India's Deficient Monsoon Forecast May Have Limited Economic Impact
Deficient monsoon risk rises, but macro impact on GDP expected to stay muted
The Economic Times
Image: The Economic Times
The India Meteorological Department's prediction of a deficient monsoon raises concerns about agricultural output and inflation. However, the impact on GDP growth is expected to be muted due to a declining correlation between rainfall and agricultural performance over the past two decades.
- 01The India Meteorological Department forecasts monsoon rainfall at 90% of the long period average (LPA), with a 60% probability of this outcome.
- 02The correlation between rainfall and agricultural gross value added (GVA) has been negligible at under 0.05 over the past 25 years.
- 03Agriculture's share in the total GVA has declined from around 20% in FY12 to approximately 14% in FY25, influenced by a growing services sector.
- 04Irrigated crop area has increased to 55.8% in FY23 from 41.7% in FY02, reducing reliance on rainfall for crop output.
- 05Rabi crop output is projected to rise by 6.7% year-on-year to 180.5 million tonnes, while Kharif crop is expected to grow by 3.9% to 176 million tonnes in FY26.
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The India Meteorological Department's latest forecast indicates a heightened risk of deficient monsoon rainfall, now estimated at 90% of the long period average (LPA) with a 60% probability. This raises concerns about potential impacts on agricultural output and inflation. However, an analysis reveals that the correlation between rainfall and agricultural gross value added (GVA) has been negligible, at under 0.05 over the last 25 years, suggesting limited effects on overall GDP growth. Factors contributing to this trend include an increase in irrigated crop areas, a rising share of Rabi crops, and growth in livestock and forestry sectors. The share of agriculture in total GVA has also decreased from approximately 20% in FY12 to around 14% in FY25, reflecting a shift towards a more service-oriented economy. The expected increase in Rabi crop output, which relies more on winter rains, further mitigates the potential negative impact of deficient monsoon rainfall on the economy.
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The agricultural sector may face challenges due to deficient rainfall, potentially affecting food prices and inflation.
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