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Monday, July 2, 2012

India:Monsoon deficit has govt worried

New Delhi: Deficient rains this monsoon are expected to make it more difficult for the government to meet the growth and deficit targets as the agriculture sector will be impacted. 

    While the government is yet to acknowledge the impact of a 31% deficit in rainfall, in private, officials admit that they are already worried. To begin with, the farm sector, which grew 2.8% during the last financial year, could pull down the overall growth rate below the 6.5-7% levels that the government is estimating. 
    "A sub-par monsoon is a negative for growth, inflation and the fiscal deficit. A poor monsoon could shave 40-80 bps off growth to 5.6%-6% from 6.4% current
ly. Taking into account domestic factors, our 7.5% average WPI estimate could be breached… but key to watch is the interplay of global prices (commodities and currencies)," Citi India economist Rohini Malkani wrote in a recent note to investors. 
    "Indicators such as sowing of food grains and other crop reports need careful monitoring during the coming season, as they will be critical in gauging the impact on growth and inflation," added Barclays' Siddhartha Sanyal. 
    The finance ministry is also worried about the overall deficit situation. While expenditure levels may go up to meet the higher spending requirements due to a drought, even revenue collections could fall short of the targets given that rural demand, a key driving force for the economy in recent years, would be impacted by lower demand for twowheelers and white goods. 
    Already, excise duty collec
tions are estimated to have decreased to Rs 10,820 crore during April-May 2012, compared to Rs 11,343 crore a year ago, according data available with the Controller General of Accounts. With corporate earnings remaining weak, the government is also expecting pressure on direct taxes. 
    Planning Commission deputy chairman Montek Singh Ahluwalia, however, played down the concerns. "It is true that monsoon is late... may be a week to 10 days late. Just because monsoon is one week late does not mean that it is gong to have hugely negative effect," he said. 
    If the present trend in rainfall continues, banks would also be forced to take a hit and restructure some of the loans, especially in districts which are the hardest hit. 

DRY PATCH 


• The farm sector could pull down the overall growth rate below the 6.5-7% 

• Rural demand for twowheelers and white goods could slow down 

• Banks in worst-affected districts may have to restructure farm loans


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