Carnage of the Indian Monsoons...

The Indian government was the first to defy the pessimistic overtures of the World Bank and several reputed international organizations when they said that we would grow at a modest pace of 5- 6 percent. No doubt, the country is making rapid progress across all sectors but the main ingredient of the Indian success story has been the phantom like nature of the Indian monsoons.

As usual the monsoons this season have been erratic in nature. The stock markets in fact seem to be more predictable in the past months than the amount of rain showers expected in the country. Nevertheless despite all the technological advancements the wholly agrarian Indian economy is still at the mercy of rains.

The showers this season have been painfully lacking fervour. The total cumulative rainfall till now has been 26% below the long-term average and according to the latest data from Indian Meteorological Department, only 13 out of 35 states and union territories have recorded either normal or excess rainfall till August. These statistics make it the most profound drought situation in the last three decades.

The world over scientists have formulated a variety of theories for the lack of characteristic rains this season. Some have even reached conclusions which state that the end of the traditional Indian rainy season might be near and it might be soon replaced by longer dry spells and shorter wet spells.

More than 60 % of the Indian population is still dependent on agriculture. And one drought cycle is enough to play havoc with the spending capacities of the people in the economy. To top it up about 60 percent of Indians agriculture land is dependent on rains. The lack of rains spells further bad news for the billion plus citizens of the nation already suffering from the catastrophic effects of the world wide recession.

The Government of Indian has to some extent been able to tide the ill effects of a poor monsoon by already providing a huge farm loan waiver couple of years back and riding the progress of the nation on the back of a jubilant services sector. It is also to be credited to scrap the decision to export 900,000 tonnes of wheat and withhold the same as national reserves in case of a major drought situation. It has also announced plans to increase power supply and subsidize diesel to farmers to help them overcome the effects. The low rainfall will impact the summer as well as winter crop for the year as cultivation of important crops like rice, wheat, sugarcane and soya have suffered immensely.

The impact of less rainfall will be felt immensely on the of the world’s second fastest growing economy. And it will be significant in terms of the timing when the entire world is now trying to recover from the catastrophic effects of the recession. The rains for sure are going to impact the rural spending which now forms the backbone of the nation and is the major contributor to the GDP limping back to a healthy and optimistic 9 percent.

The sectors that have been badly affected are such as banks, automobiles including tractors, fertilizers, pesticides and agro-inputs, FMCG, and cement.

The Information technology sector has however been the least affected due to the virtually zero dependency on monsoons. The trend to outsource has in fact been helping several nations including India to counter the effects of the impending drought.

After gaining for the past five months the Indian stock markets have finally started to realize that internal demand is the only saviour for the companies and the drought can play the spoiler for the fiscal earnings.

The situation has become so grim that even the RBI is not in a position to tighten the monetary policies and reduce the money supply in the system. The current drought provides less spending power to the citizens and thereby driving factory output down. This in turn means lesser profits for the manufacturing industry with problems of huge surplus inventories and a complete breakdown of the economic system.

At this point of time the government should prop up industrial activity to offset the weak monsoons and help its citizens. It should wait before hiking important monetary rates. It should provide subsidies for all possible goods.

Sincere efforts should be taken to contain inflation which is growing alarmingly to more than 10 percent over the past year. Price rises of important commodities would directly add to the problem of unemployment and poverty.
Now is the time to reduce interest rates by banks so that more people can take loans and revive the spending power of the masses. This can be done by pumping more money in microfinance based schemes and lending more to the poor. We certainly must realize that our greatest strength lies at the bottom at the pyramid and it alone has the capability to lift the nation back to the paths of glory...