Poor monsoon stalks India despite economic strides

by Dave

The related problem of severe groundwater depletion is going to be a millstone around raising Indian agricultural growth rates in the next couple of decades.

Unless India makes sweeping reforms to upgrade its fragmented and inefficient farm sector, the yearly monsoon will remain a key economic event, but with declining significance for investors. Agriculture’s share of the economy has slowly shrank to 17.5% last year from nearly 30% in the early 1990s, according to Morgan Stanley. But two-thirds of its 1.1 billion population live outside of cities and overall rural demand accounts for more than half of domestic consumption.

A failed monsoon hurts not just farm output but also demand for everything from fuel and motorbikes to shampoo and gold, adding pressure on a government struggling with a fiscal deficit that may balloon to 6.8% of GDP this year. Just 42.4% of sown agricultural land is irrigated, according to Morgan Stanley, with the rest reliant on rainfall.
This entire system is a feast or a famine system, there is nothing in between. The amount of irrigation waters is still dependent on the annual monsoons. The way of the crop cycle is still dependent on the monsoon,” said Jahangir Aziz, chief economist at JPMorgan in Mumbai.
“This is going to remain a problem for India as long as agriculture remains a 15% contribution to GDP and 60% contribution to employment,” Aziz said.

India is among the world’s biggest agricultural producers but labour-intensive, subsistence-level farming remains prevalent. Yields lag Chinese and world averages for key crops such as wheat and rice, according to figures cited by Credit Suisse.
Poor rains, which drive up food prices and curb electricity output, hit parts of India every few years and are politically sensitive in a country with a strong psychological connection to the land and huge rural voting base.
However, while the government has long supported the rural sector through price supports and subsidies, reforms that would boost efficiency at the expense of jobs are unpopular.

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