MUMBAI (AFP) – Patchy monsoon rains in India this summer have led analysts to downgrade forecasts for farm growth, but full-year projections for gross domestic product remain stable as manufacturing and services boom.
Several major forecasts, including the New Delhi-based National Council of Applied Economic Research, expect growth of eight percent in the fiscal year ended March 2007, in line with estimates by the government and central bank.
But many banks and brokerages expressed concern that disappointing monsoon rains, which end in September, will make it hard for farmers to contribute or benefit from the booming economy.
“We’re betting on positives through manufacturing sector growth,” says India strategist for JP Morgan Siddarth Mathur. He has kept a growth forecast of 7.5 to 8.0 percent this year.
But he said a farm growth forecast of 2.5 percent could be revised down because of the patchy monsoon which impacts almost two-thirds of India’s 1.1 billion people and is crucial for lifting rural spending on consumer goods.
“The economic data shows strong growth going ahead. We will re-assess agricultural growth only after the monsoon season ends,” he said.
India’s annual southwest monsoon which sweeps the country from June through September has dumped uneven amounts of rainfall leading to near drought conditions in some areas and floods that have killed hundreds in others.
Weather department officials said they expect the total monsoon rainfall to be close to the long-term average this year, but the timing and pattern of the rains has been uneven and crops such as rice, oilseeds and wheat could be seriously affected causing a spike in food prices.
In August, India moved to ease import rules on wheat and oilseeds to ensure adequate supplies after inflation spiked above five percent and the central bank hiked rates in July to a four year-high of 6.0 percent to check rising prices.
The rate hike however has not dampened growth forecasts.
India’s economy gained 8.4 percent in the year ended March 2006, its fastest pace in three years.
Much of the growth came from services industries such as software and outsourcing, more than 50 percent of the economy, and a surge in the sale of goods such as cars which crossed one million units last year and are expected to double to two million by 2010.
Mumbai-based brokerage BRICS Securities also kept a growth forecast of eight percent this year, but said that its forecast for three percent farm growth may be reviewed.
“We see strong positives led by growth in the retail, automobile and metal sectors,” said Bidisha Ganguly, chief economist with BRICS.
“Agricultural production may touch 3 percent, but I would not be surprised if it dips a bit,” she said.
A Congress party-led coalition government that came to power in May 2004 promised to alleviate the plight of India’s debt-ridden farmers.
But the sector, which accounts for a quarter of gross domestic product, has been reeling under high fertiliser costs and a lack of access to affordable credit.
Last month, the government said 43 million of India’s near 89 million farmer households were in debt leading to a surge in farmer suicides in India’s main cotton belt in central and southern India with 216 dead in August.
The spate of suicides and poor earnings has some analysts saying that India’s uneven growth could be a problem.
“We still have 65 percent of our population in rural areas and the industry (manufacturing) share of GDP is steady at 27 percent, against 46 percent for China,” said Ravi Menon, director and co-head of investment banking with HSBC Securities and Capital Markets in Mumbai said.
Menon has kept his growth forecast of eight percent this year.
“In those terms, we are a unique economy, which appears to have moved directly from an agrarian economy to a services one too swiftly,” he said.