Friday, July 11, 2014

Why any monsoon revival from now on is just too late to prevent GDP and Agricultural Growth from slipping into the red

According to an ASSOCHAM study, with every one per cent deficit in rains, the country's gross domestic product (GDP) falls by 0.35 per cent. In monetary terms, a 10% deficiency shaves off Rs 360,000 crores from the country's GDP hurting lakhs of jobs, mostly in the unskilled sector. So, a good agricultural performance is a must for India to raise demand for services and industrial products, it said. A rise in farm sector is estimated to raise demand for industrial goods and services, it added. The study mentioned that about 30 per cent of the manufacturing sector is agriculture-based and a bumper crop ensures the supply of raw material for industry at relatively lower prices.

To understand how big impact this season’s monsoon failure is on the economy, just look at these scary statistics: 
Rainfall Deficiency for June: 43%
Rainfall Deficiency July 1-9:  41%
Sowing: 43% less than for 2013-2014
Applying the Assocham formula, the adverse impact of rainfall deficiency is summarized in the table below: 

Accordingly, even if the monsoon revives from now on as IMD is praying feverishly for, it is most likely that GDP growth would end up in the red.

More significantly, any monsoon revival from on cannot be expected to appreciably increase the sowing area as the sowing window for all practical purpose is now closed.  The monsoon is the main source of irrigation for India’s 263 million farmers because over 55 percent of crop land is rainfed.  The normal sowing window for Kharif crops is June 15 to July 15. Only a limited number of crops such as pulses, maize and some fodder crops can be sown in the period between July 15 and July 30.

Hence agriculture could act as a big drag on the overall economy this year by registering even upto a double digit negative growth rate, dragging down the GDP also into the red. 

Despite this dismal scenario, Arun Jaitley, India’s Finance Minister in his budget presented yesterday targeted an unbelievable 4% growth for agriculture and GDP of over 5% for 2014-2015 fiscal!!! Is this a height of optimism or ignorance? Take your pick..

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