Is India's economic growth at mercy of the rains?

S Murlidharan
S MurlidharanSep 01, 2016 | 17:58

Is India's economic growth at mercy of the rains?

The growth rate of 7.1 per cent posted in the first quarter of 2016-17, the lowest in the last six quarters, has made sceptics wonder if the government’s expectations of registering 8 per cent growth in 2016-17 is a pipe dream. 

Reserve Bank of India (RBI) governor Raghuram Rajan’s parting pot-shot at the government that it could have done better in the first quarter has added grist to the mill of sceptics and detractors from the ruling dispensation at the Centre. 


However, a Federation of Indian Chambers of Commerce and Industry (FICCI) survey that foresees growth of 7.8 per cent seems to reinforce government optimism. At any rate, it is a matter of record that the economy does well in the second half of any financial year vis-a-vis the dry first half.

Indeed, the government can take heart from the good monsoon this year, perhaps the best in so many years, which is also in fact at the back of the FICCI survey's buoyancy.  

A bumper harvest, thanks to the rains, can vastly increase the purchasing power of rural households.

While we are nowhere near the rather over-ambitious promise of Prime Minister Narendra Modi to double rural income by 2022, a bumper harvest (thanks to the rains) can vastly increase the purchasing power of rural households - constituting more than 60 per cent of the Indian population - resulting in more business for FMCG, durables and the textiles sector, ultimately reversing the depressing trend set by the first quarter results.

And in the urban areas too, there could be a splurge the moment the government releases the Seventh Pay Commission arrears as well as the hike.

Of course, consumption-led growth can stoke inflation, but economists who otherwise don’t see eye to eye with each other concede that inflation and growth go hand in hand, in the manner of human beings registering greater personal success at the cost of slightly higher blood pressure.


The FICCI survey expects the services sector to grow at a lesser pace vis-a-vis last year, which is not surprising given the dire straits public sector banks find themselves in - alarming non-performing assets apply brakes on fresh lending. 

Finance secretary Ashok Lavasa is pinning his hopes on higher government investment in infrastructure but there is always a lag in investment translating into growth. 

The sentiments in the manufacturing sector are likely to be sustained, thanks to the passage of the constitution 122nd amendment bill clearing the decks for Goods and Services Tax (GST) rollout. And this is not mere cloying sentimentality. Of course no tangible gains are going to accrue in fiscal 2016-17, what with the rollout likely to take place only from April 1, 2017.  

But the message that goes out is that India is keen on improving its rating as an investment destination. The US has acknowledged this as a positive development even though curiously it is itself allergic to value added tax and its extension GST. 

Be that as it may, progressive measures such as GST would endear India to foreign investors resulting in heightened investments during the remaining period of 2016-17, some of them quickly translating into production.  


All said and done, predicting the growth rate is hazardous business even for a seasoned economist, especially in a globalised world, though India’s much bemoaned inability to break into the league of exporters is a relief for the tribe of forecasters - prognosis on exports can go horribly wrong vis-a-vis domestic demand. India meets about 80 per cent of its crude oil requirement through imports. 

The mercurial tempers of rulers in West Asia resulting in rather self-flagellating production cuts can inflict a huge cost on the Indian economy, thus pouring cold water on growth targets. 

A rabble-rouser-turned-sabre-rattling person - read Donald Trump - at the helm of the US government, come November 2016, can suddenly alter global investment and the trade mood for worse. India cannot remain impervious to such international developments. 

His ultra-nationalist utterances are already ringing alarm bells in the Indian IT sector that is eyeing US revival for its own rejuvenation.

Despite the inherent hazards of sticking one’s neck on growth prognosis, one can say with reasonable confidence that the Rain God is going to give some comfort to the Modi government.

Last updated: September 02, 2016 | 11:25
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