April 19, 2017 11:00 pm JST

Good news for Indian GDP as 'normal' monsoon predicted

Fair rainfall distribution seen boosting agricultural output

KIRAN SHARMA, Nikkei staff writer

K. J. Ramesh, director general of India Metrological department speaks to the media in New Delhi on April 18. © Reuters

NEW DELHI -- India is expected to witness "normal" rains in the June-September monsoon season, the government's weather office has said, raising hopes for strong growth in farm output and the overall economy.

Rainfall is likely to be 96% of the benchmark Long Period Average with a 5% margin of error, the Indian Meteorological Department said on Tuesday.

The LPA is the average monsoon rainfall across the country over 50 years, starting from 1951. Normal rains are expected to support food grain output and lift agricultural incomes, and boost gross domestic product.

The IMD also referred to the possibility of weak El Nino conditions developing during the latter part of the monsoon season. El Nino is a climate phenomenon that causes unusual warming in the Pacific Ocean which has consequential impact on global weather patterns.

Private weather forecaster Skymet, however, last month predicted below-normal monsoon rains at 95% of LPA this year. In India, monsoon rains within 96% to 104% of average are considered "normal." The range of 90-95% is considered "below normal;" 105-110% is above normal, while less than 90% of the LPA is "deficient."

India is an agrarian economy and its farmers largely depend on monsoon rains for a significant chunk of their produce. The June-September season accounts for over 70% of total annual rainfall in the country.

Employing some 60% of the country's population, agriculture contributes about 15% to India's GDP. Various studies have indicated that one percentage point growth in the agriculture sector is two to three times more effective in reducing poverty than one percentage point growth in other sectors. India has a population of over 1.25 billion, of which about 300 million live in extreme poverty.

If the IMD's monsoon prediction holds, India will have two straight years of normal rainfall after consecutive droughts that reduced agricultural growth to 0.2% and 1.2% in financial years ending March 2015 and March 2016 respectively. For the year ended March 2017, the agricultural sector is estimated to have grown 4.2%.

Uncertainties

The monsoon forecast will be updated by the IMD in early June. In April last year, the IMD had predicted "above-normal" monsoon rainfall of 106% of LPA, but the actual turned out to be 97%, with some regions witnessing a drought-like situation.

Goldman Sachs said in a report that it expects agriculture sector growth to range from 4.2% in the normal scenario to 0.8% in the deficient scenario in fiscal 2018. It said that in a baseline scenario of 96% LPA rainfall, it expects the agriculture sector to grow 2.9%, contributing 0.4 percentage point to overall economic growth.

Goldman maintains India's real GDP growth forecast at 7.5% and expects inflation to remain contained at 5.1%, as long as the monsoon season is normal.

While IMD's assessment also suggests 38% probability for "near normal" monsoon rainfall, it does not reveal the likelihood of below normal or deficient rainfall. Its second forecast is expected to incorporate all these assessments.

Japanese brokerage Nomura believes that risks are skewed toward below-normal rains despite the IMD's normal rainfall prediction. "Their economic impact will only be known by mid-July, when the sowing season will be in full swing," it added.

The State Bank of India's economic research department said agricultural GDP is most likely to be in the range of 3-4% if rainfall remains normal. "Even in the case of deficit rainfall, there are instances where agri-GDP has in fact expanded (in 2009, despite a 22% decline in rainfall from LPA, agri-GDP expanded by 0.8%) and smartly grew in slightly more than normal rainfall (in 2010 and 2011) years," it added.

Gopal Jiwarajka, president of PHD Chamber of Commerce and Industry, said the latest IMD prediction is encouraging as normal monsoon behavior helps not only the agriculture sector but also boosts rural demand and manufacturing.

"We expect the economy to grow at around 8% with a good growth in the agriculture sector, manufacturing sector and steady growth of the services sector," he said.

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