20 Jul 2009 3:10 PM

Poor progress of monsoon to affect growth

The poor progress of the south-west monsoon till the first week of July 2009 is expected to adversely affect the prospects of growth in agriculture, industry and the Gross Domestic Product of the country as a whole.

Barring Karnataka, rainfall was deficient throughout the country in June 2009. This hit sowing activities of kharif crops severely. The dry spell and the delayed sowing will affect yield. Besides, kharif acreage was lower by 42.8 per cent by 3 July 2009. As a result we expect overall crop production to decline by 4.7 per cent in 2009-10.

The impact of the failed monsoon is expected to reflect on the industrial growth too. Production of sugar and edible oils will fall by 3.6 per cent and 2.5 per cent, respectively. Agro-based industries are also expected to witness some stress. This will have a marginally adverse impact on the ongoing industrial recovery. As a result, industrial production will now grow by 4.8 per cent during 2009-10 compared to 5.1 per cent estimated earlier.

This growth rate is significantly higher than the 2.4 per cent growth registered in 2008-09. Potent demand and capacity expansions in non-agro-based industries such as cement, aluminium, commercial vehicles, cars and two-wheelers are expected to aid this growth. These expansions and their backward and forward linkages are expected to generate employment, increase income and improve demand.

The impact of the lower agricultural output and the slower industrial recovery will be felt on the GDP growth. We now expect the GDP to grow by 5.8 per cent in 2009-10 compared to 6.6 per cent expected earlier. While the Union Budget for 2009-10 is expansionary and conducive to growth, the failure of the monsoon and its significantly adverse impact on agriculture and industry will shave off 0.8 percentage points from the GDP growth rate. With GDP growing at 5.8 per cent, India will still be among the very few countries with a respectable growth rate.

Chintamani Athalye
asamir@cmie.com