Poor Monsoon Challenges India Pace of Growth

This week, India’s finance minister announced the government would keep its fiscal stimulus as poor monsoon and uncertain global outlook threaten the country’s growth. This statement also made clear the second fastest growing economy in the world, may be struggling in keeping current 6% pace of expansion.

Indeed, India has weathered the global slowdown quite well because of substantial government actions. Fiscal stimulus in form of tax cuts, and spending increases on the rural sector and infrastructure has contributed to the rebound in production. Purchases of government bonds and lowering of repurchase rate by the central bank has been helping the banking sector. Adding to that a quite good performance of the agricultural sector and India looked like it had been set for a sustainable recovery.

However, the still fragile recovery may be halted by a weaker monsoon, which led to severe droughts and floods in a large number of states. In fact, though agriculture’s share in India’s GDP has declined to around 16% in the first quarter of 2009, 65% of the population still depends on it as their main source of income. So, it is likely that households, affected by a weak spring crops, will stop spending and as a result of that industrial production will likely go back to last year levels.

Anna Fedec, contact@tradingeconomics.com
11/4/2009 3:53:35 PM