Between Good Monsoons And Strained Geopolitics

Good rains are always good news for India’s economy as they provide the tailwind both in terms of real impact and sentiment. These are useful indicators of how consumer-facing industries will do, particularly in rural markets. Now a bad monsoon doesn’t necessarily mean the opposite as India’s growth now is much more insulated from bad monsoons than ever before.

The latest monsoon statistics from the IMD bring good news as September 30 broadly marked the end of the summer monsoon season. First, the big number. India has received 934.8 mm rainfall, which was much higher than the 820 mm recorded last year during the same period. It is even higher than the normal level of rainfall of 868.6mm, which translates into the fact that the South-west monsoon was 8% above the long period average.

The monsoons were also well distributed this year. Between 1 June and 30 September, 33 of the 36 sub-divisions in India, or close to 90% of the country, received normal or above-normal rainfall so far. Five states were in the deficient zone and region-wise, except east and northeast, all other parts of India received higher than normal rainfall.

India’s reservoirs, another important marker, were at a comfortable level of 87% as of last week compared to 71% last year, according to BOB Research. There are some variations within, with the northern region being lower compared to the rest of the country, at 68% compared to 86% last year. For agriculture, this means that kharif crops like rice and maize which are grown between July to October have benefited from the strong monsoons.

Remember, the government has just lifted all the bans on rice exports because we are now staring at surpluses. Rabi crops that grow from October to April and include wheat will also benefit from the higher water levels. So agriculture and the rural economy should be on better footing in the coming months. This is of course the good news.

There is also bad news, which is near-term and external. Tensions in the Middle East, which never eased as such, have now ratcheted up after Israel dropped bombs and then launched a ground invasion into Lebanon last week. Remember, in a few days, we will mark the first anniversary of the Hamas attack on Israel on October 7, 2023. And now Iran has fired missiles.

This affects many things, from the likelihood that oil prices might rise further to potentially longer flying times for airlines flying westwards, and higher fares which are already getting priced in for the winter season. Even if oil prices don’t rise because of supply increases and demand slowdowns, the movement of cargo, already facing constraints, could be hit further. This means India’s merchandise exports could continue to be under pressure.

China, on the decline for the last few years, seems to be turning around, thanks to a massive dose of stimulus measures. Whether these will lift the Chinese economy from the lows to which it had fallen in relative terms is early to say but there is a change in mood. This also means that investments could flow back to China, particularly portfolio investments if last week’s surge is anything to go by. If China’s domestic market picks up further, many global companies who have reduced their China manufacturing exposure for instance or have focussed their energies elsewhere may have second thoughts. For instance, the luxury goods industry.

All this means that India may lose some of the major tailwinds that could have carried the economy and business confidence further, at least for the rest of the financial year. It does appear that the next few months will see companies gaining from the domestic market but moving into a state of heightened alert in the international markets. India’s key economic drivers now seem to lie somewhere between good monsoons and strained geopolitics.