In-depth Current Affairs Economy & Business | In-depth Effects of Monsoons on the Indian Economy

The Calibre Essayist: Vasavi Sinha

India is predominantly an agrarian economy. Though the economic system comprises of three sectors- the agricultural, the manufacturing and the services, it is the former most, which takes up 60% of the total labour force of the country. Despite the staggering proportion of the population employed in the agricultural sector, it amounts to only 15% of the gross domestic product (GDP) output.

The trend highlights the lack of structural reforms and the dearth of investment in the agricultural sector, which is devoid of technological advancements and is left it at the mercy of erratic natural phenomenon like the monsoons. Consequently, the GDP output of the entire economy is influenced by the amount of rainfall received in a year. Not only does it affect the economy, the amount of rainfall received has political and social repercussions as well.

Reasons why Monsoon Affects the Economy

Although the GDP share of the agricultural sector is only 15%, the yields and income generated from it have far-fetched consequences on the economy as a whole. The factors responsible for making the economy susceptible to monsoons are:

  • Arable Land: The trends in monsoons are able to affect the agricultural production because farming on 60% of the arable land is still rain-fed. Irrigation facilities have improved, but only in certain areas, like Punjab and Haryana. Even then, only the water harvested from rainfall replenishes the irrigation canals. Therefore, if a year records low rainfall, the agricultural produce is more than likely to be affected. This in turn, will have adverse fall-outs leading to situations like famines and food shortages.
  • Income Generated: Even though the agricultural sector contributes to only 15% of the total GDP, it nonetheless employs more than 60% of the total population. Therefore, its overall impact on the economy is heightened, since the incomes of more than half the population are dependent on the agricultural sector. Due to a contraction in the agricultural output, there arises the situation of food shortages, which then lead to inflation. These aspects cumulatively worsen the standards of living of the rural poor, and the economic development of the country is jeopardized.
  • Balance of Payments: India is the world’s second largest producer of rice, wheat, sugar and cotton. If the monsoon dependent arable land does not produce the optimum yield, not only the exports would suffer, but the domestic economy would undergo a financial regression for having to make room for payments of imports. This results in the widening of current account deficits, and therefore affects the economy adversely.
  • Conditions of Inflation: All the above mentioned factors, avalanche into one common financial symptom of dysfunctional economies – the inflation. Economic growth suffers a setback due to inflation, since the supply-side bottlenecks in agriculture, become difficult to remedy. Inflation makes the economy internally weak and endangers sustainability. The food inflation for the year 2012-13 is 14%, whereas the non-food inflation (the core inflation) is at 5%. Given the current scenario, analysts predict a meagre 5.8% of economic growth for the existing fiscal year.

The Consumer Price Index (CPI), which measures the changes in price level of consumer goods and services purchased by households, is 10% for India, whereas for China it is 2.2%. The inflation rampant in the Indian economy is amply illustrated by these figures. Monsoons, even in the twenty-first century, emerge as the deciding factor for the performance of the Indian economy.

How the Monsoons Affect the Indian Economy

Although the amount of rainfall received in a year, in India, ostensibly affects the GDP and the overall economic growth. However, the major impacting factors are varied and enlisted as follows:

  • Power Shortages: Due to scanty rainfalls, the largest dam in India, the Bhakra Nangal reaches a critical level, thereby affecting the power generation. The shortage in power supply affects not only households, but also the other two economic sectors- the industries and the services. An affected electricity supply contracts production and increases the cost of production thereby. This leads to unwarranted rise in prices, giving way to inflation.
  • Irrigation inadequacy: Punjab and Haryana are the two states where farming is largely dependent on irrigation techniques. However, even these areas are not fully self-sufficient to undermine the importance of monsoons. The irrigation canals are replenished only by rainwater. The use of pumps to draw out ground water requires large quantities of diesel, which the Government is bound to subsidize. The oil demand for irrigation amounts to 40% of the total oil consumption. The expensive subsidies borne by the Government affect the annual budget, since they would not be required if the monsoons had been favourable.
  • No infrastructural provisions for harvesting the rainwater: India is a water-adequate country. It receives enough rainfall on an average to meet the needs of its population. Even then the problem of water shortages has plagued the country ever since. There are no infrastructural provisions for harvesting the rainwater. As a result, some parts of the country, like the north-east, receive heavy rains which create an adverse situation of floods. On the other hand, the areas of north-west receive scanty rainfall and experience a drought-like state. The lack of structural reforms, such as the implementation of modern farming techniques and the stunted enhancement of irrigation facilities throughout the country have contributed unfavourably.

It is important to note that the monsoons not only affect the economic aspect of the nation, but also hold a sway over the political scenario and social circumstances. It is therefore important to address the issue since it concerns all aspects of the Indian society.

Why the Issue is Urgent?

The Indian economy cannot stay dependent on monsoons for long. With the current unpredictability, it becomes imperative to look for novel ways of tackling the issue. Since, it is not only the economy, but also the larger socio-political sphere at stake, the urgency becomes ominously pressing.

  • Political Eventuality: The present Government has had two consecutive terms at the centre also because any major famines or floods did not affect its tenure. There were no major food shortages, although minor incidences of the nature were compensated amply by the good yield of the previous year. The Government has been able to steer clear of any such distressing situations despite failing to push forward structural reforms regarding the same. A good and favourable monsoon has been the backing of the UPA Government at the centre.
  • Social Aftermath: Famines and floods cause huge loss of life and property. The current flood to hit Assam has caused the death of 100 people, whereas it has uprooted over thousands from their native place. The low agricultural yields, which are also a consequence of erratic monsoons, have caused farmer suicides across the nation. Moreover, in urban areas, water clogging on the roads brings the entire city to a halt, as was witnessed in Mumbai in 2010.

It, therefore, becomes of express import to remedy the situation, and make the agricultural sector self-reliant and minimally dependent on monsoons. This can be achieved by implementing effective water harvesting techniques in India, along with, inculcating a general sense of water conservation. Irrigation should be encouraged in areas that receive scanty rainfall, and water channelling should be executed in areas of heavy rainfall.


It reflects badly on India’s image as an emergent super power, that the south-west monsoon is the key factor to the performance of the country’s trillion-dollar economy. With the social and economic repercussions, the Government needs to implement the much needed reforms to correct the situation. Even in the twenty-first century, with technological development outdoing the erratic natural forces, India can no longer afford to remain dependent on the whimsical monsoon that it receives.

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