The Monsoon hasn’t got off to a great start, with June recording one of the lowest levels of rainfall in recent times. While MeT department hopes rainfall will pick up in July and August, a look at how other dry years played out.
Impact of poor rains
Directly affects the agricultural economy, which in turn has a cascading impact on the rest of the economy. About 60% of cultivable land is rain-fed. Land under irrigation too needs rainfall for standing water for crops. Official data points out that water levels in 85 key reservoirs in the country is lower than that of last year, but better than the 10-year average storage.
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Lower demand for consumer products like two-wheelers, tractors, consumer goods and durables. Poor rains affect agri-produce and disposable income in small towns that are big markets for home appliances. Companies, especially those with a rural focus, see a slump in demand. Investment sentiment also takes a beating and could further hit the manufacturing sector.
Precipitates a round of inflation, which is more pronounced in the years following the drought year.
With lower disposable income, especially in the rural areas, a drought impacts purchase of gold but studies show that its demand tends to rise again in the next year.
Impact of drought on inflation
Generally in a drought year, inflation (both wholesale and at the consumer level) is expected to spike while industrial output and sales of consumer goods see a dip. But drought year 2004-05 was an exception and saw a 21.5 per cent rise in sales of consumer durables because it was an election year. The sale of consumer goods and automobiles generally witness a surge in an election year.
2009-10 was again an election year. The year saw an increase in industrial output with the Centre rolling out the second and third tranches of its stimulus package after the financial meltdown.