Shrugging off the fear of the third consecutive year of a poor rainfall in the country, the India Meteorological Department (IMD), in a welcome announcement, said that the rain gods will be benevolent this year.
In the first prediction for this monsoon season, the rainfall as a whole, from June 1 to September 30, is likely to be above normal between 104 to 110 per cent, the Indian Meteorological Department said on Tuesday
Going by the IMD data, the Indian economy will enjoy a good round of rainfall which could push the agriculture gross domestic product up by 4 per cent in 2016. However, agriculture’s contribution to the GDP is significantly contracting (17 per cent now) given that over half of the population still relies on agriculture. Therefore, a normal monsoon would have a larger than normal impact on the rural wages and spending.
Rural demand may spike in the near-term as normal monsoon would give a much needed boost to the agricultural produce. This could lead to the lowering of the food prices, strengthening of the agricultural incomes and eventually putting more purchasing power in the hands of the rural population.
Consumer durable’s, FMCG and auto sectors, where rural demand plays a key role, could witness huge bonanza this year owing to the adequate rainfall. The surge in the discretionary spending will have a cascading effect on the FMCG companies, which is expected to see an uptick in the volume growth.
A normal monsoon will augur well for the rural financiers as domestic tractor industry is bullish on the growth of the sector over the prospects of good monsoon season this year after two consecutive years of drought.
Rain and fortunes of fertilizer companies are closely related. A good monsoon usually increases the demand for fertilizers, a crucial farm input. With the normal monsoon expected this year, the fertilizer companies such as Gujarat State fertilizer and Chemical companies are expected to deliver good returns to the investors.
Further, the prospects of normal monsoon, coupled with falling interest rates would keep retail inflation within the 5 per cent mark which in turn would give a boost to the rural demand and agriculture income, backing up the GDP growth while also giving an adequate room to the central bank for a further rate cut.