Fear of drought in India
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FIRST it was the unseasonal rains and hail storms in March which destroyed crops, including wheat, rapeseed, potatoes and vegetables across north and central India. Then it was the heat wave last month, which saw almost 2,500 people dying across the country.
Last week, the India Meteorological Department (IMD) came out with a gloomy prediction, warning the country could face a 12pc deficiency in the south-west monsoons, possibly triggering off a drought.
According to the IMD’s long-range forecast update for the 2015 monsoon, the rainfall over the country as a whole (between June and September) is likely to be deficient, which means below 90pc of the long period average (LPA).
Surprisingly, just a few weeks earlier, the IMD had forecast 93pc of rainfall for the country as a whole. The met office had also said the monsoon would set in over Kerala by May 30, but had to hastily revise the onset to June 5.
The IMD now says that rainfall will be 85pc of LPA over north-west India, 90pct of LPA over central India, 92pc of LPA over the southern peninsula and 90pc of LPA over north-east India (all with a model error of plus-minus 8pc..
The met office also said the probability of a deficient monsoon was a high 66pc as against 27pc for below normal and 7pc for normal rainfall. It also said there was a 90pc probability of an El Nino event playing out.
The uncertainty of the forecast relating to the monsoon spooked investors on the stock markets. Hours after the IMD’s major U-turn on the monsoon, the Sensex, the benchmark index on the Bombay Stock Exchange, tumbled by 660 points (nearly 2.4pc). This despite the Reserve Bank of India (RBI) having announced a 0.25pc in the repo rate, a key interest rate, which should have perked up the markets.
Indian business groups and even the government have been clamouring for a relaxation of the tight monetary policy adopted by Raghuram Rajan, the governor of the RBI. Rajan took the markets by surprise earlier in the year, when he announced a 0.25pc cut in the repo rate. He followed it up with another similar cut.
Last week’s cut was the third 0.25pc reduction in the repo rate. But the three rate-cuts have satisfied neither the corporate sector nor the markets. Rajan cited the IMD’s prediction of ‘below normal’ rainfall (he unveiled his bi-monthly monetary policy statement just a couple of hours before the IMD came out with its revised forecast) to justify his refusal to go in for bigger rate-cuts.
The central bank chief also cut down growth estimates for the current fiscal from 7.8pc to 7.6pc.
Crisil, part of leading global analytical and ratings firm Standard & Poor’s also lowered its GDP growth forecast to 7.4pc (from 7.9pc earlier) following the IMD’s warning of a possible drought year. “We expect agriculture growth to be 1.5pc, much below the long-term trend of 3.5pc, and weak considering that last fiscal’s meager 0.2pc growth had already set a low base,” said Crisil.
SURPRISINGLY, leading private weather forecaster Skymet maintains that India will receive normal rainfall this year. It has stuck to its earlier forecast of 102pc of the LPA. Jatin Singh, founder and CEO, Skymet Weather, maintains that 2014 saw an evolving El Nino and a drought in India with rainfall at 88pc of LPA. “The El Nino of 2015 is continuing from last year. It is less likely to fail,” he asserts.
Singh cites statistics dating back to nearly 150 years to claim that the probability of back-to-back droughts is very rare. “In the last 140 years, it has been witnessed only four times — in 1904-05, 1965-66, 1985-86 and 1986-87.
According to Singh, while the overall performance of the monsoon will be normal, it will be weak in the sub-divisions of south interior Karnataka, Tamil Nadu, Rayalseema, east Madhya Pradesh and Arunachal Pradesh. It estimates that Madhya Pradesh will be the worst-affected this year.
But the BJP-led National Democratic Alliance (NDA) government is taking no chances, especially after its first year was marked by deficient rainfall. “We are preparing contingency plans for 580 districts and are reviewing these on a daily basis,” says Radha Mohan Singh, the agriculture minister. “We are also ensuring that seeds for the right variety of crops are available with farmers.”
Unlike the previous Congress-led United Progressive Alliance government — which used to sit over crucial decisions such as importing grains and pulses — the NDA regime plans to import pulses to curb the sharp spurt in prices.
Last year’s drought during the kharif season and unseasonal rains before the rabi crop this year have adversely impacted agricultural production. The government fears the farm sector would record negative growth this year.
While agriculture accounts for just a little over 15pc of the country’s GDP, it has a huge influence on the Indian economy and politics. Nearly 750m people are dependent on agricultural income and most of them are poor. A bad monsoon not only results in a shortfall in agricultural production, but it devastates the lives of millions of poor.
Demand for manufactured goods (including two-wheelers, domestic appliances, fast-moving consumer goods, etc) and services also get affected when the rains fail. But the worst impact is on food inflation, when prices soar and traders take to hoarding.
Farmers and their lobbies demand higher minimum support price from the government when the rains fail, but millions of consumers suffer because of high food prices. And with inflation, the central bank tightens the monetary policy, starving industry of much-needed funds. This consequently leads to stagnant GDP growth, negligible investments and joblessness, a veritable political nightmare for any government.
Published in Dawn, Economic & Business, June 8th, 2015
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