ANALYSIS - Poor monsoon stalks India despite economic strides

By Tony Munroe

MUMBAI (Reuters) - India is fretting once again over a poor monsoon just as other signs point to a rebounding economy, exposing its nagging reliance on unpredictable seasonal rains despite its rapid growth and modernisation in recent years.

Unless India makes sweeping reforms to upgrade its fragmented and inefficient farm sector, the yearly monsoon will remain a key economic event, but with declining significance for investors.

"There's the direct impact of a bad monsoon through agricultural production, and that's been diminishing because the share of agriculture has gone down by almost 10 percentage points in the last decade," said Suman Bery, director-general of the National Council of Applied Economic Research, a think tank.

"But on the demand side, it's still pretty important."

Agriculture's share of the economy has slowly shrank to 17.5 percent last year from nearly 30 percent in the early 1990s, according to Morgan Stanley. But two-thirds of its 1.1 billion population live outside of cities and overall rural demand accounts for more than half of domestic consumption.

By comparison, farming makes up 10.6 percent of China's economy and 13.5 percent of Indonesia's, U.S. government data shows.

A failed monsoon hurts not just farm output but also demand for everything from fuel and motorbikes to shampoo and gold, adding pressure on a government struggling with a fiscal deficit that may balloon to 6.8 percent of GDP this year.

Just 42.4 percent of sown agricultural land is irrigated, according to Morgan Stanley, with the rest reliant on rainfall.