Good monsoon to send encouraging signals for inflation, growth

The above normal monsoon forecast by Met department is likely to bring encouraging signals for the Indian economy both in terms of inflation and growth prospects, says an SBI Research report.

According to the research report, after two successive years of drought, the prediction of above normal monsoon will bring cheers to every sphere of the economy.

"As agriculture in India depends heavily on monsoons and given its contribution to Gross value added (GVA) growth is around 15 percent, the above normal monsoons will surely have a positive impact on agriculture, thereby boosting economic growth," the report said.

"We believe that the agricultural GDP is most likely to witness a robust performance in the current fiscal and may even touch 7-8 percent mark because of the IMD projections amid Government's plan to lift agriculture sector," the report said adding this may pull up GDP by as much as 50 basis points.

Regarding the impact on inflation, the report said, a normal monsoon will also help contain prices at low levels.

Since both WPI and CPI are already quite low, an increase in foodgrain production due to better rains will put further downward pressure on inflation.

For the current fiscal, CPI inflation trajectory is expected to be significantly benign and following this RBI will have more firepower to cut rates possibly by up to 50 basis points, the report said.

"Overall, the above normal monsoon projection is likely to provide a boost to economy by raising rural productivity, farm income and rural demand amid soft inflation," it said.