Home > Agriculture, Automobiles, Economic Growth, Power, Rainfall > Impact of Monsoon 2010 on Indian Industries

Impact of Monsoon 2010 on Indian Industries

After the drought in 2009, close to 85% of the Indian subcontinent received excess/normal rainfall during the current monsoon season (between June 1 and August 4, 2010). Rainfall has been only 2% below the long period average (LPA) during this time. The LPA of seasonal rainfall across India is 89cm, which is the rainfall averaged during the monsoon seasons (June to September) during 1941-90.

Out of 36 meteorological subdivisions, rainfall has been excess in 11, normal in 20 and deficient in five sub-divisions. However, besides the actual rainfall, its spatio-temporal distribution also makes a difference and can paint a different picture from the LPA. This spatio-temporal distribution criteria requires that rainfall should be well spread across the geographical area of the country and even across the monsoon period. In the current monsoon season, rainfall has been well distributed across regions and the monsoon period.

The southwest monsoon is important for India as about 60% of the country’s farm-lands are rain-fed and agriculture accounts for a fifth of the GDP. More than half of the workforce in the country is employed in this sector. Thus, monsoon has both direct and indirect impact on various sections of the economy.

Direct Impact

  • One of the primary and direct beneficiaries of a good monsoon is the food articles segment. It includes foodgrains, pulses, coarse cereals, fruits and vegetables.

India received more rainfall in July 2010, resulting in accelerated kharif planting. Area under crops rose by 8.4% during the current year compared to a year-ago. This is raising hopes that a bumper harvest will put the brakes on accelerating short-term food-price inflation.

  • Cash crops such as sugar, oilseeds and cotton also benefit from a healthy monsoon. A drought in major districts of the country last year led to lower area under cultivation as well a poor crop quality, which affected the availability of agricultural raw material for the manufacturing sector.

Britannia Industries, Dabur India, ITC, Nestle and Marico are some of the beneficiaries in the manufacturing sector, which use food articles as raw materials for their finished products.

  • The demand for agricultural inputs, such as fertilisers, pesticides and hybrid seeds, is directly pegged to the acreage of various crops planted. With a healthy monsoon, demand for the agri-inputs sector is set to improve. During 2003-2009, fertiliser im-ports grew at a compounded annual growth rate of 66.9%. However, in 2009-10, imports fell 10.8% to 148 lakh tonnes. As India saw an erratic monsoon last year, the demand for fertilisers and pesticides was subdued.

Companies that are likely beneficiaries include Coromandel International, Tata Chemicals, Bayer CropScience and Rallis In-dia.

  • A strong monsoon will benefit the farm segment, which will in turn generate demand for farm equipment — mainly tractors. Additionally, easy availability of cheap credit, along with the existing low tractor ownership level, will boost demand.

The likely beneficiaries include Mahindra & Mahindra (tractor division), HMT and Escorts.

  • Animal husbandry is another industry that benefits from adequate supply of water through rains. It also improves availability of fodder for the animals.

Indirect Impact

  • The erratic monsoon in 2009 took a toll on hydel power generation. This is because lower rainfall results in low water levels for the major reservoirs across the country, which restrains hydel power generation. However, it must be noted that hydro power accounts for only 20% of total power generated in India.

Besides state electricity boards, the companies that are likely to benefit include NHPC, SJVN, NEEPC and JaiPrakash Hydro.

Monsoon also impacts purchasing power of rural India, which accounts for two-third of the Indian population. The rural population can be broadly divided into large landowners, marginal farmers and landless labourers. While a large potential rests in the second category, currently it is the large farmers category that is mainly driving rural consumption. The other two categories have benefited from the govern-ment’s National Rural Employment Guarantee Act, which guarantees a minimum 100 days of employment to each member of the family.

While the government has been raising the minimum support price across agricultural commodities, a higher output (on account of a good monsoon) will push up farm incomes. This augurs well for the follow-ing industries:

  • Automobiles: Two- and three-wheeler sales could receive an additional thrust. Although demand for automobiles does not depend on rainfall, higher farm incomes are expected to drive sales in rural areas. Hero Honda, Bajaj Auto and TVS Motors are likely beneficiaries.
  • Consumer durables (excluding automobiles): Higher disposable incomes will continue to push demand for consumer durables such as television sets, refrigerators, washing machines and air conditioners. Key beneficiaries include Bajaj Electricals, Videocon, Voltas, MIRC Electronics and Bluestar.
  • Consumer non-durables: Demand for fast moving consumer goods usually rise at a rapid pace with a rise in incomes. FMCG includes toiletries, clothes (textiles), footwear, etc. However, it must be noted that in India, a peculiarity has been observed in terms of demand for non-food FMCG. Unlike other developing nations, demand for FMCG has grown at a far slower pace than consumer durables. While no real reason is known for this, FMCG majors are trying out various strategies to woo the price-sensitive Indian rural market. It is speculated that the rural FMCG market is probably dominated by the small, unorganized and local players, which are able to compete with the national players on pricing and distribution. The national FMCG players include HUL, Godrej, Procter & Gamble, Colgate, Nirma and Emami.
  • There are also other indirect effects like improvement in rural housing demand and a consequent rise in demand for related industries such as cement, tiles and paints.

While monsoon does play an important role in driving demand in the Indian subcontinent, there are other factors playing a role in the Indian consumption growth story. One such factor is government spending on rural programmes. Schemes include National Rural Employment guarantee scheme (NREGA) and Pradhan Mantri Grameen Sadak Yojna. These schemes also give an impetus to the rural incomes, which drives consumption.

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: