Although Brexit is not expected to have a notable impact on India’s GDP, a normal monsoon has assumed critical importance for hanging on to our current rate of growth. Nearly all official agencies and brokerages have factored-in a normal rainfall in their GDP estimates that range from 7.6-7.9% for the current financial year (FY17). Downplaying the impact of Brexit on India’s growth prospects, rating agency Crisil has retained its growth forecast at 7.9% for FY17, with agriculture being the “swing factor”. Analysts feel that hanging-on to our current rate of growth of over 7.5% in such uncertain times would not be a mean achievement. A normal monsoon, after a gap of two years, will surely boost agricultural production and the rural demand that makes up about 45% of the national economy.
After a weak start, the cumulative rainfall so far is still 12% less than normal. “Even as June rains have disappointed, we are not worried, as rains in July matter more (for crop output) and they are forecast to improve,” said Sonal Verma of Nomura Securities. Normal rains should push up agricultural growth to 3.6% in FY17 from 1.2% in FY16, adding about 0.3% to headline GDP growth. As per the Indian Meteorological Department, the conditions are favourable for further advance of southwest monsoon in more parts of eastern Rajasthan, remaining parts of Himachal Pradesh, Uttarakhand, western Madhya Pradesh and Uttar Pradesh. The monsoon is also expected to cover Punjab and Haryana, Chandigarh and Delhi and western Rajasthan in the next 2-3 days. Gujarat, Madhya Pradesh, Maharashtra and Rajasthan have a higher share in the production of pulses, oilseeds, coarse cereals and cotton. These crops would be at risk if rains do not catch up in these states.
While normal monsoon would help revive the rural economy, the urban economy is also likely to get a good consumption boost from the implementation of the 7th pay commission that has hiked the salaries of central government employees by a good percentage. India Ratings & Research has said: “A rise in demand is likely to not only increase capacity utilisation, but may also help revive the investment cycle earlier than expected.” India has always been a domestic demand-driven economy and as such, the impetus to economic growth would be provided by domestic triggers. “A normal monsoon (besides GST and the 7th commission payouts) is seen of much importance now,” Sunil Sinha, Principal economist with India Ratings & Research, said.