Poor monsoon may dent recovery, widen social gap: Moody's

Moody's today expressed concern that a poor monsoon may drag India's economic recovery, if not quite "derail" it.     

And a possible decline in agricultural output and a resultant fall in farm income may not just limit rural spending but widen the gap in wealth between rural and urban India, potentially damaging its social fabric.     

"The monsoon problem is unlikely to be strong enough to derail India's economic recovery, but it could drag on the pace. India's rural population accounts for a large share of total consumption....Therefore, a sizeable slowdown in rural spending will limit overall consumption growth," the research arm of Moody's said in its latest report.      

Though the farm sector accounts for about 18 per cent of the country's gross domestic product, farm incomes are key to the survival of about two-thirds of its population.     

"Farm income will fall substantially....The urban-rural wealth gap may widen as economic recovery continues in city regions... Without a significant redistribution of resources, the wealth gap between urban and rural regions will widen, potentially leading to social tension," the report said. Moreover, a significant fall in this year's foodgrain output may trigger a price rise, the report said, adding that the Reserve Bank's upward revision of inflation risk to 5 per cent for 2009-10 from 4 per cent earlier is an indicator of the hard times to come.     

Not just this, if the lack of improvement in rainfall stretches into August, the farming cycle during the Rabi may be affected, raising apprehensions about a dip in output in the immediate following season as well.     

"A lack of improvement (in monsoon) heading into August will also deepen concerns about the fate of winter crops. Farmers have suffered directly, but policy makers are also feeling the stress," the study pointed out.     

Nevertheless, the research major feels urgent improvement in farm technology, better irrigation facilities and major impetus to overall agricultural infrastructure hold the key to sustainable food security in the country.