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The India Meteorological Department (IMD) has given a forecast of a ‘normal’ monsoon for 2021. It is no doubt a great relief for the economy. The Indian economy has been passing through a very difficult situation. Technically speaking India have passed the depressing economic phase. But the second Covid wave has put a question mark on the economic recovery of the country.

Normal monsoon 

Normal monsoon means that the country will get 96% to 104% of the 88 cm (35 inch) that it gets from June to September. The quantity 88 cm is called Long Period Average (LPA). This implies a mean (average) of monsoon rainfall from 1961 to 2010. It is known that the IMD has been following a two stage monsoon forecast system for more than two decades. The forecast in April can be taken as a trend only. In the late may or early June the IMD will give another updated forecast about the rainfall. That will include estimation of quantity of rainfall in north-east, north-west, central India and southern peninsula. It will also forecast the quantity of rain in July and August. It is very important as the maximum quantity of rainfall is experienced in these two months. It also forecast many important matters in more intensive way. There is no forecast of warming El Nino this year. So the forecast of IMD has been a great relief not only for farmers but also for the economy as a whole. 

Economic impact of good monsoon 

The first thing that comes to one’s mind with good monsoon has been good agriculture. in the last FY ended in March the agriculture grew by more that 3.5%. In that year there was normal monsoon. But after the forecast of IMD a rating agency, ICRA predicted 2.0 to 2.5% growth of agriculture. “IND forecast normal monsoon in 2021; agricultural growth in FY2022 may be restricted to 2.0 to 2.5% even with well distributed rainfall. But it is not all. The importance of good monsoon in the Indian economy is much more.

Agriculture and food production in India are primarily affected by the amount of rainfall. Given that situation the studies by the Indian Agricultural Research Institute (IARI) indicate that, for every one degree Celsius rise in temperature , there is a corresponding four to five million tonne reduction in wheat production. There is also a considerable decrease of in dairy production and output from fisheries (Manasi Gore and Rupa Korde, Economic and Political Weekly, 16th November, 2019). That means recent IMD prediction of good rainfall has been good news for the government also.

Some of the key points would be helpful to assess the importance of good monsoon in the Indian economy. First, India’s agriculture sector, including forestry, fishing, etc. accounts for about 14% of the economy’s total output. About half of the total work force in the country is engaged in this sector either fully or partially. 

Secondly, about 55% of the country’s arable land dependent on the amount of rainfall during the current monsoon season. This sways economic activities in the agriculture sector and agro based industries. 

Thirdly, As many people are still dependent on agriculture the demand for industrial goods and also services are also heavily dependent of the agriculture sector which is indirectly linked with rainfall.

Last year Union Ministry of Water Resources reportedly said, “India receives an average rainfall of about 1170 mm which corresponds to an annual precipitation of about 4000 BCM (Billion Cubic Metre) including snowfall. Nearly 75% of this, that is, 3000 BCM occurs during the monsoon season confined to 3 to 4 month (June to September).” It is also to be noticed that about 50% of India’s total food output comes in the form of summer crops. Even a delayed monsoon may incite food price inflation in the economy. 

Effect on demand side of the economy

The poor monsoon weakens demand for FMCG products. Besides industrial items like tractor, two-wheelers, rural housing, rural festival demand, etc. are impacted heavily if monsoon is not normal. If government has to import food then the situation turns worse. The financial sector is also affected. Weak monsoon means bigger default on loans of financial institutes including banks. It may have larger impact in the economy. 

It is good news that IMD has predicted normal monsoon in 2021. But one can not have full complacency for that. This is because in the last year agriculture was impacted by Covid 19. But at the same time last year was a good agriculture year for India. That helped the economy to run well to an extent. The rural economy was less affected in the pandemic phase due to good performance of agriculture. So government has to keep careful eye on the performance of agriculture in this critical phase and step in and take proper action whenever necessary.