Published By: Elisa Ghosh

How does monsoon impact the Indian economy?

The monsoon season has a significant impact on the Indian economy, affecting not only agriculture but also other sectors such as industry and services.

Indian agriculture is regarded as a bet against the monsoon since agricultural activities in practically every region of India are heavily reliant on monsoon rainfall. The Indian economy is inextricably linked to the monsoon because of its water resources. A vast portion of the country receives more than 75% of its yearly rainfall over the four months from June to September. Monsoon rainfall across the country has a significant impact on food grain output. Furthermore, the generation of hydroelectric power from monsoon rainwater has been tracked during the last 20 years. Let's look into some major monsoon impacts on the Indian economy here.

Impact on Indian agriculture

Agriculture is the backbone of the Indian economy because it employs more than 60% of the people and accounts for approximately 20.5% of the country’s GDP. In India, water is more important than gold for farmers and those involved in agriculture, If the monsoon is favourable, we have a positive impact; otherwise, prices of commodities rise and services for other groups of people are reduced. Industrial products do not find a ready market, and the supply of raw materials to industries suffers as well

Balance of trade

The balance of trade is also affected by unexpected and inexplicable shifts in the monsoon; if the monsoon is favourable, we have a positive balance of trade; if the monsoon is unfavourable, we have a negative balance of trade. The failure of the monsoon hurts the volume and balance of India's foreign trade. The government's revenue is quickly declining as national income falls, and the government is burdened with extraordinary expenses. As a result, we can conclude that the state's revenue and income are determined by the yearly monsoon.

GDP (Gross Domestic Product)

If the monsoon fails, India's overall GDP growth will be reduced by several percentage points. This will hurt demand in the non-agricultural sector.

Food supply

If the monsoon fails, agricultural productivity suffers, pushing food prices higher.

Rural economy

India's rural life revolves around agriculture and related activities in small villages, where the vast bulk of the population resides. According to the 2001 census, 72% of the population lives in almost 638000 villages, with the remaining 27.8% residing in more than 5,100 towns and 380 urban agglomerations. The pre-monsoon and unreasonable rain harmed crops, particularly in locations where monsoon rain is ample, reducing farm output and affecting rural demand.

Irrigation facilities and hydro-power sector

The majority of India's power projects are located along perennial rivers. If the monsoon fails, water levels fall, which hurts both electricity generation and irrigation. Monsoon rains are also vital for electricity generation in India, which relies largely on hydropower. Heavy rainfall during the monsoon season raises water levels in rivers and reservoirs, increasing electricity generation from hydroelectric power facilities. This is especially significant in locations with limited alternative resources, such as natural or coal gas. Similarly, reduced rainfall can result in lower amounts of water in rivers and reservoirs, reducing hydropower plant electricity generation. This might cause significant disruptions in electricity supply across India, resulting in both economic and social difficulties.

Change in climate

Climate change is anticipated to significantly alter the intensity and patterns of monsoon rain in India. According to a report published by the Intergovernmental Panel on Climate Change, climate change may increase the frequency and intensity of extreme weather events such as floods, storms, droughts and heatwaves, potentially affecting rainfall timing and volume.

In other words, the monsoon is the lifeline of the Indian economy, just as blood is essential for survival and our agricultural economy cannot exist without it.