Updated on 4th July 2014
-- Monsoon hits growth and inflation this year
-- Growth to remain in 5% trough
-- Budget will determine India’s trajectory for the next year
With June turning in a 43% below average rainfall, all eyes are on July showers, as a possible saviour for the economy. It is a sad comment on India in 2014 that we are still dependent on the Rain Gods, the strong relation between a good/bad monsoon and growth shows that we lurch from one crisis to another without putting in place any measures to delink. Unfortunately, not only will the delayed and poor monsoon raise the prices of primary food items, it will also call for increased drought relief expenditure, putting additional pressure on the budget. At this point, NREGA type of programmes seem to be the best bet to cushion the impact of drought on the rural economy. These would need to run with changed norms that will provide rural employment while building water-saving facilities.
In a year when the fiscal deficit has already crossed 40% of its target in the first two months, we will need some good budgeting skills that will give short term relief without damaging our long term inflation and growth trends.Energy subsidies have to be reduced, food items should be procured internationally to contain domestic prices, constraints on trade in food items have to be removed, and serious plans have to be laid out and implemented in building efficient infrastructure to boost growth.
India has to survive this year, some drastic moves from the government will at least give us hope for the years ahead. In the meantime, expect subdued consumer demand, and perhaps worse in rural areas. Net net, overall tight days are in store for everyone, much worse for those dependent upon rural markets and small town India.