Favourable outlook: A good monsoon may lead to growth-enhancing steps

After the favourable monsoon in 2024, culminating in 7.6 per cent more rain than the long-period average (LPA), the India Meteorological Department’s monsoon forecast for this year again came as good news for a second successive year, with the prediction of an above-normal southwest monsoon rainfall in 2025, estimated at 5 per cent above normal. With Neutral El Nino-Southern Oscillation conditions prevailing over the equatorial Pacific region and the atmospheric circulation being similar to La Nina conditions, a strong monsoon circulation is expected over the subcontinent. However, the spatial distribution of monsoon is not expected to be uniform. Bihar, Tamil Nadu, and a few areas in the Northeast are expected to receive below-normal rain. 

Despite improvements in irrigation coverage, precipitation during the southwest monsoon remains crucial for agricultural production. The second advance estimates of gross domestic product, released by the National Statistics Office, show growth in agriculture and allied activities is expected to be 4.4 per cent in 2024-25, up from 2.7 per cent in 2023-24. Above-average rain will be expected to boost overall growth this year too. A good monsoon is also conducive to better rabi output because of higher moisture and augmented reservoir levels.  Surplus rain last year boded well for agricultural production in 2024-25, with kharif and rabi food grain production estimated to have increased by 7.9 per cent and 6 per cent, respectively, relative to the previous year. It also helped contain food prices to a large extent. In fact, the latest data showed India’s retail inflation rate stood at 3.34 per cent in March, dropping marginally from 3.61 per cent in February. This is the lowest rate since August 2019. Meanwhile, the food inflation rate, which had kept the headline rate elevated for a long time, eased to 2.69 per cent in March from 3.75 per cent in the previous month, and was the lowest since November 2021. A good monsoon should help keep food prices in check, potentially increasing the policy space for the monetary policy committee of the Reserve Bank of India (RBI). However, it would need to be mindful of heightened uncertainties in the global economy. The RBI expects the inflation rate to average 4 per cent this financial year. 

From a medium-term policy perspective, however, prospects of above-normal rainfall should not divert attention from the challenges posed by climate change. The incidence of extreme weather events is increasing. In 2024, India experienced such weather events on 322 of the 365 days. The deleterious and long-term ramifications of erratic monsoon and climate change were also spelt out in the RBI’s 2022-23 Report on Currency and Finance. Heat stress and monsoon vagaries, coupled with climate change, could cost the Indian economy 2 per cent of its gross domestic product and depress the living standards for half its population by 2050. In the absence of a multipronged strategy, the impact of such events will only increase. A favourable monsoon this year should be utilised to replenish key water reservoirs. At the same time, long-term policies must prioritise water conservation and promote sustainable agricultural practices.