The prediction of a less-than-normal monsoon has evoked mixed reactions from the financial sector.
While senior bankers feel this will not affect growth, financial sector analysts and marketmen say there will be pressure on interest rates and credit growth.
"It will certainly be better if the country has a normal monsoon. But even a below normal monsoon is better than that of the past year.
"This should result in agriculture growth going up to 3 per cent. As agriculture constitutes around 25 per cent of the gross domestic product, other factors remaining unchanged, GDP is likely to grow 5.5-6 per cent, compared to 5 per cent last year," Aditya Puri, managing director, HDFC Bank, said.
According to him, retail demand may improve because around 60 per cent of the workforce is dependent on agriculture. This, in turn, will help improve consumable demand.
P H Ravikumar, chief executive officer designate of the National Commodity & Derivative Exchange, said a less-than-average monsoon would impact interest rates.
"I see upward pressure on rates in the second half. Commodity prices will also go up. The agriculture income level may dip and in the long run the industrial sector may also be affected," he said.
Mahesh Vyas, managing director, Centre for Monitoring Indian Economy, said the forcast was somewhat disturbing because an uneven geographical distribution implied that some regions could face a shortfall.
However, S Naren, research head, HDFC Securities, pointed out that the shortfall was just 4 per cent and not like the pervious year, when the scene was worse.
"If the shortfall is substantial it could lead to two years of bad agriculture growth," he said.
Nikhil Vora, vice-president in charge of research at ASK Raymond James, said: "If we are going to have a bad season again, it will have an impact on the economy. It will push back the signs of recovery we have witnessed. Across the board, sectors and spending power will be affected and markets will be in for a bad time."
A senior public sector banker, however, felt that a less-than-normal monsoon would have no drastic effect on the economy.
"The food needs of the economy will be met. This is also unlikely to affect the inflation rate. Industrial production is likely to pick up in the core sector and investments in these sectors have already been made," he said.
An analyst at a domestic brokerage pointed out that a less-than-normal monsoon would hit the bottomlines of companies that cater to rural markets, especially consumer goods companies.
"While cost-cutting will help to some extent, the room for maneouver will be small. Besides, in a bad monsoon scenario, they will not be able to raise prices and it will be a volume-driven game. This means that they will have to spend extra on promoting goods, which will eventually hit margins," he said.
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