors.
Impact on agricultural output
As the rainfall distribution, this year has been uneven, agricultural production is affected. Thus, agricultural income has gone down. Inadequate rainfall was witnessed in many states growing kharif crops. As this was during the early monsoon months, crop sowing got affected. Deficient rainfall could particularly affect the production of groundnut, tur (pigeon pea), jowar (sorghum) and cotton. However, a deflationary situation is presently witnessed in terms of most agricultural commodities. Thus, the farmer income has remained low.
Click here to read about farm loans
Inflation and deflation in agriculture
A deflationary situation is witnessed in terms of many agricultural commodities. The Higher minimum support prices (MSP) is not able to provide the required lift to farmer income. A continuous deflationary situation is also witnessed in pulses, ‘sugar and confectionery’, and vegetables. These commodities have about 10% weight in CPI. CPI is a measure of changes in the market price of consumer goods and services purchased by households.
Deficient monsoon has impacted cotton produce as well. India’s cotton production this year is likely to fall 4.7% compared with the previous season. Thus, decreased cotton production is likely to impact the prices of fabric and fabric related goods. This could also have an impact on our exports.
Click here to read more about food inflation.
Impact on Markets
Monsoon is crucial for supplying water for agricultural and industrial activities. If the total quantum of rainfall is even predicted to be less by the meteorological bureau, investor sentiments are affected negatively. Markets are based on investor sentiments. Lower rainfall would result in lower productivity. Lower productivity would further result in lower profits. Thus, changes in the expectations of earnings in any of these sectors have an impact on the markets. Click here to read more about market volatility.
