Why a bountiful monsoon matters more this year, in five charts

Mint

20-05-2025

In the past few days, heavy rainfall has set in over parts of the Bay of Bengal and the Andaman Sea, with the advent of Cyclone Shakti. The India Meteorological Department (IMD) has said this presages the setting in of the southwest monsoon over the Indian subcontinent. It expects rainfall to be 'above normal', at around 105% of the long-run average (in 2024, it was 108%). This has raised hopes on many fronts—from rural demand to corporate performance to rural wages.
Predictions of a good monsoon are always welcomed with a sigh of relief among analysts, policymakers, and businesses. Good monsoons boost agricultural production, leading to a higher increase in agricultural incomes—and, by extension, rural demand. This year, a good monsoon matters even more.
Also Read: In charts: How has IMD's monsoon outlook fared against reality?
In the last few quarters, demand from urban consumers has weakened, even as rural demand has picked up, according to Nielsen IQs FMCG market survey. Overall volume growth rose 5.1% in the quarter ended March 2025, as compared to March 2024. However, there was a sharp difference between rural and urban areas, with volume growth rising by 8.4% versus 2.6%, respectively. Interestingly, volume growth in rural areas has been strong despite major FMCG companies undertaking price hikes to protect margins.
Apart from FMCG markets, strong rural demand is evident even in the market for cars and two-wheelers. Even as urban demand for two-wheelers has slowed, rural demand for vehicle classes such as tractors and three-wheelers has picked up (though rural two-wheelers have been weak in the last two quarters).
Output boost
A higher-than-average rainfall is strongly associated with high growth in agricultural GVA (gross value added). However, studies have shown that shortfalls or excesses in rainfall have varying effects. A recent study by the Reserve Bank of India (RBI) noted that while deficient rainfall has marginally negative impact on total cereals and paddy production, excessive rainfall emerges as a significant constraint, particularly for maize and could be harmful for all kinds of pulses. In that case, rainfall at 105% of LPA, only slightly above the normal range of 96-104%, may prove to be conducive for good agricultural output.
Also Read: Southwest monsoon rolls into Andaman and Nicobar region, two days in advance
However, above-average rainfall, beyond a point, has little effect. Of 10 such monsoon years since 1980-81, when rainfall was 7% or more than the long-run average, agricultural GDP growth ranged between 4% and 6% in seven instances. This is not much different from the median agricultural GDP growth of around 4% for all years since 1980-81.
Positive prognosis
A strong monsoon benefits companies across sectors that are heavily reliant on rural demand. Two such companies are FMCG major Hindustan Unilever and two-wheeler company Hero MotoCorp. In a recent analyst call, Hindustan Unilever chief executive Rohit Jawa said, 'The strong robust monsoon, including projected monsoon, the agriculture output, the resilient growth in rural where we have a higher market share as it happens, are all giving us a sense of a prognosis of a stronger market demand in the next few quarters to come."
Also Read: Mint Primer | A good monsoon will be great for India. Here's why
The Nifty FMCG Index, which comprises companies that are more dependent on rural demand, gave negative returns in 2024-25. But it has risen 11% since the end of February. This is in line with the broader Nifty 50 index, reflecting investor caution about the extent of the rural bounce-back expected. But reports are already predicting stronger growth for FMCG in the months ahead, assuming a further bounce in rural demand.
Stagnant wages
A big problem for rural India has been stagnant rural wages for almost the entire last decade. Annual growth in rural wages for various occupations, net of inflation, has been less than 1% per year. In contrast, between 2006-07 and 2014-15, this was 6-7% per year.
In a paper on real rural wages, Arindam Das and Yoshifumi Usami said, 'The period from 2014-15 to 2022-23 can be characterised as a period of general stagnation in rural wages. The initial slowdown in wage growth from 2014-15 to 2018-19 can be attributed to stagnation in agricultural productivity, successive droughts in 2014-15 and 2015-16, and other macroeconomic failures." Further, they added, 'In 2022-23, though employment in the construction sector increased significantly, real wages did not rise at all."
This is concerning, as construction is a major employer of rural labour. A good monsoon could boost rural wages, at least in the short term.
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