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Editorial | November 2016

Regulations, Reforms, Rains and Rebound

Since the times we moved from being hunter-gatherers to being farmers, rains have continued to interest us. And, over all these centuries that our economies were driven by agriculture, to start with, and later by industries and services, we have consistently depended on rains to drive our agrarian sector, which in turn supports demand creation in industry and services. Therefore, it is not without any rhyme or reason, that rains and rain clouds have inspired our poets and artistes all through these ages and we have always made a big song and dance about it in all the languages of the world. Being the most virtuous among the elements of nature, rain brings hope, not only for the farmer, but for all people concerned with growth of our economies.

And, so in India today, as we now have a good monsoon behind us, strong rainfall this year coming particularly as it does after a few successive years of rain deficit, has brought great hopes in our mind. Although in the inevitable cycle of seasons, the monsoons are is a show stopper in the short term, when construction activities are suspended, the medium and longer term effects can only be positive. As one knows, we tried the levers of new regulations in the shape of policies, we have tried supposedly far-reaching reforms, we even tried interest rates and GDP statistics, but we couldn´t move up the demand nor the IIP, or even the exports. Job creation has continued to woefully disappoint, capital formation and credit off-take have lagged. Even large government companies like Coal India and NMDC are buying back their own shares, something that you do when you are short of better ideas on how to invest your surplus. In such a depressing situation, can the rain gods do what we otherwise failed to achieve with all our doses of reforms and dollops of regulatory facilitation? The question uppermost in our minds, is if it will trigger growth of demand.

First of all, the monsoon has not been an unqualified success in all states ù but the proportion of deficient districts has fallen to a third, from 50 per cent in 2015, and it has been stated that most of the districts which experienced a monsoon shortfall this year are either adequately irrigated, or they are not agriculturally important. With all that having been said, more than half of our country´s private demand still exists in our villages, and if the agricultural output does get a good boost, it is only axiomatic that our nation´s private consumption will grow consequently. A recent report on monsoon impact released recently by CRISIL says that private consumption growth may actually rise by as much as 90 bps (close to 1 per cent) at 8.3 per cent as against 7.4 per cent last fiscal. This, as it happens, will be the best news for the economy in the last few years, and hopefully, it will rebound in a resounding manner.

In the longer term, as consumption grows, the economic engines start accelerating. However, in the short term, the monsoon has its own pros and cons as seen by different sectors, and the power industry is no exception. To the various stakeholders of the power sector, a good monsoon is a bag of mixed blessings, depending on point of view. Here in this issue, we put up a collage of diverse views from the power players, with the hope that all this analysis adds some value to our already existing and conventional understanding of the impact of a good monsoon.

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