Weak monsoons could weaken rural spending and sag growth rates further

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Weak monsoons could weaken rural spending and sag growth
Domestic growth rates may decline further if rain continues to play truant. According to the Indian Meterological Department, 16 of the 36 meteorological divisions have shown deficits so far. India's rural population depends on agricultural income, and rural demand accounts for almost 50% of the domestic consumption.

As agricultural income is likely to get hit with deficient monsoons, India's GDP which came in at a nine year low for the fourth quarter of 2011-12 may falter once again, if the nation does not see a speedy revival in monsoons.

Sixty per cent of India's population earn their livelihoods from agriculture and the sector contributes approximately 16% to GDP, which is significant. Over the years the agriculture contribution to GDP has been declining, but, nonetheless it still forms an important part of the GDP.

The Indian Meteorological Department has stated that monsoon may be deficient in the month of July this year.

The deficit in rainfall will affect the states of Karnataka, North-East and oilseed-growing areas of Gujarat. However, recovery of monsoon is expected in rice-growing areas, according to IMD. Despite this, commodity prices have already rallied, and one can expect another sharp increase in food inflation in the next few months. Clearly, patchy monsoons is not good news for India.

Unless the monsoon revives, one could see agricultural income taking a big hit. And, if that happens be prepared for lesser spending and lower growth rates in the economy.


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