Arab Today, arab today clear skies darken outlook for india
Last Updated : GMT 06:40:54
Arab Today, arab today
Arab Today, arab today

Clear skies darken outlook for India

Arab Today, arab today

Arab Today, arab today Clear skies darken outlook for India

New Delhi - Arabstoday

India has been buffeted by slowing industrial output, stalling growth and the fallout from the euro-zone crisis this year. Now the monsoon rains could add to the drip, drip affect of an economy in trouble.Last week, Standard & Poor\'s threatened to make India the first of the Bric nations - comprised also of Brazil, Russia and China - to lose its investment-grade status. This came after an earlier downgrade in India\'s credit rating and against the backdrop of rising inflation and a falling rupee. \"In a normal situation, India can cope with a bad monsoon. But these are not normal times,\" says DK Joshi, the senior director and chief economist at Crisil, a credit-ratings agency based in Mumbai. \"Because of the current economic situation, everything is much more volatile now. We have the euro-zone crisis, flat output and India\'s weak growth that are having an impact and bad monsoon adds further pressure on growth and inflation,\" he adds. The country needs rain - badly. Everyone is looking up to the skies with hope as India posted its worst quarterly growth figures since 2003 with GDP growing at just 5.3 per cent in the first quarter this year, down from 6.1 per cent in the previous quarter. But some say it is already a case of too little, too late, and that the monsoon may not provide a much-awaited silver lining this year. Newspapers in Mumbai have been claiming \"monsoon is just few days away\" for more than a week now, and some experts have predicted rainfall could be as little as half the normal average. The financial experts are worried. \"Based on studies released by the Met department, there is some concern over spread and quantum of rains this season. While the monsoons have hit the country as expected, the rain so far is on the lower side,\" says Raj Majumder, the chief executive of Auroch Investment Managers. So why are the rains so important to the country\'s economy? The monsoon accounts for 80 per cent of all rainfall in India making it crucial for agriculture, food production, inflation - even consumer spending. A normal rainfall would help at least to stabilise the current shaky ground India is on. But a poor year for agriculture, which accounts for nearly 20 per cent of GDP, would send ripples through the economy. A lacklustre monsoon season could also hit industrial production, which in turn will put more pressure on the government\'s budget. \"Apart from agriculture, it has an impact on industrial production as farm income is spent on industrial goods especially consumer durables including automobiles,\" said Madan Sabnavis, the chief economist at Care Ratings. \"Second, it has an impact on inflation as a bad monsoon will automatically lead to higher prices. [The] services sector - especially transport - is also largely dependent on farm production.\" The monsoon creates a domino effect that will continue beyond the rainy season. \"Monsoon failure affects demand for manufactured goods in the October-December period, which is also the festival season in India. This will impact the industrial growth rate,\" says Mr Sabnavis. Even the country\'s financial sector could take a hit. \"The banking system will come under pressure to provide subvention benefits or loan write-offs, which will again affect the budget of the government through the farming subsidy bill,\" Mr Sabnavis adds. The tumbling rupee is already a burden for many ordinary Indian families as imported goods have become hugely expensive. Then there are rising food prices. Data fromIndia\'s reserve bank showed staple-food prices increased 10.49 per cent in April with the price of vegetables jumping more than 60 per cent because of the hot weather and low output. Middle-class shoppers have seen the price of their everyday goods shoot up in the past six months as inflation has taken its toll on salaries.\"There is a demand-supply imbalance in most cereals and pulses, except with rice and wheat, in which we have stockpiles that will last around four to five months in case of drought. Prices reflect this,\" says Raosaheb Mohite of Financial Technologies Knowledge Management. \"If the monsoon fails and the situation deteriorates, it will hurt the wallets of the lower middle classes and middle classes.\" Rain in recent years has been good. From 2004 to 2009, grain production increased, although severe drought conditions in various parts of the country during 2009 to 2010 led to a one-year decline. \"India survived the bad year because our growth was strong and conditions were different to today. If we had a similar year this year, it would have serious effects to our economy,\" says Mr Joshi. Imports, already expensive because of the falling rupee, will be further under pressure if the monsoon season fails to deliver. \"For pulses we will have to import more, which pushes the import bill. In case of oilseeds we will end up importing more oils, and that pushes up world prices as India is a large importer of edible oils. In case of vegetables we have seen that shortages become acute leading to escalating food inflation,\" says Mr Sabnavis. Aweaker than average monsoon will add further pressure to the equities markets. \"There are certain companies that have more rural exposure - such as [makers of] two wheelers and cars. They rely heavily on the rural consumers,\" says Mr Joshi. \"If the rains fail, these consumers will face unemployment and this will in turn have a direct impact on the companies selling directly to the rural markets.\" from the national.

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