Excess Monsoon Rainfall Affects Manufacturing, Poses Threat to Crops

After a slow start, the catchup in the south-west monsoon has resulted in a reduction in spatial divergence, a strong pace of sowing, a softening of food prices, and healthy reservoir levels. However, excess rainfall in parts has also impacted local manufacturing activity and poses a threat to crop yields.

The monsoon surplus persisted over the past week, with parts of Andhra Pradesh, Telangana, Gujarat, and Rajasthan, among others, seeing excess rainfall in recent days, leading to widespread flooding.

Region-wise, for the week as well as the full season, while the south peninsula saw excess rainfall, east and northeast India remained deficient, according to data from the India Meteorological Department.

Cumulatively, rainfall was 8% above the long-period average as of Sept. 4.

Strong manufacturing impetus is likely to be interrupted due to above-normal rainfall, according to a research note by SBI Caps. While the eight core industries' index grew at a fair pace in July 2024, with the heavy lifting being done by steel, electricity, and coal, the index for August is likely to be more subdued owing to above-normal monsoons, which likely impeded production, as evidenced by electricity supply and diesel consumption being down year-on-year in August, the note explained.

Fastag revenues showed moderation in August too, on a high base and the monsoon impact of travel on high-toll-paying commercial vehicles.

Adequate infrastructure has meant that local businesses and SMEs have taken a hit in several parts of the country that saw flooding—damage to machines, equipment, and stocks. Not all businesses are ensured, and government support for these local businesses remains limited, says Chandrakant Salunkhe, founder and president of the SME Chamber of India. However, the rainfalls have also benefited the local economies in most parts of the country, he added.

On average, the IMD forecasts "above normal" rainfall in September. Monthly rainfall for September 2024 over the country as a whole is most likely to be above normal (>109% of the LPA).

With overall sowing nearly completed, the focus will now shift towards the harvesting season, with higher-than-normal rains likely to cause crop damage, Madhavi Arora, lead economist at Emkay Institutional Equities, said. Persistent excess rainfall conditions may pose a risk to crop yields, stated a research note by Barclays. It is still too early to gauge the extent of the damage to crops from flooding nationally, the note said, adding that the agri-intensity of output in the flooded states, Tamil Nadu and Gujarat, is relatively less than other states.