India's "cloudy" outlook might be just what's needed to pull the economy out of the doldrums, with the country appearing set for a favorable monsoon season, Credit Suisse said.
Last year's monsoon season was considered a "drought," which means rainfall was at least 25 percent less than the long-term average, but historically, India's droughts lead to a bumper season in the following year, said Robert Prior-Wandesforde, head of regional economics at Credit Suisse, in a note.
Forecasters are likely under-estimating the size of the anticipated agricultural output bounce, Prior-Wandesforde said. India's farmers plant most of their summer crops during the critical June-September monsoon rains.
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On average, the year following a drought year, output has risen more than 11 percent, likely reflecting not just higher-than-normal rainfall, but also additional government support, which can include fertilizer, he said.
He estimates an around 8 percent rise in output this season would add 1.1 percentage points to gross domestic product growth.
"This is unlikely to represent the total effect," he said, noting agriculture still accounts for more than 50 percent of India's total employment.
"One would expect the associated rise in incomes and profits to feed through to stronger consumer and investment spending (for example, motor bikes and farm machinery). Also, a sharp increase in the food supply should help bring down inflation, boosting real purchasing power and influencing the central bank."