What a dry monsoon season means for the Indian economy

The rainy season in India lasts from June through September. But this year, India’s monsoon was weaker than normal. Conditions were drier, and rainfall has been more uneven across the country than in years past.

In India and other monsoon-prone countries, the rainy season is an important economic force, and a dry spell could spell trouble.

For more, “Marketplace Morning Report” host Kimberly Adams spoke with Madhavi Arora, chief economist at Emkay Global. The following is an edited transcript of their conversation.

Kimberly Adams: Can you start by telling us a little bit more about monsoon season? It's not necessarily something that most parts of the U.S. experience, but it is an important part of the Indian economy. Why is that?

Madhavi Arora: Nearly 70% of the country's annual rainfall is received during this period, to the extent that agriculture contributes almost 18% of India's GDP, but supports almost, say, 70% of the population. And so to that extent, almost 60% of farmers depend directly on monsoon rainfall, and thus any disruption in the monsoon season could actually have ramifications for rural consumption and farm economy as well.

Adams: So, how are most Indians feeling this impact?

Arora: The implied impact is, of course, on the food price spikes. To that extent, not only does it increase the food inflation and inflation expectation and also, as I said, the rural economy is heavily dependent on the agriculture sector, but they are also moving away from being an agricentric rural segment to a more non-agricentric rural segment. So maybe 30, 40 years ago, agriculture was probably 50% of the rural GDP. Probably it is down to as low as 15%. We don't have the exact stats. So, the incremental pain of a deficient monsoon is reducing for India. That said, of course, if it worsens and if it's not very well managed by the policymakers, it could have a spillover effect in the form of higher food spikes.

Adams: How are policymakers responding this year?

Arora: We are seeing prices of, say, sugar, pulses, rice and vegetables triggering a policy response, probably as soon as next month. You know, in the last decade or so, we've actually seen whenever there has been a deficient monsoon, the policy response has been pretty active in terms of buffer stocks management, in terms of improving the irrigation availability, improving the crop insurance and making the farm sector much more resilient. That said, we still have small and medium farmers who are heavily dependent on rain-fed water. So, there's still a long way to go as far as improving India's response to a deficient monsoon is concerned.