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  • MODERATOR:

    Hello and welcome to the webchat with Madan Sabnavis, Chief Economist, CARE Ratings on 'Monsoon impact on Indian economy'



  • A

    AADITRI

    According to Finance minister Arun Jaitley, India’s economy could grow by 8-8.5% in 2016-17, if forecasts of normal monsoon rainfall prove correct. Do you think this figure is achievable?

    MADAN SABNAVIS

    As mentioned earlier, we do think that a good monsoon will enable growth of 7.8%, which is just a little above the RBI's projection which also assumes a good monsoon. Growth rate of above 8% would happen only with a combination of sharp increases in industrial production and construction and a comparable growth rate in the financial services and trade/communication segment. Presently, we would be conservative in out views and would review the same in September before taking a view.


  • V

    VINEET

    The IMF recently lowered its global economic growth forecast but said that India will be the fastest growing economy and pegged growth at 7.5% for the current fiscal. How much uptick in growth is likely on the back of above normal monsoon?

    MADAN SABNAVIS

    Last year, when the monsoon was unsatisfactory, GDP growth from this segment was put at around 1%. one should think that if things are very good, we could move to the 3-4% mark. But given the low weight of these products in GDP, the incremental growth in GDP would be in the region of 0.2-0.3%. CARE Ratings projection of 7.8% for the year is premised on a normal monsoon with a recovery in farm output.


  • B

    BINAY

    What inflation levels do you envisage in the second half of the current fiscal if the reading of above normal monsoon comes true?

    MADAN SABNAVIS

    WPI inflation for primary products should remain benign at around 2-3% which should also keep the overall inflation number at the similar range. However, this is contingent on all crops faring well. Last year, a spike in tur prices due to fall in output pressurized the inflation indices. one is not sure if the monsoon will be evenly spread this year. Even if it is, CPI inflation in my opinion would continue to range between 5-5.5% as there will be some inherent upward buoyancy in prices, and this has become the new normal.;


  • J

    JAYESH

    What is your outlook on non-performing assets of banks especially with regards to rural lending in wake of normal monsoon after two years of successive drought?

    MADAN SABNAVIS

    We have seen a positive correlation between low farm output due to a drought and rise in NPAs. in fact the highest ratio of NPAs to total advances emanates from this sector. Hence, this number tends to increase when the monsoon does not do well. Again this is not pervasive but region and crop specific with cotton being one of the crops where farmers find it hard to repay loans. A good monsoon this year, will definitely lower the incidence of emerging NPAs. Hopefully, the crop insurance scheme which the government has unveiled should become popular which will buffer the banking system.


  • I

    INDER

    Other than above normal monsoon forecast what impact could the lower crude oil prices for an oil importing nation like India? In case oil prices firm up in the latter half of the current fiscal at what price levels do you see the benefits nullifying?

    MADAN SABNAVIS

    Lower crude oil prices would be effective for keeping inflation under control as well as moderating costs for the corporate sector. Also as we are a net importer of goods and services our trade and current account deficits will be under control at a lower level. We have enjoyed this benefit last year, which will also continue to prevail. The government is also a beneficiary as the subsidy bill be under control if crude oil prices stay where they are. as prices are unlikely to fall by 70% which was the case last year, there may not be further room for costs to come down further. In my opinion prices will not move up significantly and even if there is a rise, it would be more in the region of $ 50 which can be absorbed by the system. this can lead to a marginal increase in inflation, which again will not be an issue given the low levels presently.


  • I

    INDER

    Do you see any improvement in exports of agri-basket going forward in wake of the normal monsoon forecast?

    MADAN SABNAVIS

    Not really. We have not really had a situation where we are able to push our agri exports. The demand is driven from global economic conditions which have to change significantly especially so as farm goods are typically fixed. The advantage would be gained more on the price movements which would depend on how the rupee behaves vis-à-vis other exporting countries like US, Canada, Russia and China. In the past we have observed that there have been few instances where exports were hindered by lower supplies. True, at times we have put a ban on exports of sugar, maize and rice, but the quantities we are speaking of have not been very significant in the overall exports basket.


  • R

    RASHI

    As a result of the bad monsoon, the automobile sector has been affected in the past particularly two-wheeler companies such as such as Bajaj Auto, Hero Motocorp and TVS Motors with their sales going down. Do you think an above normal monsoon forecast will be able to reverse the trend with the purchasing power shooting up especially for the rural areas?

    MADAN SABNAVIS

    We have had two successive unfavourable monsoons which has affected the kharif crop and hence rural incomes. These incomes typically get spent in the Sept-Dec period, which is also the festival time, on consumer goods including automobiles - especially tractors and 2-wheelers, which can be scaled up to passenger cars in the lower price range. what is important is that the monsoon should get translated to higher output and income uniformly across states. A good monsoon in the north, where irrigation is available which has not affected farmers in the last two years, but poor monsoon in the interiors will not serve the cause. even if it is evenly spread, we can expect demand to increase albeit moderately for automobiles since there is pent up demand for other consumer goods as well as gold which will be other choices.


  • N

    NIKHIL

    How significant is the evenly distribution of monsoon rain? What could be the impact of crop production especially in regions that grow wheat, sugarcane and cotton?

    MADAN SABNAVIS

    To my mind, the distribution of monsoon is more important that the aggregate number. we have 36 meteorological divisions and typically 8-10 are the vulnerable ones either in the interiors (like the Deccan Plateau area) or extreme regions like the hills in the north eastern states. Cotton and pulses are the important kharif crops grown in Maharashtra-Karnataka-AP-TN region which require a good monsoon as irrigation facilities are limited. Sugarcane in UP works well but in Maharashtra will be monsoon dependent. These states are in the rain shadow area and even a good monsoon gets weaker as the winds move into the interiors. this is what we should watch and monitor to pick up signals. Given the parched conditions in Maharashtra we would need a very strong monsoon to turn things around.


  • M

    MALVIKA

    Since the water levels in the past couple of years have been lower than normal in several hydroelectric dams generating lesser electricity which further resulted in power outages. Will the rains act as a cooling factor and what impact do you see on the power sector?

    MADAN SABNAVIS

    A good monsoon in these areas where power generation takes place will evidently be good for the power sector. This said, it needs to be plentiful given that the levels are quite low right now in the plateau region and until we have a minimum necessary level, we cannot be reassured of the same. again we must remember that we are still a thermal based power generating economy and any improvement in hydel power will help at the margin but may not be able to significantly alter the power scenario which has more problems on the transmission and distribution fronts.


  • D

    DILIP

    After the Centre directed states to levy stock limit on sugar, what implication do you estimate on its prices going forward ?

    MADAN SABNAVIS

    Levying stock limits is a measure used to control speculation and hence prices. if successfully done this should help to moderate prices to the extent that it is caused by such stocking.


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