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Monday, October 25, 2021

What is the relation of monsoon with the economy? Know how it affects our spending and earning

Relation between Monsoon and Economy¬† : This time, despite knocking at the right time, the monsoon has lagged behind. Kharif sowing has lagged behind due to lack of rain in many parts of the country. Obviously, this is expected to reduce the yield of crops. Just as monsoon is very important for the country’s economy, in the same way it also has a deep impact on the personal income and savings of everyone from corporate companies to common consumers. Monsoon is the backbone of the rural economy. Due to bad monsoon, the purchase of FMCG, consumer durables, two-wheelers, tractors and gold in the villages decreases significantly. It has a profound effect on the personal income, savings and investments of people in cities too.

Impact on personal savings and income

Bad monsoon means hitting the crops. Low yields drive up the prices of items of daily use like cereals, fruits and vegetables and milk. The rise in inflation, especially retail inflation, lightens the pockets of the common consumer. The spending power of the consumer decreases. He spends less and his saving and investment capacity also decreases. As inflation increases, the value of your returns decreases. The value of 6 per cent interest on FD of Rs 1 lakh gets reduced in times of 6 per cent inflation as compared to 5 per cent inflation. Along with this, the burden of EMI of the loan also increases on you as your purchasing power decreases due to inflation. You have less money left in your pocket.

Impact on earnings of companies, banks and NBFC companies

Agricultural productivity decreases due to poor monsoon. That is, there is a decline in the income of people associated with the rural economy. The income of farmers, agricultural laborers to fertilizer and seed companies decreases. This has an impact on consumer demand. Declining consumer demand hurts the earnings of companies. This reduces the demand for FMCG, consumer durables, two-wheelers, tractors and gold.

India consumes 800 to 850 tonnes of gold every year. 60 percent of this consumption is from rural areas. Good monsoon boosts gold consumption. Farmers buy gold as an asset. Due to bad monsoon, the income of the farmers decreases. The demand for gold also decreases and farmers also sell gold.

Decline in shares of companies and losses to investors

Brokerage companies advise to avoid investing in shares of FMCG, Auto & Engineering, Banking, NBFC companies as soon as monsoon worsens. Obviously, due to this the shares of these companies start falling. Fall in shares means loss of investors. Especially in the rural, semi-urban market, the share of companies operating in the market starts declining. The fall in the stocks of fertilizers, seeds, automobiles, consumer goods and finance hurts the investors in its shares.

It is clear that the monsoon has an all-round effect on the economy. From the economy of the country to the personal income and savings of the common consumer, it is affected. Therefore, whenever the possibility of a bad monsoon starts increasing, almost all the sectors related to the economy start showing concern. That is why it is said that the real Finance Minister of India is Monsoon.

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Nisha Chawlahttps://www.businesskhabar.com/
She is an expert in Banking, Finance and working with an international bank. She sharing her ideas and knowledge with Business Khabar.
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