This year’s monsoon had delivered sobering news, with rain-induced landslides claiming hundreds of lives in Kerala’s Wayanad, and heavy downpours ravaging Uttarakhand and Himachal Pradesh.
Rain, rain, come again
This year’s monsoon in India brought the heaviest rainfall since 2020, with three consecutive months of above-average precipitation, aiding the country’s recovery from last year’s drought. According to the India Meteorological Department (IMD), rainfall from June to September was 107.6% of the long-period average. However, the delayed monsoon withdrawal in September led to above-average rainfall, which caused damage to key summer crops like rice, cotton, soybeans, corn, and pulses in several regions.
India was in dire need of good rainfall in 2024 after experiencing its driest year in five years in 2023, which drained reservoir levels and reduced the production of several crops. As a result, New Delhi had to implement restrictions on the export of rice, sugar, and onions.
“(However) Excess rainfall, especially during the end of the cropping cycle can have a damaging impact on the yield of the standing crop and final production levels. This could negatively weigh on agriculture growth, rural incomes and demand,” Sakshi Gupta, Principal Economist at HDFC Bank, told ET Online.
Too much of a good thing
The Reserve Bank of India, in its latest monthly bulletin, noted that some high-frequency indicators have shown a slowdown in momentum during the second quarter of 2024-25, partly due to unique factors such as the unusually heavy rains in August and September.India’s GDP growth soared to 8.2 percent in the financial year ending in March, solidifying its position as the fastest-growing major economy. The government’s efforts to enhance manufacturing, generate jobs, and attract global brands seeking alternative supply chains amid U.S.-China trade tensions have garnered significant attention. However, inflation and unemployment continue to pose challenges that Prime Minister Narendra Modi’s administration and central bank chief Shaktikanta Das have yet to fully address.
So, the authorities won’t love the excess rains, over which they have no control, as it is the big spoilsport.
Unseasonal rains in India have increasingly raised concerns in recent years. These weather anomalies disrupt the typical monsoon cycles, affecting agriculture, the economy, and the livelihoods of millions across the country.
“Spatial distribution of monsoon indicated that certain regions of the country recorded even higher excesses. Due to this there was some impact on economic activity with infrastructure linked sectors such as cement, steel etc. witnessing a precipitous slowdown. This will also be reflected in the growth numbers for this quarter,” Aditi Gupta, Economist at Bank of Baroda, told ET Online.
However, agriculture sector is likely to report a solid growth on the back of higher kharif acreage, she added. Further, improvement in government spending and festive demand is likely to provide an impetus to growth and Gupta said they continue to expect FY25 GDP to be higher than RBI’s estimates, despite the slowdown in Q2.
But there’s price to pay
Onions, currently retailing at ₹60-80 per kilogram, are set to remain costly through Diwali, ET reported. Continuous rainfall in Maharashtra, Karnataka, Telangana, and Andhra Pradesh has damaged the crop and delayed deliveries, exacerbating supply shortages. This increase in onion prices, along with rising costs for tomatoes and cooking oils, has contributed to September’s inflation reaching a nine-month high and is likely to keep food inflation elevated in October.
If you are thinking that’s too much hullabaloo over just onion prices, then let’s remember the cycle — excess rainfall damages crops, drives food prices higher adding to inflationary pressure and thus impact the policy rates.
India’s retail inflation soared to a nine-month peak of 5.5% in September, primarily due to rising food prices and an unfavorable base effect. Food inflation surged to 9.24% in September, up from 5.66% in August.
When it rains, it pours
Unseasonal, excess or erratic rainfall in India impacts nearly every industry. Agriculture (remember, India’s agriculture sector is the main source of livelihood for some 60% of its population), the most affected, sees crop damage from floods or droughts, disrupting food production and supply chains. This affects rural demand for consumer goods, vehicles, and housing. Heavy rains also delay construction projects, disrupt transport networks, and hinder energy production, particularly hydropower. Industries like textiles and insurance face increased costs from raw material shortages and claims, while tourism is hit by disrupted travel plans. Banking and finance sectors feel the strain as poor rainfall reduces farmers’ income, leading to loan defaults and increased fiscal burdens.
The rain scenario is more crucial now as India has been at ‘war’ to arrest the wild inflation horse for a long period now. On that note, let’s understand how the rain and economy’s well being is connected.
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Excess rainfall significantly impacts India’s economy, particularly through crop damage, as agriculture remains a key sector. Heavy rains cause waterlogging, soil erosion, and crop destruction, affecting staples like rice, wheat, and pulses. This disrupts agricultural output, destabilising livelihoods and slowing rural economic growth. Additionally, infrastructure is affected, making it harder to transport produce, further aggravating supply chain disruptions.
Crop damage leads to food shortages, driving up prices of essential items and contributing to inflation. As food costs rise, household purchasing power diminishes, especially for low-income groups, causing social and economic stress. Food inflation thus becomes a major concern, pressuring the economy.
In response to rising inflation, the Reserve Bank of India (RBI) may raise policy rates to control prices, but this increases borrowing costs, slowing investments and consumption. Conversely, when inflation is low, reducing policy rates encourages borrowing, fueling growth in sectors like real estate, infrastructure, and manufacturing, crucial for India’s economic expansion.
Weathering the storm
India is not only facing internal challenges but is also vulnerable to external shocks. With the Middle East conflict intensifying, geopolitical tensions could disrupt global supply chains and drive up oil prices. As the country navigates this storm, the question remains: can India keep its growth on track amid these compounding crises?