Mumbai: With monsoon spreading across the country, domestic rating agency Icra said better rains will help push rural demand and may also benefit fiscal health of states and the Centre if demand for work under the MGNREGA scheme eases.
The higher kharif or summer crop acreage will also help cool down inflation, it said.
"The expected rise in farm sector income is likely to reinvigorate rural demand in the second half of this fiscal, complementing the boost to consumption related to the revised pay and pensions for central government employees," Icra's Senior Economist Aditi Nayar said.
Even though it arrived late, barring parts of Gujarat and Rajasthan, monsoon has covered almost the entire country. In June, there was an 11 per cent deficit in overall rainfall, but Icra said the situation is expected to improve.
Food inflation is expected to dip as the monsoon progresses, mainly on higher kharif acreage and lower prices of perishables following a decline in temperature, it said.
"A favourable monsoon may also benefit the fiscal health of the central and state governments, particularly if demand for work under the MGNREGA eases and less funds are required for activities such as drought relief," the agency said.
The rating agency said seed companies with diversified portfolios, agrochemical industry and two-wheeler makers will benefit from the good monsoon. Implementation of the recommendations of the Seventh Pay Commission and lower interest rates along with favourable monsoon will benefit two-wheeler companies, Icra said.
However, sugar production is expected to be lower by 4-8 percent in sugar year 2017 due to subdued rainfall of the past year affecting cane availability in major states like Maharashtra and Karnataka, it said.
As demand for pumping ground water for irrigation goes down, diesel consumption is also expected to be affected, Icra said.