India's weather office has forecast that monsoon rains, a key factor in the country's farm output, economic growth and inflation, would be 98% of the long-term average this year.India's June-September monsoon rains are a key factor for global commodities markets as they influence output of various crops in India, which is among the world's leading producers and consumers of wheat, rice, sugar and edible oils.How does the monsoon impact crops?Only 40% of India's farms have irrigation facilities. The rest depend on rainfall for planting crops in June and July. Last year, driest monsoon since 1972 hit crop sowing and output of summer-sown crops fell. In most parts of India, the monsoon accounts for 75-90% of the total annual rainfall.Even in regions which have irrigation facilities, monsoon rains are beneficial for crops and rainfall helps improve yields of crops.Does the monsoon impact other sectors of the economy?Yes. Agriculture's share in the Indian economy is 14.5% but it is a key source of income for villagers, who account for two-thirds of India's billion-plus people. Good monsoon rains help raise farm incomes, which increases demand for fuel, cars, motorcycles and consumer goods. Poor rainfall increases rural distress, encouraging the government to increase expenditures on subsidies and welfare schemes.Does it impact monetary policy?Farm output, which depends on rainfall, is an important factor in the country's inflation rate and economic growth -- key factors that shape monetary policy. A day before the India Meteorology Department's monsoon forecast, expectations of normal rainfall helped lift shares of Indian fertiliser firms, while bond yields eased. Traders and analysts bank on the forecast for cues on inflation and growth.How does monsoon impact the energy sector?Monsoon rains replenish reservoirs and increase ground-water levels, allowing better irrigation and higher generation of hydropower. If drinking water is scarce, the government can reduce supply to power plants or farms and provide more water to households.Good rainfall also reduces demand for diesel, which is used to pump water from wells for irrigation, when rainfall is scanty.Does a poor monsoon have political fallout?Since more than 60% of Indian voters reside in villages, the ruling party faces a difficult time if bad rainfall reduces rural incomes.When the monsoon fails, farmers often demand higher rates for their produce and put pressure on elected leaders to waive loan repayment and electricity charges.Last year, farmers in Uttar Pradesh, demanding a higher price for cane, burnt imported raw sugar and forced the local government to bar processing of imported raws by millers. Protests also disrupted parliament.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING