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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Poor monsoons, a challenge for Govt.! 
(Wed, 25 Jul Pre-Open) 
 
The Indian economy has already slowed down by high fiscal and current account deficit. Now it has yet another challenge to face. The monsoons are being evasive and that has set alarm bells ringing for food prices. With 15% of GDP growth coming from the farm sector on which 50% of population makes a living, the statistics offer hardly any comfort.

The reliance of Indian economy's growth on fickle monsoons is huge as 55% of the country's arable land is rain-fed. The situation this year is serious as halfway through the monsoon season, the rainfall is 22% below average. This could mean higher costs for pulses, edible oils, dairy, poultry and other farm products. There is some comfort though from record stocks of wheat and rice, thanks to the recent bumper harvests, although inadequate storage facilities have meant that a lot of it has been left to rot. For the poor living in rural areas, farm products will be beyond affordability.

And the worry is not just limited to the farm sector and general public. It is an equally tough situation for policymakers. Whatever comfort the lower than expectation inflation numbers offered with regards to a cut in interest rates, seems to be taken away. The inflation push coming from food component that has 14% weight in wholesale price inflation (WPI) and 50% weighting in consumer price inflation (CPI) will be hard to overcome. And the depreciating rupee has only made it worse. While there is little one can do about the weather, the Government cannot wash its hands off the situation. Lack of sufficient investments in water harvesting and food storage have left us ill equipped to deal with the situation in case the monsoons fail us.

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