Aug. 6 (Bloomberg) -- India's economic growth may slow by as much as 2 percentage points in the year to March 2010 if monsoon rains remain deficient and hurt farm production, according to UBS AG.
"If rainfall fails to improve more significantly we fear a supply shock and a drop in agricultural output," Philip Wyatt, a senior economist at UBS in Hong Kong, said in a report today. "This would mean real gross domestic product growth could be 1 to 2 percent lower than our current expectation of 7 percent."
India relies on monsoon rains to produce food for its 1.2 billion people, as more than half of the nation's arable land isn't irrigated. Lower farm output may cut incomes among the 742 million people who live in the countryside and erode their purchasing power, weakening an economy already forecast by the central bank to expand at the slowest pace in seven years.
Rainfall of 5 percent below average would see farm output "stay static" and may knock less than 0.5 percentage points off India's growth rate, Wyatt wrote. A rain deficiency of closer to 10 percent would reduce gross domestic product growth by 1 percentage point and a 20 percent shortfall may chop off 2 percentage points, according to the UBS report.
India's monsoon, the main source of irrigation for the nation's 235 million farmers, is 25 percent below average so far this season, NDTV Profit reported today, citing A.B. Mazumdar, the deputy director general of the weather bureau.
'Don't Look Good'
Insufficient rain has caused acreage of all major crops to lag behind year-ago levels, denting prospects for bigger harvests of rice, oilseeds and sugar cane. India, the world's second-biggest rice producer, planted monsoon paddy crops in 28 percent less area this year because of scant rain in the main growing regions, according to Farm Minister Sharad Pawar.
"The omens don't look good," Wyatt said. The bank will review the possibility of any downgrade in its 7 percent growth projection for India after viewing rainfall data for mid-August, he said.
The $1.2 trillion economy grew 6.7 percent in the year to March 31, 2010. That compares with an average growth rate of about 8.8 percent in the previous five years.
To contact the reporter on this story: Kartik Goyal in New Delhi at email@example.com