El Nino may mark new govt's baptism by fire | business | Hindustan Times
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El Nino may mark new govt's baptism by fire

business Updated: Apr 29, 2014 23:48 IST
HT Correspondent

Summer rains are the the life-blood of India's economy. And when meteorological agencies forecast an "El Nino" weather pattern, it poses an immediate challenge for a new government that assumes office in May.

El Nino, literally "little boy" in Spanish, is a climate glitch marked by high sea-surface temperatures in the equatorial Pacific. Among its effects: storms in California, and droughts in Australia and India.

Analysts reckon that an El Nino could decelerate the Indian economy's recovery in 2014-15, besides pushing up prices.

High vegetable prices and costlier staples such as rice have pushed India's wholesale inflation to a three-month high of 5.70% in March, while retail inflation quickened 8.31% during the month.

This is the first time in a quarter century that the country's growth will end below 5% in two successive years. And deficient monsoons, critical for the kharif crop, could fan prices further.

High inflation means the Reserve Bank of India could hesitate to cut interest rates, much needed to boost economic growth.

US investment bank Morgan Stanley said in a recent research report that a possible El Niño phenomenon "could keep food inflation risks alive in the latter part of this year as well."

It could hurt industrial recovery, as well. When farm output is weak, rural spending goes down. For instance, rural buyers account for nearly half of all motorcycles sold in India.