Indian businesses still look skywards for growth, sales

Fortunes of several Indian businesses are still linked to the monsoon.
More than 60% of India’s population is still directly or indirectly dependent on agriculture for a living; in turn, agriculture in most parts of the country is dependent on the monsoon.

Although the share of agriculture in India’s economy has fallen from one-fourth few years ago to under one-fifth now, the monsoon continues to be a relevant variable. It continues to have an effect on the performance of companies.

A good monsoon means more sales and a bad monsoon usually means the reverse.
Until a decade ago, the Reserve Bank of India (RBI) used to call one of the two credit policies it announced in the course of a year, the “busy season” credit policy.

The other was called the “slack season” one.
Former RBI governor C. Rangarajan rechristened the two policies as the “annual” policy, which was announced in April, and a “mid-year review”, announced in October. Before he did that, the April policy was the slack season policy and the October policy, the busy season one. The historic reason behind this was the phenomenon of rising credit after the harvest season in October and the slack in credit growth in the beginning of the year.

Despite the change in the name of two policies—these days, RBI announces its credit policy every quarter—agriculture still plays a major role in deciding the flow of credit in India. Credit growth picks up in the second half of the year buoyed by good monsoon and harvest. In the first half, it can even dip.

For instance, this year, between April and the first week of June, the overall credit in the banking system has gone down by more than Rs35,000 crore.
This, despite the decline in contribution of agriculture to the country’s gross domestic product (GDP). In 1999-2000, agriculture accounted for close to 23% of India’s GDP. In 2006-07, the corresponding figure was 18.46%(at constant prices).

The cement exception
The cement business is one where there used to be a negative relationship between the monsoon and sales. It has managed to break the cycle.

Cement prices, which normally used to drop during the monsoon, have remained stable in the last three years. This year is no exception, thanks to demand from the infrastructure and construction industry. Earlier, prices used to fall by 5-7% during monsoon due to slowdown in construction activities.

“Infrastructure and heavy construction projects continue through monsoon, as the builders need to meet their deadline. Only individual house builders don’t carry on with their construction, but the demand from them is limited,” said H.M. Bangur, managing director of Shree Cement Ltd and vice-president of the Cement Manufacturers’ Association of India.