Could Geopolitics Rain Over Monsoon Tailwinds?

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Good morning. The India Meteorological Department’s (IMD’s) latest monsoon statistics are good news for the Indian economy. After all, this year India received surplus rains, unlike last year. But the clouds of strained geopolitics still loom. Read on to know more.  

Meanwhile, the Indian School of Business (ISB), one of the best B-schools in India, is now offering a two-year-long course aside from the shorter one it offers. Will this gamble pay off?  

THE TAKE

Between Good Monsoons And Strained Geopolitics

Good rains are always good news for India’s economy as they provide the tailwind both in terms of real impact and sentiment. These are useful indicators of how consumer-facing industries will do, particularly in rural markets. Now a bad monsoon doesn’t necessarily mean the opposite as India’s growth now is much more insulated from bad monsoons than ever before. 

The latest monsoon statistics from the IMD bring good news as September 30 broadly marked the end of the summer monsoon season. First, the big number. India has received 934.8 mm rainfall, which was much higher than the 820 mm recorded last year during the same period.  It is even higher than the normal level of rainfall of 868.6mm, which translates into the fact that the South-west monsoon was 8% above the long period average.

The monsoons were also well distributed this year. Between 1 June and 30 September, 33 of the  36 sub-divisions in India, or close to 90% of the country, received normal or above-normal rainfall so far. Five states were in the deficient zone and region-wise, except east and northeast, all other parts of India received higher than normal rainfall. 

India’s reservoirs, another important marker, were at a comfortable level of 87% as of last week compared to 71% last year, according to BOB Research. There are some variations within, with the northern region being lower compared to the rest of the country, at 68% compared to 86% last year. For agriculture, this means that kharif crops like rice and maize which are grown between July to October have benefited from the strong monsoons.

Remember, the government has just lifted all the bans on rice exports because we are now staring at surpluses. Rabi crops that grow from October to April and include wheat will also benefit from the higher water levels.  So agriculture and the rural economy should be on better footing in the coming months. This is of course the good news.

There is also bad news, which is near-term and external. Tensions in the Middle East, which never eased as such, have now ratcheted up after Israel dropped bombs and then launched a ground invasion into Lebanon last week.  Remember, in a few days, we will mark the first anniversary of the Hamas attack on Israel on October 7, 2023. And now Iran has fired missiles.

This affects many things, from the likelihood that oil prices might rise further to potentially longer flying times for airlines flying westwards, and higher fares which are already getting priced in for the winter season.  Even if oil prices don’t rise because of supply increases and demand slowdowns, the movement of cargo, already facing constraints, could be hit further. This means India’s merchandise exports could continue to be under pressure.

China, on the decline for the last few years, seems to be turning around, thanks to a massive dose of stimulus measures. Whether these will lift the Chinese economy from the lows to which it had fallen in relative terms is early to say but there is a change in mood. This also means that investments could flow back to China, particularly portfolio investments if last week’s surge is anything to go by. If China’s domestic market picks up further, many global companies who have reduced their China manufacturing exposure for instance or have focussed their energies elsewhere may have second thoughts. For instance, the luxury goods industry.

All this means that India may lose some of the major tailwinds that could have carried the economy and business confidence further, at least for the rest of the financial year. It does appear that the next few months will see companies gaining from the domestic market but moving into a state of heightened alert in the international markets. India’s key economic drivers now seem to lie somewhere between good monsoons and strained geopolitics.

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DIVERGENT VIEW

Will ISB’s 2-Year Course Click With Students?

Pioneer of the one-year MBA programme for young working professionals in the country, ISB has finally bit the bullet to announce the launch of a new 20-month MBA for students with zero-to-two-year experience. 

But the new programme comes when the market is crowded with similar programmes. Key questions some observers are asking are: Is this too little, too late? Will there be a brand dilution of ISB where differentiation is diminished? Or, is it largely another revenue generation strategy? The truth, as often, perhaps lies somewhere in between. 

Professor Madan Pillutla, dean of ISB said, “Our many conversations with industry leaders and recruiters reveal a need for young professionals who can step straight into roles that require business acumen alongside deep expertise in data and technology.”  

A professor at a top business school in Delhi who did not want to be named added, “ISB has realised that Indian parents and students intrinsically like a two-year programme. This new course from ISB is an acceptance of the same.” 

Will the gambit work? Two aspects will define whether it will be a success or not.

CO:RELATION

Activating Passive

John C Bogle, the founder of multi-trillion dollar US-based fund manager Vanguard, would be proud of the initiative. The Securities and Exchange Board of India (SEBI) board met on Monday to allow mutual funds the benefit of relaxed regulations for passively managed funds. Index investing took off in America in the 70s and 80s. Today, average American household wealth is the highest globally, thanks to people pushing their retirement money into passive index funds. The large population in India deserves that opportunity, too. 

The MF Lite regulations include relaxed requirements relating to eligibility criteria for mutual fund sponsors. The SEBI release said the framework intends to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, enhance market liquidity, facilitate investment diversification, and foster innovation. Due to this regulation, you will see new companies formed or hived off from existing mutual funds. Shares of Nippon Asset Management, HDFC Mutual Fund, and Aditya Birla Sun Life AMC reacted positively in a falling market. Despite all the noise, just about 3% of people in India invest through mutual funds. A focus on passive investing could be a game changer.

FROM THE PERIPHERY

— It’s good news for India’s two-wheeler sector as sales have seen an uptick this festive season. Business Standard reported that all major Indian two-wheeler manufacturers saw a double-digit increase in domestic sales in September. Bajaj Auto led this with a 28% jump in this segment and TVS Motors saw a 23% increase. Hero Motocorp, which has the highest market share in India and is the largest two-wheeler manufacturer in the world, followed second with a 18% increase. Meanwhile, the sales of passenger vehicles have continued to decline for the third consecutive month. 

—📈 As India grapples with rising food inflation, former governor of the Reserve Bank of India Raghuram Rajan has firmly opposed the idea of excluding food prices from inflation calculations, The Economic Times reported. Rajan warned that sidelining food inflation could undermine public trust in the central bank’s ability to manage the economy. With food accounting for 46% of the consumer price inflation (CPI basket), Rajan believes it remains essential to inflation perception and policy. While chief economic advisor V Anantha Nageswaran advocates its exclusion, Rajan insists comprehensive inflation targeting is crucial to maintaining public confidence.

—🧑‍💻 In a major bid to boost youth employability, the government and India Inc launched a one-year internship scheme today for 21-24-year-olds. Announced in the Union Budget as part of the Prime Minister’s Package for Employment and Skilling, the programme offers internships in the top 500 companies. Applications open October 12, with exclusions for full-time workers, government family members, and elite institution graduates. Backed by Rs 2 trillion, it aims to skill one crore youth over five years. Last month, The Core Report pointed to layoffs in big tech, slowed IT hiring and even foreign degrees losing their sheen in the Indian job market. While the initiative is commendable, a pressing question looms: can such generalised measures truly solve India’s job crisis?

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