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Monsoon delay may hit economy hard

A delay in the arrival of monsoon in some parts of the country has raised fears of drought in some areas, which analysts say could stifle economic recovery.

The southwest monsoon, which hits the southwestern coast in early June and then moves northwards, is crucial to economic performance as agriculture accounts for 25 per cent of GDP and employs 70 per cent of India's more than one billion population.

"This is a very serious problem as out of 36 meteorological districts, 25 have been dry and quite likely there may be a drought," said D H Pai Panandikar, director-general of RPG Foundation, a private economic think-tank.

Good monsoon rains normally lead to bumper harvests which trigger demand for goods from rural areas, boosting overall economic growth.

The agriculture ministry said on Tuesday it was worried about the monsoon's erratic progress and the potential damage to crops.

T K Bhaumik, an economist with the Confederation of Indian Industry, the country's biggest industry lobby group, also said agriculture output could be hurt by scanty monsoon rains.

"It may not be a good monsoon year. We've poor rainfall in some areas and excessive floods in other parts. It may not be a good year for agriculture," Bhaumik said.

Panandikar said the poor rainfall could hit farm output badly because the affected areas include the northern grain-bowl states of Punjab, Haryana and the western part of Uttar Pradesh.

INDUSTRIAL RECOVERY

The economy expanded by 5.4 per cent in 2001-02 (April-March), spurred by a robust farm sector which grew by 5.7 per cent after a steep decline in the previous two years. That overall growth compared to 4.0 per cent in 2000-01.

Data in recent months has raised hopes of a recovery in the industrial sector, which was in a deep demand slowdown. Industry accounts for 25 per cent of GDP.

Industrial output rose 3.8 per cent in May, boosted by strong growth in the manufacturing and mining sectors and the six core sector industries grew by a storming 5.8 per cent in April-May with cement and steel demand surging and truck sales soaring.

"This whole recovery of industry which was dependent largely on good agriculture may not be strong enough" to counter poor rains, Panandikar said.

Worries about the monsoon, which lasts from June to September, have also weighed on investor sentiment on the Bombay Stock Exchange, pulling down some consumer goods stocks, dealers say.

But some analysts and officials said they had not lost hope about the arrival of monsoon. The Indian Metereological Department said a low pressure area was building in the Bay of Bengal and rain was forecast in northern parts by early next week.

"It's not that late yet for the monsoon. Let's see. We have 10 to 12 days to watch," C M Vasudev, secretary economic affairs in the ministry of finance, told Reuters.

Even if the rains failed, analysts said prices were expected to remain stable because India had huge grain stocks. They added that there should also be little impact on inflation, which in recent weeks has been hovering around 20-year lows.

"Two years of successive good monsoon could also make stocking of grains difficult. We are already struggling with excess capacity of 65 million tonnes of grains," Bhaumik said.

Some analysts said the lag affect of last year's strong agriculture growth would continue and rural demand would not fade.

"Several consumer product firms and car companies are targeting rural areas aggressively as they feel there is still some income to be spent there," Indranil Pan, analyst with Kotak Mahindra Capital Company.

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