Monsoon Ushers Optimism in Kerala: Economists Predict Surge in Rural Demand

Monsoon Ushers Optimism in Kerala: Economists Predict Surge in Rural Demand

The punctual arrival of the southwest monsoon (June-September) across Kerala and northeast India heralds positive prospects for the Indian economy. Economists assert that well-distributed and abundant rainfall will elevate agricultural incomes by stimulating rural demand. Rajani Sinha, Chief Economist at CareEdge, remarked, “The monsoon’s early advent and the anticipation of an above-normal season this year augur well for the Indian economy. Favorable monsoon conditions will replenish water reservoirs, thereby supporting agricultural output and the rural agrarian sector. This is particularly crucial as last year’s agricultural growth was hampered by El Nino-induced climatic anomalies, which left reservoir levels low, especially in southern India.”

The previous year saw the monsoon season marred by the El Nino effect, impacting the Indian economy and financial markets significantly. The Indian Meteorological Department (IMD) announced on Thursday the commencement of the Southwest monsoon over Kerala and northeast India, which contributes over 70 percent of the nation’s annual rainfall. The monsoon arrived on the mainland two days ahead of its typical onset date of June 1. The IMD has indicated the potential development of La Nina weather conditions during July-September, suggesting that India is likely to experience normal rainfall (92-108 percent of the long-period average of 166.9 mm) in June.

Dharmakirti Joshi, Chief Economist at CRISIL Limited, noted, “The focus is firmly on the southwest monsoon, which has commenced in Kerala and the northeast. Timely and well-distributed rainfall can enhance agricultural incomes by boosting rural demand, which was impacted in the previous fiscal year and is currently showing signs of recovery. Robust crop output can help control food inflation, which has been above 8 percent for six months. Controlling food inflation, with non-food inflation already low, could create space for interest rate cuts.”

Beyond fostering agricultural growth and rural demand, a good monsoon will also positively influence the inflationary landscape. “The erratic monsoon last year led to higher food inflation, averaging 7.9 percent over the last six months. A good harvest will help moderate inflationary pressures in the food sector, potentially influencing monetary policy decisions. A lower inflationary environment will also support the demand side of the economy. However, the temporal and spatial distribution of the monsoon will be critical factors to monitor moving forward,” said Rajani Sinha.

Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry, stated, “Market momentum indicators such as high GDP growth, favorable monsoon forecasts, easing inflation, and fiscal direction are aligning and enhancing India’s attractiveness to global investors.”

Earlier this week, the IMD reaffirmed its April prediction of above-normal rainfall for the 2024 southwest monsoon, forecasting rainfall at 106 percent of the long-period average (LPA) between June and September, with a model error of ±4 percent. Skymet also predicted 102 percent of LPA rainfall for the season in its April 9 forecast. The weakening El Nino conditions are expected to allow La Nina conditions to develop later in the monsoon season. Historically, La Nina conditions have generally favored the Indian monsoon, according to data from the past 72 years studied by the IMD. Currently, the Indian Ocean Dipole is neutral but is expected to turn positive, benefiting the Indian monsoon in the latter part of the season.

Moreover, Skymet’s forecast highlights a risk of deficient rainfall in Bihar, Jharkhand, Odisha, and West Bengal during the peak monsoon months of July and August, while the northeast is expected to receive ‘less than normal’ rainfall during the first half of the season. However, good rainfall is anticipated in the southern, western, and northwestern regions, with adequate precipitation in Madhya Pradesh and Maharashtra.

The IMD projects normal rainfall in June but warns of above-normal temperatures in most parts of northwest and central India, which could pose challenges. “Rainfall in July and August is crucial for agriculture, as most sowing activities occur during this period. However, fields are ploughed and sowing begins in June. Above-normal temperatures could affect labor availability or the ability to work under extreme conditions. High temperatures also exacerbate the depletion of reservoir levels, already 24 percent below capacity, due to faster evaporation,” noted a report by CRISIL.

The report further indicated that states expected to receive deficient rainfall this year, such as Jharkhand, Bihar, West Bengal, and Odisha, require close monitoring as they were similarly affected last year. Crops like rice, tur, and coarse cereals need careful observation since last year’s uneven rains impacted their production and drove up inflation rates for these crops. For instance, rice experienced an average inflation rate of 12.2 percent in fiscal 2024, tur 33.4 percent, and coarse cereals 10.9 percent in 2023-24.

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