Monsoon Fluctuation And Consumption Expenditure In India

Developments in monsoon have caught the attention of policy makers in India. As more than half of India’s farmland remains rain-fed, monsoon decides the fate of agriculture sector output. Though the farm sector forms just one-seventh of gross domestic product, yet it provides livelihood to nearly 55 per cent of the populace. Through demand and supply inter-linkages with other sectors of the economy, India’s farm sector significantly influences economic activity. Against this backdrop, this paper seeks to validate empirically if the performance of monsoon influences economic activity in India. Employing GMM estimation, this paper finds that the former had a significant influence on the growth in real Private Final Consumption Expenditure (PFCE) for India in the period prior to 1990s. It is also argued that the influence of rainfall on economic activity seems to have diminished, especially since the 1990s, which, inter alia, may be attributed to the growing predominance of the non-agricultural sector, which is not found to be influenced significantly by monsoon variation; rise in net sown area (facilitated by an improvement in irrigation facilities), and institution of public welfare programmes, which might have helped smoothen consumption volatility. Furthermore, structural transformation in the economy, could also have altered consumption expenditure pattern in the economy resulting in declining and rising proportion of income being spent on food items and non-food items, respectively. Such a case study of the Indian economy could have implications for similarly placed agrarian economies.