Ajit Singh, Union Agriculture Minister: At his Delhi residence, the minister scans the sky for signs of rain

Just how badly can one season of poor monsoon affect an economy $485-billion big? Here's one extreme scenario: Political pressure forces the government to waive off interest payment by farmers on borrowings of approximately Rs 63,439 crore; instead of slashing agricultural subsidies-currently at a budget estimate of Rs 39,801 crore for 2002-03-the government ups support; fiscal deficit zooms, the government starts borrowing to pay its bills, jacking up the cost of capital for private sector that, already buffeted by falling profit margins, must now contend with vanishing consumers. Investments, both in industry and stockmarkets, slow down. The upshot: An economy that seems to be chugging to recovery, slumps back into coma.

That scenario may or may not play out. But what's undeniable is the fact that from the farmers in Dharwad to the punters on Dalal Street, all eyes are on the horizon, searching for that elusive patch of grey, which will bring rain to the dry fields of India and, in turn, the farmer his money and the marketer his sale. When BT went to press, there were no signs of rain, prompting Union Agriculture Minister Ajit Singh to declare that " if the monsoons (did) not arrive by July 31, the country could well have a major problem at hand".

A recent study by the Confederation of Indian Industry corroborates Singh's fear. The food bowl areas of Uttar Pradesh, Madhya Pradesh, Haryana and Punjab have had a shortfall ranging from 49 per cent to 63 per cent. The considerable destruction that a drought will wreak on crops of bajra, oilseeds, pulses and paddy is only part of the story. Of bigger concern is this: The rural market is estimated by some rural marketing companies to be around Rs 50,000 crore for consumer non-durables, Rs 45,000 crore for seeds, fertilisers, farm equipment and tractors, Rs 7,000 crore to Rs 8,000 crore for consumer durables (including TVS, and refrigerators), and another Rs 8,000 crore automobiles. Points out Sujay Mishra, analyst, Kotak Securities: "Most of the rural demand comes from the top 25 per cent of the large farmers."

If the crop fails, there may not be any significant impact on the price of wheat (the country is sitting on a stock of 60 million tonnes), but markets worth thousands of crores of rupee could vanish. Says R.C. Jain Managing Director, Eicher Tractors: "The direct impact will be on the disposable income of farmers. So, even if a farmer decides to buy a tractor, he will first have to get his margin money financed.''

That instead he may simply decide to postpone purchase is already apparent. In the first quarter of current fiscal, tractor sales were down 12 per cent. Jain reckons that in the whole year, sales may not cross 2 lakh-that's 30,000 less than last year's. Tractors may be an angry rain god's most direct victim, but there are other industries in the path of his wrath: two-wheelers, textiles, and consumer durables, for example.

While most big players like Hindustan Lever (HLL) say it is too early to tell, Dalal Street is already jittery. The 30-share index Sensex is wallowing at a nine-month low of 3,024. Sure, a lot of it has to do with corporate America's accounting scandals, but the fear of a drop in rural demand is also one of the key factors. For instance, the HLL stock-a bellwether for the FMCG sector-was off 27 per cent last fortnight from its 52-week high of Rs 266.

There are no such victims yet in the two-wheeler industry, but the tension is palpable. Nearly half of all two-wheelers sold is in semi-urban and rural markets. Points out Atul Sobti, Senior Vice President, Hero Honda: "A similar drought-like condition two years ago plunged the two-wheeler industry into negative growth." Hero Honda itself escaped the worst because there was a shift happening from scooters and mopeds to motorcycles. But this time around, Sobti says, the shift has stopped and any fall in the purchasing power of rural consumers will severely impact the industry.

Even softdrink and dairy products manufacturers are dreading the long-term impact of blighted farms. Sanjiv Gupta, Deputy Division President of Coca-Cola India, says that currently sales are brisk because of the lack of rains, but warns that "if agricultural income gets affected rural markets, even for colas, will crater". Gujarat Cooperative Milk Marketing Federation (GCMMF) is keeping a wary eye on the horizon, too. No rains will mean no fodder for milch animals and, consequently, lower milk production and a spurt in prices of dairy products. "We are expecting a 15 per cent growth this fiscal, but that will be difficult to achieve if the monsoon is delayed," says R.S. Sodhi, General Manager (Marketing), GCMMF.

It's not just domestic markets, but exports too that seem set to take a hit. Take the case of textiles. Home-grown cotton is more than 10 per cent cheaper than the imported variety. But with Gujarat, Maharashtra, Karnataka and Andhra Pradesh-principal cotton-growing areas-still waiting for rains, cotton production is likely to fall to 140 lakh bales compared to 156 lakh bales last year. Says S.P. Oswal, Chairman, Vardhman Spinning Mills: "Meeting the $13 billion (textiles) export target won't be difficult, but increased cotton prices will put our margins under tremendous pressure."

THE CONTRARIANS

Interestingly enough, not everybody is worried about the monsoon. The most notable optimist: the consumer durables sector. Venugopal Dhoot, Managing Director of Videocon International, believes that the monsoon scare has been blown out of proportion. His company, he says, is not experiencing any slowdown in sales of CTVs, and for the whole of this fiscal, there may actually be a 15 to 20 per cent growth in sales.

Rajeev Karwal, Senior Vice President, Philips India, agrees with Dhoot. His reasoning: The affected northern states account for only a quarter of all CTV sales. Moreover, Karwal's argument goes, with the festival season round the corner and the cricket World Cup due in 2003, television manufacturers have little cause for concern.

Even on edgy Dalal Street, there are some brave analysts who believe that monsoon is not a big issue as of now, especially since there are no obvious signs of a slowdown. Says Navin Aggarwal, Head of Institutional Research, Motilal Oswal Securities: "The forecast of a sharp fall in agricutural growth and consequently industrial demand is based more on the prevailing pessimism than hard facts."

Aggarwal's isn't the lone dissenting voice. There are others who believe that the direct link between agricultural growth and rising industrial demand is fast weakening. As evidence, they point to the fact that while agricultural growth in 1996 was negative, tractors, motorcycles, and fertilisers did well.

But this anomaly is easily explained. First, due to a lag effect, the impact of poor agricultural growth was felt only a year later in 1997. Also, as the services and industrial sectors were booming, a large part of the shortfall was absorbed. This time around, agriculture could take a bigger hit, and its impact on the economy could be severe. Says a senior executive in a Delhi-based multinational: "If the festival season brings no spend in rural India, the people who today are sneezing at this problem, will find their jaw fall off."

Also, let us not forget that last year, when industrial growth sank, it was agriculture's robust 7.4 per cent growth that kept the GDP from falling below the 5 per cent mark. Therefore, unless industry and services grow fast enough to neutralise the dip in agriculture, the GDP growth will necessarily decelerate. And that could well mean a relapse into the 80s' lacklustre 'Hindu' rate of growth.