Annual Rainfall in India and GDP Growth

Monsoon has finally covered the entire nation and the country has breathed a collective sigh of relief. Say what you want about India's economy becoming more sophisticated, diversified, and service-based of late, the uncomfortable fact still remains- India's GDP still heavily depends on Agriculture both because of the size of this sector and the sheer number of people it supports. In fact, Agriculture is almost 17% of the total economy and employs almost half the population.

So how important is this vital, life-giving precipitation for the GDP growth rate? We decided to examine it in this week's chart. Notice how the peaks and valleys of the rainfall curve move almost in sync with the peaks and valleys of the GDP growth rate curve. This suggests a strong correlation. In fact when we used the data for the last 50 years, we found a very high correlation of 0.48. A correlation of 1 suggests perfect movement of one metric with the other. This should not be too surprising. When we look at just the last 25 years however, the correlation drops to 0.13. This is still fairly high- you can see the peaks and valleys move more or less in sync even for recent years.

As the economy diversifies further and more rural agricultural workers move to urban centers to work in other industries, this correlation will further decrease. However, without a superior irrigation network and the adoption of best practices for water conservation, the country will still pay the price for a poor monsoon through higher inflation and the tremendous hardship faced by households forced to scrounge for water.