IMD predicts above-normal monsoon, could prop up growth in agriculture sector by 3%

With rain gods finally smiling, India's parched rural demand could well be soaked with the above-normal monsoon predicted on Tuesday by the meteorological (Met) department in 2016, which could marginally push up the GDP growth.

Economists believe if the monsoon across India pans out as predicted by the Met then the growth in the agriculture sector could move up by around three percentage points that could, in turn, nudge up India's national income marginally.

D K Srivastava, chief economic advisor, EY India, believes sufficient or excess rains in the current year could prop up growth in the agriculture sector by around three percentage points.

"Its (above normal monsoon) impact on agriculture sector, because the base was lower in the last two years, alone could be three percentage points but its weightage contribution to overall GDP would be much less. Industry, of course, would contribute more. This (good monsoon) would take us closer, on an average, to 7.5% (upper end of his prediction) GDP growth," said the EY economist.

In what could be seen as positive streak for India, the Index of Industrial Production (IIP) and Consumer Price Index (CPI) numbers published on Tuesday were also positive. The CPI eased to a six-month low of 4.83% in March from 5.26% in February while IIP turned positive at 2% in February.

Srivastava has projected a GDP growth of 7-7.5% in the current fiscal. And even as he expects the rural demand to revive after two slack years, he does not see private investment kicking in as there is still some capacity idle with India Inc.

"Rural demand could definitely improve and that would sustain throughout the year, if the monsoon is normal. But, for private investment, first the industrial capacity has be fully utilised. There is still a 25% gap or so. This (rural demand) does not necessarily imply that private investment would immediately kick off but, of course, the vibes would be positive. So, there might be an expectation of increase in (private) investment in due course," he said.

Anis Chakravarty, director at Deloitte India, said positive monsoon forecast will help in further easing the food inflation, which has already cooled off to some extent as was visible in the retail inflation number put out by the government on Tuesday. He, however, said it would all depend on how the supply side is managed.

"I don't see much of an upside risk on food inflation at this point in time given the monsoon forecast is positive. The supply issues are partly going to be muted but the main number to worry about is where is there is a high ratio in pulses. If supply side constraints are artificially induced then there is an upside risk on food inflation otherwise we are largely fine," he said.

Chakravarty also sees an uptick of 2-3% in agriculture growth this year compared with last year if rains are uniformly normal in the country.

Chandrajit Banerjee, director general of Confederation of Indian Industry (CII), said Met's monsoon forecast would be "mood changer" for India Inc and push the economy towards its potential growth rate of 8%.

"After two consecutive years of drought, the prospect of above normal monsoon, which is slated to be 106% of long period average, would help bolster farm productivity, alleviate rural distress, boost rural incomes and consumption demand even while augmenting food supplies and keeping inflation under check," he said in statement issued by the industry lobby body.

Banerjee feels normal monsoon coupled with soft global commodity prices would bring retail inflation within the target of 5% set by the Reserve Bank of India for the current year.