Normal monsoon in India: Will it, wont it?

• HDFC
• 07 Jun 2018
• Knowledge Centre

HDFC, Tester

If forecasts are to be believed, the country is likely to witness a normal monsoon this year. According to the Indian Meteorological Department (IMD), a normal or average monsoon means rainfall between 96% and 104% of a 50-year (long period) average of 89 cm in total during the four-month monsoon season starting June. Rainfall below 90% of the average would be classified as a drought.

 

The southwest monsoon rains which typically arrive in June and continue till September are a crucial supply of water necessary for agriculture, industry, and households in the country. More than 75% of India’s annual rainfall occurs during this period itself.

 

The importance of normal rainfall for the rural sector cannot be understated. The monsoon is critical for the farm sector that accounts for about 15% of India’s 2 lakh cr economy and employs more than half of the country’s 130 cr people.

 

Two consecutive droughts:

 

During Prime Minister Narendra Modi's tenure, the country has experienced two consecutive years of drought – 2014 and 2015 – followed by the blow of demonetization in 2016. All these instances have spelled trouble for rural India. There have been several protests by farmers across the country, asking for compensation for losses incurred. This resulted in some states announcing loan waivers, a move that would strain the fiscal deficit.

 

Mr. Modi has stated that he intends to double farmers’ income over a period of five years. A normal monsoon would result in an increase in output in rural areas, which in turn would help higher income generation in this space, leading to increased spending. A robust economic outlook would also lift equities, particularly shares of those companies that are selling their products in rural areas, namely sectors like consumer goods, automobiles, fertilizers, and pesticides.

 

Besides being a lifeline for the agriculture sector, a normal monsoon is also helpful in keeping inflation in check. Food accounts for 50% of India’s consumer price index (CPI), so a plentiful farm output would help keep food prices under control. The CPI is closely monitored by the central bank at the time of deciding the bi-monthly monetary policy and key rates.

 

Paramount factors include the spread and timing of rainfall. A normal monsoon will lose its relevance if areas dependent on rainfall for farming do not receive it. In addition to this, crops should receive the necessary portion of rain at the right time, as the incorrect amount – either a deficit or surplus – could ruin crops.

 

Previous Forecasts:

 

Data of the previous 16 years reveals that IMD’s first monsoon forecast was mostly at a large variance from actual rainfall values. Out of 16 years, only in 2008, the IMD’s first long-period average forecast was closest to its actual value, with the difference between the two values being very less. Lack of advanced technology has been the main reason behind these variations. However, the IMD has now employed two supercomputers to improve the accuracy of its predictions and its results were visible in 2017 as the forecast was off by only 3%.