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Rains: Come again - Views on News from Equitymaster
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  • May 6, 2003

    Rains: Come again

    FY03 was a bad year for Indian agriculture. The advance estimates by the Central Statistical Organisation suggest that agricultural production is expected to touch a new low in FY03. As per the economic survey, food grain production is expected to register a 14% decline in FY03 to 183 MT, as most of the major producing states are faced with severe drought like situation. A significant deviation in monsoon from the normal level has had a big impact on the farm sector. But what has been the case historically? We take a look at the performance of the agricultural sector in the current fiscal based on the rainfall estimates and try to gauge the outlook for this important contributor to India’s GDP.

    Source: Central Statistical Organisation

    As can be seen from the graph above, in the last four years, the performance of the SouthWest rainfall that occurs between June-September has been disappointing. The month of July, which witnesses nearly 1/3rd of the total rainfall, saw a drop of 49%, the lowest in the last 100 years. The magnitude of deviation has been severe in FY03 with this monsoon just 81% of normal levels. The number of regions that have seen scanty rainfall in FY02 stand at 21 out of the total 36, the highest since the late 1980s.

    Poor monsoons led to a decline in the production of food grains. During FY03, the output is estimated to have slid to 183 m tonnes. This has been largely due to the low production of rice and wheat, which contribute to a major part of the output. Rice output was lower by 15 m tonnes and wheat production saw a shortfall 3 m tonnes over the previous year. There was a decline in the output of cereals and pulses too. As a result, agricultural sector growth saw a dip of 3.1%, which is likely to adversely affect the GDP growth rate for the current fiscal. The GDP is estimated to slowdown to 4.4% in FY03, which is lower than 5.4% growth in FY02.

    The agricultural sector contributes around 24% to the country’s GDP and employs around 70% of the working population. Hence its contribution is crucial for India’s economic growth as quite a few industries are dependent on rainfall. For instance, in the auto sector, the tractor segment relies on monsoons. For the full year 2003, industry sales are expected to fall by 20% over the previous period. Apart from this, the FMCG sector is also dependent on monsoons, as around 50% of the total FMCG revenues (excluding the food segment) come from rural and semi urban areas.

    Given this backdrop, what does FY04 look like? The Indian Meteorological Department has projected monsoons that will be 96% of long period (June-September) average monsoon in FY04. But is it a big reason for worry?

    Maybe not. "If you look at the records on agricultural growth, if monsoons actually turn out to be 96%, and if there’s no problem of distribution, then we will actually have a strong recovery in agricultural output from a very large fall last year. This is because last year the actual rainfall was only 82% of the long period average. The previous 3-4 years also have had, on an average, 98% or below rainfall, and it was only in 1992-97 that we had more than 100% rainfall..." – Dr. Rakesh Mohan, Deputy Governor, The Reserve Bank of India. Read the complete interview



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