MUMBAI: The forecasts of the India Meteorological Department (IMD) have dampened hopes of a bumper monsoon. If the IMD prediction of 96% long-term average rainfall for ’03-04 comes true, then as per the new definition of normal rainfall (98-102%), this would be the fifth consecutive year of below-normal rainfall.

This below-normal stretch was preceded by six consecutive years when the rainfall crossed the long-term average. This disparity in monsoon has been reflected in growth trends for the past 12 years. While factors like excess capacity and global slowdown may have impacted growth rates, monsoon is still very important for the growth of non-agricultural sectors. During ’93 to ’98, the average annual growth in agricultural GDP was 3.5% and that in foodgrains production was 2.1%. However, despite good rains, farm sector GDP and foodgrains output declined between ’95-96 and ’97-98.

In sharp contrast to the ’93-98 period, the below-normal monsoon years saw agricultural GDP fall to 0.6% per annum and foodgrains production dipped at a compounded annual average of 2.6%. These growth rates were, of course, significantly influenced by the just concluded year, when the drought led to a 13.6% fall in foodgrains output and a 3.1% fall in agricultural GDP.

The poor agricultural growth also impacts other sectors adversely as rural incomes fall and higher food prices reduce consumers’ purchasing power. However, high food stocks and imports have softened the effect of rising food prices. Nevertheless, non-agricultural GDP is typically impacted in the year following the bad agri-growth years. We compared the non-agricultural GDP growth rates for the two time periods, incorporating a lag of one year. The analysis shows that the average annual growth rate has slowed down from 8.1% between ’94 and ‘99 to 6.1% in the past three years. A sizeable component of this two percentage points drop could be linked to the demand setback related to weak agricultural performance.

In the past ten years, agricultural growth was negative for four years. And on three occasions, the non-agricultural GDP decelerated in the following year. The fourth such occasion was the drought of ’02. However, it remains to be seen if the past trend continues during the current financial.

TIMES NEWS NETWORK[ FRIDAY, APRIL 18, 2003 02:55:57 AM ]