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Monsoon rains and impact on economy

India on Tuesday forecast normal rains for the 2011 monsoon, strengthening the prospect for good farm output, which could help bring relief to Asia's third-largest economy in its battle with high food prices.

April 21, 2011 / 12:10 PM IST

India on Tuesday forecast normal rains for the 2011 monsoon, strengthening the prospect for good farm output, which could help bring relief to Asia's third-largest economy in its battle with high food prices.


Monsoon rains from June to September are a key factor for global commodities markets as they influence output of various crops in India, which is among the world's leading producers and consumers of wheat, rice, sugar and edible oils.


Rainfall is likely to be 98% of the long-term average, Earth Sciences Minister Pawan Kumar Bansal said, adding the forecast would be reviewed in June when monsoon rains arrive in South Asia.


A normal monsoon means the country receives rainfall between 96-104% of a 50-year average of 89 centimetres during the four-month rainy season, according to India's weather office classification.


Farming makes up about a fifth of the gross domestic product (GDP) in India, 60% of whose people live in rural areas.


The seasonal rains usually start on the southern Kerala coast on June 1 and cover half the country by the first week of July.


About half of India's farm output comes from crops sown during the four-month-long monsoon season.


The increased soil moisture from the rains is also important for key winter crops such as wheat and rapeseed.


Here are facts on the monsoon and its impact:



Crops


-- Rice: Indian farmers plant paddy at the start of the monsoon season. The key areas for rice are the eastern and southern regions .


The crop is heavily dependent on rains for irrigation. A bumper harvest last year means India has ample stocks. But exports are still banned -- apart from select non-basmati grains -- and normal rains could prompt the government to ease curbs on overseas sales. Any decision is likely to come after the end of July, when the monsoon impact is clearer.


The government expects production of 94.11 million tonnes in the crop year to June 2011, according to its latest forecast.



-- Soybean: A vital crop for the world's top importer of edible oils. Higher oilseed output would rein in the growth of edible oil imports and increase oilmeal exports.


Output in the 2010/11 crop year is seen at 12.59 million tonnes, according to the latest government forecasts.



-- Sugarcane: The world's top sugar producer after Brazil could allow exports of the sweetener in the next season from Oct. 1 if rains are favourable for output. India has said exports of 500,000 tonnes can be made in the current sugar year to September 2011.


The government is expecting output of 24.5 million tonnes in the 2010/11 crop year. Consumption should be some 22.5 million tonnes.



-- Others: Corn, lentils and cotton, important crops in western and central India, also depend heavily on the seasonal rains. India remains a net importer of lentils.



Irrigation, power


-- Monsoon rains replenish reservoirs and lift ground-water levels, allowing better irrigation and greater generation of hydropower.


-- About 40% of India's arable land has irrigation facilities. The rest depends on the monsoon rains.


-- Higher rainfall levels can also reduce demand for diesel, used to pump water from wells for irrigation when rainfall is scant.



Economy and markets


-- India is largely self-sufficient in major foodgrains such as rice and wheat, but drought can send the country to international markets, as in 2009 when India had to import sugar, sending global prices to record highs and pushing up inflation.


-- Ample monsoon rains lift domestic demand, as higher farm output increases the incomes of rural people, who make up about two-thirds of India's population of 1.2 billion.


-- Higher demand for goods and services can boost economic growth. Also, inflation could ease because a better supply of crops would lead to lower prices and take the pressure off the government to step in with fiscal measures and extra subsidies.


-- A stronger economic outlook can lift sentiment in equity markets, particularly of firms that sell products in rural areas, including consumer goods and automobiles.


Expectations of a normal monsoon in India for a second straight year have raised hopes of higher farm output, which could tame high food prices and help persuade the government to free rice and wheat exports.


India is one of the world's top producers and consumers of a range of commodities such as sugar, grains, oilseeds and cooking oils.


The government on Tuesday forecast normal rains for the 2011 monsoon.


A bad monsoon can force India into the international markets as a buyer, as happened in 2009 after initial forecasts had called for normal rains.


What does a "normal" monsoon mean?


A normal monsoon means the country receives rainfall between 96-104% of a 50-year average of 89 centimetres during a four-month season from June, according to the India's weather office classification.


What does a "bad" monsoon mean?


Rainfall below 90% of the long period average will be treated as a bad monsoon, while rainfall above 110% of the average would mean an excess monsoon.


When does the monsoon arrive in India?


The southwest monsoon arrives in India on the southern coast and usually hits the southern state of Kerala on June 1. After hitting the southern tip, it takes about a week to cover the coffee, tea and rubber growing areas of south India.


How far and fast does the monsoon travel?


The monsoon spreads to the rice-growing areas of eastern parts of the country in the first 10 days. It usually covers half of the country in the first fortnight and enters the oilseed-producing areas of central India in the third week of June. Cotton-growing areas in the western region get rains by the first week of July.


By mid-July, the monsoon covers the entire country.


Does a normal monsoon rule out drought?


No. A normal monsoon indicates overall rainfall to be good but does not rule out drought in some areas.


Distribution of rains over key crop regions is important for the overall performance of the monsoon.


How does the monsoon impact crops?


About 60% of farms depend on rainfall. Even in regions that have irrigation facilities, monsoon rains are beneficial for crops and help improve yields.


Does the monsoon impact other sectors of the economy?


The farm sector's contribution to the overall economy is 14.6%. It is the key source of income for the rural population, which accounts for two-thirds of India's 1.2 billion people.


Normal rains help improve farm incomes and thus increase demand for cars, motorcycles and consumer goods. Farmers often turn to gold as an option to invest their extra cash in a good output year, boosting demand -- and prices.


Drought increases rural distress, prompting the government to increase expenditures on subsidies and welfare schemes for rural areas, which provide the bulk of its support.


Does it impact monetary policy?


India is currently struggling with high inflation, driven in part by food and fuel prices. A normal monsoon would ease supplies and could rein in food prices. It would also help to support incomes and thus allow the government more flexibility on passing on high oil prices on to consumers and cutting subsidy bills.


Reducing inflation could prompt the central bank to ease monetary policy after eight successive interest rate rises.


How does the monsoon impact the energy sector?


Monsoon rains replenish reservoirs and increase ground-water levels, improving irrigation, which cuts the need for diesel in pumping water from wells. It also helps hydroelectric power generation.

If a drought means drinking water is scarce, the government can decide to cut supply to power generators or farms and provide more water to households.

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