Deficient monsoon will not impact rural spending much, says India Ratings

NEW DELHI: India Ratings, an associate of global credit rating agency Fitch, said the impact of deficient monsoon on rural spending will be "less severe" than what it used to be earlier even as concerns over the annual rainfalls rose after a below normal July. As on July 6, the country had received normal rainfall with the last couple of weeks eroding the surplus accumulated in June. July rainfall is the most crucial for farm output.

The meteorological department has predicted a below normal rainfall and has stuck to its forecast despite the June surplus, indicating weak rainfall in July and August. India Ratings does not see much impact even if this situation plays out.

"The rural landscape of the country is changing. Rural income is no longer just the agricultural income," the report authored by Sunil Kumar Sinha and Devendra Kumar Pant said, pointing to a higher share of non-agricultural income in the overall rural incomes.

The ratings agency reckons this share has risen from official government estimate of 61.1% in FY05 to an estimated 71.1%. "Higher growth of the industrial and services sector in rural areas over the years than of agriculture has increased the share of nonagriculture in rural NDP," the report noted.

"This shift in rural income away from agriculture means that rural income is now less vulnerable to monsoons."

Crop sowing has been better than last year despite the forecast of a below normal rainfall, thanks to good June precipitation, but high deficit in July has raised concerns of damage to already sown crop. India Ratings said because of land constraints,a lot of fresh investment is going to rural areas.

"Annual Survey of Industries (ASI) data shows that net value-added per factory in rural areas has consistently been higher than in urban areas since the beginning of the new millennium," it said.