India: Monsoon woes to hit consumption and drive up prices

Indian pedestrians walk through a flooded street during heavy rains in Mumbai on August 27, 2012. The monsoon rains across the country has been more than 20 percent below its average, sparking fears of drought among farmers who remember vividly the failure of 2009, when India suffered its worst drought in nearly four decades.

India faces its first official drought since 2009, as food price inflation is already running higher than 10 percent. 

Worse still, reports Outlook Business, unlike 2009, when the economy was growing at a healthy 8.5 percent clip, growth is down to 6.5 percent (or lower). So a plunge in consumption by India's rural population -- who make up two-thirds of the total -- will be especially painful.

As GlobalPost reported in June, the US drought is exacerbating India's worries. Meanwhile, corruption and incompetence means that food continues to rot in government warehouses, even as prices soar and people starve, as GlobalPost wrote in July.

That's only part of the reason this year's drought could be worse than 2009.

"Unlike FY10, when the economy grew at 8.4% despite the drought, this time GDP growth won’t have much to show," Outlook Business writes.

"Growth had already slowed to 6.5% in FY12 and economists fear the drought could see growth slowing to 5.8% in FY13. Though the Centre has planned to increase the number of days of assured income under NREGA to safeguard rural income, can it contain food inflation? Primary food inflation surged from 8.7% in April 2009 to 21% by March 2010. Given that food inflation is already above 10%, the impact in the future will be severe."

How bad is it?

A graph that accompanies the article says rural spending could well plunge 17 percent.