FT on the monsoon:
Foreigners tend to have two settings on China: bullish and super-bullish. For India, the only other top 12 economy actually growing, passions are more restrained. For the past few months investors have been anxiously watching the skies, fretting over the impact of the worst drought for decades. Put simply, the less it has rained, the worse India has performed against emerging market indices.
This may be overdone. There is no doubt that the feeble monsoon is hitting rural areas hard: about 60 per cent of crop land is not irrigated, and thus dependent on rainfall which, since the beginning of June, has been 25 per cent below the long-run average. But it would take a catastrophically poor yield to upset an economy that is increasingly resilient to shocks.
For one thing, agricultural workers – 60 per cent of Indians – have a level of protection they have rarely enjoyed in the past. Rural spending by the government as a percentage of gross domestic product has more than doubled since 2005. More importantly, farming is no longer the primary driver of the economy: it accounts for about 17 per cent of GDP, down from 30 per cent in 1990.
In the quarter ending in June, growth in agriculture decelerated to 2.4 per cent, year-on-year. That fall was more than offset by a spike in manufacturing, a similarly sized contributor to GDP, which was up more than 3 per cent after a negative reading in the March quarter. On Morgan Stanley estimates, a truly dire outcome this year in agriculture – 30 per cent less rain than normal – could shave 2 percentage points off overall growth, to 4.4 per cent this year. A painful contraction, but not in the same league as the famous 1979 drought, when India’s economy shrank more than 5 per cent. |
