Impact on Annual Rainfall on Economy in India

Amit Pandey (80118140042)

NMIMS University, Mumbai, India
Mobile: 9920258274 E-mail: amit.s.pandey@gmail.com

Abstract
The study try to analyze the claim that monsoons have a significant impact on the Indian
economy. The Simple Linear Regression Analysis suggest a extremely weak explanation by
YoY change in Annual Rainfall on YoY change in GDP.

1. Introduction
According to V K Vijaykumar (chief investment strategist at Geojit BNP Paribas) India
needs to accelerate the GDP growth rate. For this good monsoon and high agriculture
growth are crucial. 1 It is claimed that a good monsoon means high purchasing power. A
good monsoon means higher farm output, stimulate rural demand, benefiting sectors like
auto and FMCG.

To verify this claim we decided to check the impact of Annual Rainfall on one of the most
important Macroeconomic indicator of economy GDP (YoY Growth).

2. Literature Review
We downloaded the following data from https://data.gov.in
1. All India Area Weighted Monthly Seasonal And Annual Rainfall
2. GDP and Major Industrial Sectors of Economy Dataset

We compute the YoY (Year on Year) change for the GDP and Annual Rainfall in millimeters
as percentage, and we would be studying the impact of YoY change in Annual Rainfall (in
%age) on YoY change in GDP (in %age).

When seen in isolation on a line chart the GDP (YoY Growth) is highly erratic with sharp
rise or falls (spikes).

1Indian economys fate depends on the monsoon (June 16, 2016)

http://www.thenational.ae/business/economy/indian-economys-fate-depends-on-the-
monsoon

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Annual Rainfall has not shown any significant spikes but shows a decent amount of
unpredictability and some sort of cyclical behavior.

Our null Hypothesis is

H0 The change in Annual Rain YoY has no significant impact on GDP.

The Alternate Hypothesis would be -

H1 The change in Annual Rain YoY has significant impact on GDP.

3. Analytical Framework and Methodology

We would use Simple Linear Regression Analysis. The model would be
y = + x, where
x Change in GDP compared to previous year (in %age)
y change in Annual Rainfall compared to previous year (in %age)

Working Sheet with data is attached under the Reference Section.

4. Empirical Results
The result obtained from Regression Analysis is

Using the output the prediction in YoY Change in GDP can be explained by the model
y= 5.0482054 + (-0.0448547) x

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5. Results and Discussion
R2 equals to 0.03 which is very weak. Only 3% of variation in YoY change in GDP can be
explained by YoY change in Rainfall. Significance F is greater than 0.05 and hence the results
are unreliable.

t Statistic (t Stat) is the coefficient divided by its standard error. The standard error is the
estimate of the standard deviation of the coefficient. The t Stat is negative, and since we
cannot have a negative probability it means in absolute values P(T < -t) = P(T > t). It means
that t-value < 2.345, we cannot reject null hypothesis.

Even the P-value (0.145) is > 0.05, which means there is no difference between the means
and hence we would accept the null hypothesis, which claims that Change in Annual Rainfall
has no significant impact on GDP of the country.

This can be further verified by using Scatter Plot which so no definite patterns between the
two variables.

6. Conclusion
The Regression Analysis to show prediction of GDP (YoY) growth using the uncontrollable
and independent variable Annual Rainfall seems to suggest that Annual Rainfall is not the
major predictor of GDP Growth, in isolation.

However, we need to investigate further as experience suggests that agriculture in India is

still Monsoon dependent, and Agriculture has a significant contribution to GDP, and look at
contribution of Monsoon in combination with other factors such as Water Reservoirs,
underground water usage etc.

Also, Indian Monsoon have been erratic over the states, where some regions receive above
normal monsoon or deficient monsoons. It would make sense to see the impact of Rain in
isolation on the States GDP.

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References
FACTBOX Monsoons Impact on Indian economy
http://in.reuters.com/article/monsoon-rains-india-weather-factbox-idINKCN0XA0H9

Indian economys fate depends on the monsoon

http://www.thenational.ae/business/economy/indian-economys-fate-depends-on-the-
monsoon

All India Area weighted Monthly, Seasonal and Annual Rainfall (in Mm)
https://data.gov.in/catalog/all-india-area-weighted-monthly-seasonal-and-annual-rainfall-
mm

WorkingSheet .xlsx