A new challenge for India that can slow down the development of the economy is 'heat wave'. The weather is too hot that farmers are unable to rise their yield and in some states like Kerala, people are advised not to go outdoors between 11am to 3pm. The heat waves will always create trouble not only to the people but also to the entire economy.
The heat waves have made life more uncomfortable and is affecting every individual of the nation. It is said that, this year's summer is going to be very hot. So, the Indian Meteorologist Department [IMD] has even advised the political parties to avoid organizing public meetings in scorching sun.
In this blog let us explore the impact created by heat waves in the lives of individuals and the whole country from an economic perspective.
Rising Food Inflation:
In every heat waves, the common trend is reduction in agricultural produce. This declines the overall supply of agriculture products [like vegetables, rice, etc.] in the market and thus resulting in price rise. During hot season, the reduction in rainfall is the cause for the decline in yield. Further, increase in water requirements for irrigation purposes could result in declining water levels in water bodies and also ground water levels.
Another point to be noted is, even if farmers somehow manage to make good yield, the problem is with cold-chain facilities. Cold-chain facilities are very necessary for transportation of perishable products like fruit and vegetables. Due to hot temperature, perishable products get spoiled very fast.
So, it is clear that there is will be a decline in crop yields during heat wave. This decline will subsequently reduce the buying power of those who depend on agricultural income. This eventually decrease rural demand. It is not that only farm land owners are dependent on agricultural income, also other people who work in farms.
Moreover, majority of middle class population live in rural and semi-urban areas. Sudden hike in prices of necessary goods may make it difficult for them to purchase other products which are considered as luxury [luxury in economics also refers to any products other than necessary ones].
We all are aware that majority of the population are living in rural areas. So decrease in rural demand would have a significant impact in the financial statements of those FMCG companies who mainly depend on rural demand for their sales.
Usually, the growth of middle class population in a country is measured in terms of two wheeler sales. So, decline in rural demand indicates that, there can be a decline in two wheeler sales. As we saw above, if the income levels are same and the prices of necessary goods like vegetables and food grains rise, middle class population try to avoid other expenses [on luxury goods as said above] on two wheelers, cars, washing machine, etc.
So, that's how the two wheeler sales are also affected with the decline in rural demand.
Increasing power demand :
During days with hot temperature, people tend to use fans, ACs, etc for a longer duration than usual. Even the people who donot use fans and ACs on normal days would start using them now. These factors increase the overall demand for power in the country.
With the sudden spike in power demand, the government considers to address the issue with the help of producing and supplying more of thermal energy. As of now, we cannot depend on solar alone to power the country, because in comparison with the huge demand for power, the plants are able to cater only to smaller regions.
So, there is no doubt that there will be increase in coal demand.
Recommended reading: Is it the right time to invest in coal based companies?
What will happen to companies?:
The main beneficiaries of heat waves are companies selling ACs, ice creams, etc and also companies involved in generation and supply of electricity. Their sales usually rise during summer season.
Heat waves affect those companies which have huge consumer base in rural and semi-urban areas.
Conclusion:
It is predicted that this summer is going to be very hot. If it happens like that, then there is high chance for food inflation. So FMCG companies, selling beverages [tea and coffee] and having huge customer base in rural areas might be impacted due to heat waves. Two wheeler sales might also be affected due to weakening rural demand. Further, during a heat wave, the power demand usually rises.
So it is clear that atleast for next two months we cannot expect rate cuts by RBI, if there is a heat wave and due to which there is a rise in inflation. As long as the inflation stays within the band as decided by the RBI, there need not be any worry about increase in interest rates by MPC. Even this time the RBI kept the rate unchanged at 6.5% .
Do take care of yourself and your family during this heat wave.
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