New Delhi: India's summer monsoon is likely to be normal this year, the government said on Friday, allaying fears over an event crucial to the economic fate of the world's second-most populous nation.
Earlier, weather scientists from the United States and Britain said normal monsoon rains were likely in India, but a Japanese forecaster had said the seasonal rains would be weak this year. Success or failure of the annual summer southwest monsoon fixes the fate of the farm-dependent economy. Here are some likely scenarios:
GOOD MONSOON:
- Adequate rains during the monsoon season would help sowing of rice, sugarcane, soybean and corn, and boost output.
- A good monsoon would also be a boost for the Congress-led government in its efforts to ease food inflation, which has become a lightning rod for the Opposition political parties.
- Good rains could also mean the Central bank may not have to further tighten monetary policy to rein in inflationary expectations.
- High temperatures during the pre-monsoon period are considered to be helpful for the early sowing of rice, soybeans and lentils.
- Higher rains in rice-producing belts of south, central and eastern India, and oilseed-growing central and western regions would augur well for domestic supplies.
- If monsoon rains come early, it would reduce the demand for supplementary irrigation needed for the cotton crop during peak summer season, saving energy and input costs.
- A good harvest would raise supply and reduce food inflation that soared to 17 per cent in March.
- Well distributed rains during the four-month monsoon season would help the government to lift various trade curbs imposed in the recent years to rein in high food prices.
- Good rainfall would encourage the government to ease export curbs on wheat and rice, tax sugar imports, and impose import taxes on crude varieties of vegetable oils.
- Good monsoon rains and the related increase in farm incomes can stoke gold demand in the world's biggest consumer.
- If the rainy season extends beyond September, it could hit iron ore exports from India, the world's third biggest supplier of the steel making material. Iron ore fines exports are usually halted during monsoon rains as they absorb water.
- Higher demand for goods and services can boost economic growth.
BAD MONSOON
- A monsoon failure would lead to higher imports of sugar and cooking oils. Last year's worst monsoon over three decades made India a large importer of the sweetener, pushing New York raws to hit a 29-year high in February. Lower oilseed output helped the country to regain top slot of cooking oil buyer from China, after a gap of six years.
- The government would find it difficult to manage high prices in essential food items.
- Higher inflation could force the Central bank to further tighten rates, possibly endangering the economic recovery and making the government's record borrowing programme more difficult to manage.
- Trade curbs on grain would continue. Hopes of wheat exports amid bulging stocks and record output would be dashed. They are expecting the government to relax curbs on wheat exports after the monsoon season is over.
- A monsoon failure for second straight year would severely hit output prospects for winter crops like wheat and rapeseed due to moisture stress and poor water reservoir levels.
- Scanty rains would result in depleting water reservoirs, hitting generation of hydro power and irrigation of winter crops.
- Monsoon failure would likely make the government revisit its fiscal deficit targets as scanty rains would raise the subsidy bill on diesel, which is used to pump water from wells for irrigation.
- A negative outlook for goods and services could dampen equity market sentiment, mainly of companies which sell products in rural areas, including consumer goods and automobiles.
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