Drought threatens India’s farms and its economy

Monsoon flooding has hit several Indian states in recent days, but for much of the country the problem is still too little, not too much, rain. Low rainfall so far during the main June-September wet season—June was the driest in over 80 years—has raised fears that poor harvests will weaken GDP growth in India’s agriculture-dependent economy. Food shortages do not appear to be a risk, but a weak monsoon would hit farm output and rural consumption at a time when the global economic crisis is already expected to slow India’s recent strong growth.

India’s flagship IT companies and the increasingly global ambitions of its largest industrial companies tend to make more business headlines, but in fact the health of the macroeconomy is heavily tied to agriculture, and to seasonal rains. Agriculture accounts directly for about 18% of GDP—a significantly lower proportion than in more underdeveloped economies, but still very high compared to rich countries, where the ratio is usually in the low single digits. More importantly, the farm sector is disproportionately important for employment—and thus for private consumption—as some 60% of all jobs are in agriculture. …