Poor monsoon threatens to slow India's growth

Mumbai, India: India's weak monsoon has begun to worry economists and policymakers, who fear it could drag down the nation's resurgent economic growth.

"The monsoon problem is unlikely to be strong enough to derail India's economic recovery, but it could drag on the pace," Sherman Chan, an economist with Moody's Economy.com in Sydney, said Thursday. "India's rural population accounts for a large share of total consumption."

June rainfall was 46 per cent below normal, its lowest since 1926. Though the rains picked up in July, rainfall through July 22 was 19 per cent below normal for the nation as a whole.

That's becoming an increasing threat to growth because over 55 per cent of India's population relies on farming for its livelihood, and only 40 per cent of farmland is irrigated. In addition, 17.5 per cent of the gross domestic product comes from agriculture and related industries.

India's economy grew by 6.7 per cent last fiscal year, better than most analysts had expected, but lower than the 8.8 per cent average annual growth the country enjoyed from 2003 to 2008.

The upside surprise was largely due to a turnaround in agricultural output during the fourth quarter, the central bank, the Reserve Bank of India said in its quarterly economic review last week.

Industrial and services growth have continued to slow, and India's much-ballyhooed domestic demand has also dropped off, prompting the government to sharply boost its own spending to 32.5 per cent of GDP growth last fiscal year from an average of 5.9 per cent over the last five years, the Reserve Bank said.

Now, dry skies are threatening what has so far been the most resilient - and countercyclical - pillar of the nation's private sector: farming.

Citigroup says weak rains could knock India's GDP growth from an estimated 6.8 per cent this fiscal year to as low as 5.2 per cent.

Overall, summer crop sowing is off by 8.5 per cent and planting of rice is down by 21.4 per cent, according to Indian research and ratings agency Crisil.

Insufficient crops could also add to inflation pressure. India's headline Wholesale Price Index has been negative since June, largely because of a statistical anomaly caused by the exorbitant price of commodities this time last year.

The Ministry of Commerce said Thursday that WPI stood at minus 1.54 per cent for the week ended July 18.

Food price inflation, however, remains stubbornly high at 8.9 per cent as of July 11, the Reserve Bank said Monday.

Local newspapers have featured stories about families struggling with the high cost of food, offering tips on how to save, such as buy in bulk, use leftovers "creatively." The Reserve Bank was worried enough about poor rains further exacerbating food prices that it raised its inflation outlook for the fiscal year to five per cent last week.