What will be the impact of the poor monsoon on agricultural growth and GDP for the year 2009-10? The last time the country experienced a severe monsoon failure was in 2002-03. During that year, agricultural output declined by 7 per cent bringing down the GDP growth rate by about 2 per cent. Are we likely to see a similar decline this year? Or will the significant improvement in the monsoon during the latter half of the season substantially mitigate the effects of the shortfall during the first half of the season? Unlike in 2002-03 when the 19 per cent deficit in the monsoon was spread throughout the season, the monsoon revived strongly this year in the month of September. The rain deficiency of 27 per cent up to August fell sharply to about 20 per cent by mid-September. The first half of September saw rainfall of 12 per cent above normal that is likely to enormously benefit the rabi crop. Area sown up until the first week of September for all crops has been about 7 per cent lower than the same period last year.
 
This paper attempts to answer the question regarding a possible decline using an agricultural growth model with three variables: (1) the deviations of rainfall from normal (RAINFALL), (2) the net sown area (SOWNAREA), and (3) the last three-year moving average of agricultural growth (LAG3MAAGRIGR). The model is estimated for the period, 1990-91 to 2008-09. 

The first two variables, viz., RAINFALL and SOWNAREA, capture the shock resulting from the failure of the monsoon. The lagged three-year moving average of growth in agriculture captures the sustainability of a high agricultural growth rate in India due to land overuse.

We estimate the following regression model for agricultural growth (AGRIGR):

AGRIGR =   Constant + RAINFALL t + SOWNAREA t +LAG3MAAGRIGR t + e t

Three models are defined, each one taking a different monsoon period. The first model specifies the rainfall for the period from June to1st half of July, the second for the period from July to 1st half of August and the third for the entire monsoon period of June to September.

The results show that the net area sown and the lagged three-year moving agricultural growth are significant at the 99 per cent level and the co-efficients have the expected signs in all the three models. The results from the alternative ‘rainfall’ variables indicate that the impact on growth of rainfall deviations during periods June to September and July to 1st half August is not statistically significant and, that during June to 1st half Julyis statistically significant at the 95 per cent level.

Furthermore, the past three-year moving average of agricultural growth is inversely related to the current growth. This negative and significant relation between the current agricultural growth and past three-year growth captures the productivity impact of the overuse of land. The high R-bar square indicates that the model efficiently forecasts the agricultural growth rate in India.

In order to forecast the agricultural growth for 2009-10, we have assumed a 3 to 4 per cent fall in the net area sown for the entire year. This is based on two factors. First, the estimates of area under kharif crops indicate a fall of 7 per cent compared to that in last year. Second, the revival of the monsoon in September is expected to ensure that rabi sowing will be normal. 

Chart 1. Forecast of Agriculture growth (%) 2009-10

The agricultural growth rate based on model 1 (which is the best fit model) is forecast to fall by 2.3 to 4.2 per cent. Agricultural output will fall by 2.3 per cent if the net area sown declines by 3 per cent and fall by 4.2 per cent if the net area sown declines by 4 per cent. This will mean that GDP will decline by 0.4 to 0.7 percentage points in 2009-10 due to the poor monsoon.

karan@icrier.res.in & mjoseph@icrier.res.in