Effect of Rainfall on Seasonals in Indian Manufacturing Production: Evidence from Sectoral Data
Recent research has shown that the seasonals in Indian manufacturing production are affected by rainfall. Since the effect of rainfall comes through agricultural production, this finding raises the question of whether the effect is through demand channel or supply channel. This paper attempts to provide a preliminary answer to this question by testing for this effect in the production in different sub-sectors within the manufacturing sector. We look at the three subsectors which have more than 10% weightage each in the index of manufacturing production: (i) food products, (ii) basic chemicals and chemical products (except products of petroleum and coal), and (iii) machinery and equipment (other than transport equipment). As almost all the estimated models show some type of misspecification, we also estimate models that allow for time-variation in this behaviour. We find evidence for effect of rainfall on overall dynamics of all three components studied, and also for significant time variation in this behaviour. Focusing on seasonal component, while estimations were not possible for the basic chemicals and chemical products, for the other two components we find evidence of significant effect of rainfall on seaosonality, indicating both the channels are significant.
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