Poor rains may wash out 50-75 bps from GDP growth: BofA-ML

Tags: News
A below-normal monsoon can bring down India's GDP growth by 0.50-0.75 per cent this financial year, forcing the Reserve Bank to delay rate cuts to 2015, Bank of America-Merrill Lynch (BofA-ML) said today.

"If the rains are normal, growth should climb to 5.4 per cent from 4.7 per cent last year. We estimate that poor rains will hurt growth by 50-75 bps," the US financial major said in a research report.

"With a normal monsoon, CPI inflation will likely soften to 7 per cent by March 2015, opening the possibility for RBI to cut rates by December. But an El Nino incident can push this to 8-10 per cent, delaying the rate cuts to 2015."

The Met Department yesterday said the monsoon is expected to be below normal in 2014 because of the El Nino effect, arising from the warmer-than-average sea surface temperature in the central and eastern tropical Pacific Ocean.

The condition occurs every 4-12 years and had last impacted India's monsoon in 2009.

However, Deutsche Bank does not see much impact of a deficient monsoon, saying the agriculture sector matters less for overall growth, given that its relative share in the economy has reduced appreciably. Currently, the share of agriculture in India's GDP is 14 per cent, though the sector is still the largest employer.

Deutsche Bank noted that poor monsoons and associated production shortfall can be countered by policy action.

Advising investors to watch the July rains, the report said the July-August rains are critical to kharif crops and added an industrial recovery would be pushed back further if the RBI delays rate cuts due to rising inflation.

BofA-ML said it continues to be bearish on rural demand.

"We continue to be bearish on rural demand. We estimate that the coming summer rabi harvest will see farm income growth drop to 10.3 per cent from 16.5 per cent last year," it said.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Skill gaps faced by India’s graduates cannot be filled easily

    India, the third largest economy in the world with regard to purchasing power parity, is expected to overtake China in its working population by 2028.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

M S Swaminathan

Public good research in agriculture

Public good research in agriculture is designed to promote risk ...

Purnendu Ghosh

Why we must know the rules of the game

We like to believe that people are good and we ...

Shona Adhikari

Pop art is truly a feast for the eyes

The internationally reknowned Bruno Art Group’s presence in India had ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture