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India’s weakest monsoon rains in about a century are becoming the biggest risk for the fast growing economy as food prices rise and farming incomes fall on lower crop production, according to economists.
Moments before India published a strong quarterly report card on Thursday showing the economy accelerating to its fastest in a year, the weather department warned August rains were the lowest since at least 1901.
It’s due in part to the El Nino weather, which can damage crops and may even compel the government to impose export curbs on food staples ahead of the three-month festival season beginning in September. Inflation is also a worry with the latest reading showing a 15-month high in retail prices.
“Going forward, the intensification of the El Nino weather phenomenon is the biggest risk to the rural economy and overall gross domestic product growth,” said Pranjul Bhandari, an economist with HSBC Holdings Plc.
Economists are warning India will push for export curbs on grains, potentially slowing the rural economy that contributes to at least a quarter of the nation’s gross domestic product. The Reserve Bank of India kept rates steady for three straight reviews and hasn’t yet changed it’s 6.5% growth forecast for the fiscal year ending March 2024.
Nomura Holdings economists Sonal Varma and Aurodeep Nandi raised their India GDP growth forecast to 5.9% from 5.5% earlier but flagged risks of a slowdown in economic activity.
“Weak monsoons, higher food inflation, likely slowdown in government capex and sluggish global growth are all signaling a slowdown in domestic demand,,” the analysts wrote in their note after the GDP release.
India’s agriculture sector expanded at 3.5% in April-June quarter, slowing from 5.5% in January-March. The sowing of pulses, oilseeds and cotton are lower compared to last year, said CareEdge economists led by Rajani Sinha.