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Impact of Monsoon on Indian Economy

By: Siddharth Pandit

Vikash TiwariShashank Jambhulkar

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Abstract

India is primarily a agrarian economy.

According to Weather Department an average or normal monsoon means

rainfall between 96 and 104 percent of a 50-year average of 89

centimeters during a four-month season from June.

Rainfall below 90 percent of the average is considered a drought.

Indian economy is vitally linked with the monsoon because of its water

resources. A large part of the country gets more than 75% of the annual

rainfall during the four months, June to September.

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Economy & Markets

The monsoon rains are vital for farm output and economic growth in India,

the world's second-biggest producer of rice, wheat, sugar and cotton.

Farm sector shares for about 15 % of India's nearly $2 trillion economy,

Asia's third biggest.

Even though Agriculture contributes 15% of total GDP, it employs more

than 60% of the population, therefore its total impact is increased.

India is largely self-sufficient in major food grains such as rice and wheat,

but drought can send the country to global markets. In 2009, India had to

import sugar, sending global prices to record highs and pushing up

inflation

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Continued..

Higher farm output would rein in food prices and help the government totake steps to cut the fiscal deficit and farm subsidies. India's food inflationrose to 10.66 percent in May from 10.18 percent in April, latest figuresshow.

As India is worlds second largest exporter of sugar, wheat & cotton, If themonsoon dependant arable/cultivable land doest produces optimum yieldnot only exports would suffer but domestic economy would slide down.

A stronger economic outlook can lift sentiment in equity markets, mainlyof companies selling products in rural areas, including consumer goodsand automobiles

Monsoon rains impact demand for gold in India, the world's topconsumer of the metal, as purchases get a boost when farming incomesrise amid high crop output

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Irrigation & Power

Monsoon rains replenish reservoirs and lift ground-water levels, allowing

better irrigation and more hydropower output as hydro-electric power

constitutes about 40% of power compared to all other sources.

Higher rainfall can cut demand for subsidized diesel, which is used topump water from wells for irrigation and makes up for about 40 percent of

India's oil products demand.

Due to scanty rainfall large dams reaches a critical level thereby affecting

Power generation and giving rise to Power shortages/ Power cuts.

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