Agriculture

Rural Economy: Monsoon Mania

Vagaries of Monsoon adversely affect the agriculture sector. The increase in non-farm jobs in rural India has now changed the dynamics of rural economy. Mohd Mustaquim analyses the impact of Monsoon this year on agriculture with reference to rural economy

Rural Economy: Monsoon Mania

Vagaries of Monsoon adversely affect the agriculture sector. The increase in non-farm jobs in rural India has now changed the dynamics of rural economy. Mohd Mustaquim analyses the impact of Monsoon this year on agriculture with reference to rural economy

Monsoon has been a decisive and driving force for the Indian economy. But, over the decades it has brought both cheers and distress to the farmers. The stakeholders of rural economy were keeping their fingers crossed for this year and predictions by the government’s Met department and a private forecaster come as a big relief for them. However, dynamics of rural economy are fast changing. Experts are of the view that Monsoon now does not affect rural economy much as it used to be earlier and it is evident from the last year’s meteorological drought.

Let us see what is in store for this year. The India Meteorological Department has predicted a ‘below normal’ rainfall, likely to be 93 percent. However, the private sector forecaster, Skymet Weather Services has predicted ‘a normal’ rainfall. The agency is expecting a 102 percent rainfall in June to September.

According to the Skymet figures, there is 49 percent probability of Monsoon to be normal, while 25 percent probability is to be above normal, 8 percent probability is to be excess, 16 percent probability is to be below normal and 2 percent probability is to be drought. In last three years, Skymet’s predictions have been more nearer to the actual Monsoon with just 2 to 3 percent ups or downs.

The IMD Long Period Average report, released in April, 2015 says that currently weak El Nino conditions are prevailing over the Pacific and these conditions are likely to persist during the Southwest Monsoon season. El Nino Southern Oscillation (ENSO) conditions over Pacific are known to have a strong influence on the Indian Summer Monsoon. Thus, IMD is monitoring the sea surface conditions over the Pacific and Indian Ocean.

IMD will further release its 2nd stage of forecast again in June along with monthly forecasts for July and August for the whole country and separately for the four geographical regions of the country.

The Skymet CEO, Jatin Singh says on El Nino, “The El Nino is likely to continue into the summer months and taper down thereafter. It is not likely to have an adverse impact on Monsoon performance.”

In its report, Skymet has given a wide range outlook for India’s grain-bowl. The report says, Punjab, Haryana and western Uttar Pradesh are expected to get good rainfall.

The forecast has come when US National Oceanic and Atmospheric Administration is predicting that the El Nino conditions would continue across summer and autumn season. El Nino is said to heat up waters in Pacific Ocean which affects the wind patterns. In most cases, El Nino affects the Monsoon pattern in India. However, in some El Nino years like 1997 and 2006, the Indian Monsoon was normal.

Industry chamber Assocham’s secretary general, DS Rawat has similar views with Skymet CEO, he says, “A devolving El Nino in Monsoon 2015 will most probably not impact it negatively as droughts seem to happen where there is an evolving El Nino episode. Thus, forecast of normal Monsoon this year seems well distributed uniformly throughout the country.”

AFFECTING AGRICULTURE

Irrigation facilities are available in only 35 -40 percent of agricultural land while rest of 60-65 percent remain to be rainfed. The unseasonal rains and hailstorms in the Rabi season have already destroyed crops of millions of rupees, brought farmers in debt. It had triggered concerns about a rise in food inflation. A good Monsoon which supplies 80 percent of the country’s rainfall, will bring cheer and confidence on the face of farmers. It will prospect a high farm output, further strengthening overall economy.

In 2014, IMD and Skymet, both of the agencies had forecast below normal Monsoon and the country faced a meteorological drought. Around a quarter of the country – including Uttarakhand, Himachal Pradesh, Punjab, Haryana, Uttar Pradesh, Rajasthan, east Madhya Pradesh, Telangana and parts of Maharashtra—faced drought-like conditions. It further affected the farm output. In 2014-15, farm out fallen to 257 million tonnes from 265 million tonnes of 2013-14.

ECONOMIC AFFAIRS OF MONSOON

Though, agriculture today accounts for only 30 percent of rural gross domestic products (GDP), down from over 50 percent a decade ago. However, a good Monsoon boosts the income of half of the rural population, who get employment from the sector.

