Storms, sectors, and stocks: How the economy is impacted by monsoon?

Summary: Storms, sectors, and stocks: How the economy is impacted by monsoon?

24 Aug 2021 by Team FinFIRST

A healthy portion of India’s economy depends on the monsoon. If the rains are heavy, it benefits India’s agricultural output, which means there is a positive demand and supply for goods; this is a healthy sign for the economy. Banks notice fewer defaulters too, so they are able to offer personal loans, credit cards, auto loans, personal loan referral program and other credit options at advantageous rates.

Now, let’s understand how:

Rains influence demand and supply

India’s summer monsoon is the period when ‘Kharif’ crops such as rice, maize, and cotton are planted. A poor rainfall season means reduced supply, which in turn puts immense pressure on retail demand. It leads to people comprising on their monthly groceries, small eateries having to tweak their menus, which ultimately leads to the government having to import food items. This indirectly impacts the economy.

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It generates employment

A bumper rainfall season means landowners or farmers will need more workers, they’ll take out personal loans or agricultural loans to buy farm equipment and even tractors through an auto loan as they have the confidence to pay back the amount. Vegetable markets will see more customers because they know monsoons were good and there will be a bumper harvest, which means more vegetable sellers and delivery personnel.

The rural economy depends on a good monsoon

A major part of India’s rural life revolves around agriculture. A poor rainfall negatively impacts demand for agricultural goods and the sellers of said products see their income status affected. They either close shop or seek personal loans to tide through the period. It also affects allied industries such as irrigation, farm equipment makers and pesticide sellers. The entire rural economy can be affected severely because of a bad monsoon.

Banks see lower deposits

Savings account balance in rural regions rise or deplete based on the monsoon. In case, the monsoons were healthy, farmers see their incomes rise. This ensures that they will deposit more money in their bank accounts. Banks use the same money to offer advantageous loans to those in need and the financial cycle runs smoothly.

It generates Hydro-electric power

The distinct advantage of hydro-electric power over all other types of power is that its source - monsoon water, is perennial, although it shows some fluctuations from year to year. The wind power is used for electricity, grinding corn and drawing water.

Monsoon is one of the key pillars on which the Indian economy rests. Besides, with the ever increasing population of the country, the food grains produced are much lesser than the food grains consumed. So, without a good shower, India could face a major national crisis.

Hence, the months between June and September are critical for the nation.

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