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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Will rains play spoilsport? 
(Thu, 23 Jun Pre-Open) 
 
Rains are extremely crucial to the Indian economy. This point cannot be emphasised enough. The well being of a disproportionately large number of its population depends on how the rain gods fare. Some numbers may help drive home the point. Although agriculture contributes to just 17%-18% of the country's GDP, the sector still employs an overwhelming 60% of India's population.

And please be informed that this numbers does not contain the traders that deal in food and cash crops. In view of this, the June-September monsoon season that is currently underway and which is responsible for nearly 80% of the annual rainfall of the country, assumes a tremendous amount of significance.

However, if the forecast from the country's meteorological department (IMD) is to be believed, things have suddenly gotten slightly less rosy. A leading business daily reports IMD's most recent forecast that says that monsoon rainfall over the country would be 'below normal'. Incidentally, the IMD has revised its stance from April, when it had said that rainfall would be 98% of long period average (LPA).

The latest prediction is of a rainfall that is 95% of LPA. While the difference may not sound much to a layman, please bear in mind that a dip below 90% of LPA is essentially considered a drought. Thus, even a small swing on either side carries a great deal of weightage.

In terms of centimetres of rainfall, 89 cm is considered to be the LPA in India. It is an average of the last fifty years, a period long enough to remove any short term distortions. Moreover, rainfall in the region of 85.4-92.5 cm (96%-104% of LPA) is considered to be normal. Thus, the 98% figure that the IMD had quoted back in April was indeed normal. This also makes its most recent prediction of 95% a 'below normal' monsoon as mentioned before.

We would certainly like to point out that these numbers are in no way sacrosanct. They are after all predictions, no matter how high deeply studied and hence, prone to swings on either sides. We just hope that they swing to the side that matters.

Should there be a below normal monsoon, the target of achieving 102 m tonnes of rice production could then become a challenge. This is because farmers could start shifting to other crops like cereals and pulses, which require less water. Of course, not to forget the fact that even the consumption story in India could get impacted. The GDP growth could then be knocked off by a few basis points, depending on the severity of the shortfall. And this may not be good news for a country that is already battling high interest rates as well as inflation.

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