Elaborating the Monsoon effect on Indian economy, the legendary thinker of rural markets, Pradeep Kashyap, founder & CEO, Mart says, “Manufacturing and Service sectors now contribute more to rural GDP. So, a weak Monsoon can impact only the agriculture income and that too one of the two major cropping seasons. Land area under irrigation has also gone up significantly in the last decade. So, the crop output will come down only marginally if the Monsoon is 90 percent of the average.”

On the other hand, he further says, “However, a weak Monsoon does affect the sentiments of people, they hold back spending. Consumer behaviour is somewhat similar to what we see in the stock exchange, it is driven by sentiments and little logic. Fortunately, with salaried employment doubling over the last decade from 11 percent to 22 percent of rural employment, there is more regularity of income in rural households. This is the beginning to change behaviour and we do not see any significant down trading of brands during a weak Monsoon year.”

Dr. LK Vaswani, Director, KIIT School of Rural Management, Bhubaneswar, has similar views Kashyap, he says, “The impact of Monsoon on rural markets is not as high as it used to be a decade before as agriculture has become more stable. The other factor is spread of banking institutions and financial literacy in rural areas. The increase in government spending on welfare and employment schemes has also created positive impact on spending power of rural people.”

“However, in low rainfall regions the story is unchanged and consumption patterns will be determined by sufficiency or deficiency of Monsoon. The other factor which may marginally impact rural demand in select areas which have been affected by untimely winter rains, affected Rabi crops.”

As the rural people are moving towards non-farm jobs, their dependency on agriculture is going down. It directly relates to the rural economy. The economic vulnerability due to low rainfall is also declining with the time. If the contribution of agriculture in rural GDP is declining, it does not mean that the agricultural output is declining. Agriculture itself has been growing between 3-4 percent in the last decade. Agricultural contribution to rural GDP is falling as the contribution of manufacturing, construction and social welfare sectors are growing rapidly.

Government’s increasing expenditure on social sector programmes, such as Pradhan Mantri Gram Sadak Yojana, Indira Awaas Yojana and MGNREGA in last decade, has given a boost to the rural income generation. Today, these welfare schemes account for 37 percent of rural income in India, surpassing the total agricultural income.

“Non-farm incomes have also been growing because more and more village youth are getting skilled and finding jobs in factories and establishments coming up in the nearby small towns”, Kashyap further says.

WAY AHEAD FOR RURAL MARKETERS

Decreasing dependency on agriculture and normal Monsoon would bring good opportunities for rural marketers. Dr. Vaswani who has earlier been the director of Institute of Rural Management, Anand, has deep eye on rural markets for decades, suggests to the market forces, “Market planning in terms of market prioritisation will help improve productivity. At the same time rural marketers need to make special effort in the untimely winter rain affected areas to suit consumers’ low spending ability with promotions and smaller packs in case of FMCG products. This may be the best time in rural markets to introduce new and innovative products with price advantage.”

Every industry has a business cycle, several years of good demand is followed by a bad year. In rural it is several good Monsoons is followed by a weak monsoon. The master of rural markets, Kashyap says “Marketers should not flirt with the rural market, they should marry it. In other words marketers should take a long term view and not a quarter on quarter or from one Monsoon to the next. They need to invest in market development, create opportunities for livelihoods for the poor and innovate affordable products using a community co-creation process involving the rural consumer at every stage of new product development.

THE GROWTH STORY

Both consumption and penetration of most product categories is much lower in rural than in urban. So, there is a huge opportunity for growth which will depend on incomes. Per acre income has been on the rise because of better farm practices, mechanisation and shifting cropping pattern to fruits, vegetables and other cash crops.

“The increasing non-farm incomes have given new prospects to the rural markets. And therefore, I expect a steady growth in rural demand this year as well. Let us not forget in the initial years’ growth figures were impressive because this was on a small base. Today, rural areas account for 50 percent consumption for most categories and hence growth on this expanded base will look less impressive. But, in numbers/volumes/weight, it will be more than in the past, Kashyap elucidates.

In fact, Monsoon plays crucial role in Indian agriculture sector, which employs half of the rural population. But, in the recent decade, increase in non-farm jobs in rural India has changed the trends of rural economy. Since independence, Indian economy is considered agrarian. However, the sharp fall in agriculture’s contribution to GDP has changed the prospects of the Indian economy. It will not be surprising if in the near future, Indian economy is no longer considered agrarian. But, the question remains, the sector which employs the largest population of the country, what would be its role in the GDP. Will they have no role to play for the country’s economy? The policymakers need to rethink on it.

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