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Monsoon may cast a shadow on budget

A failed monsoon could have major bearing on food availability and prices and carries the potential of upsetting targets and allocations of planned public programmes in a year where the government has little room for manoeuvre to spend its way out of a crisis. Gaurav Choudhury reports.

business Updated: Jul 04, 2009 02:40 IST
Gaurav Choudhury

Finance minister Pranab Mukherjee, 73, has begun giving final touches for a full budget presentation for 2009-10 with the spectre of a failed monsoon looming large over the horizon.

A failed monsoon could have major bearing on food availability and prices and carries the potential of upsetting targets and allocations of planned public programmes in a year where the government has little room for manoeuvre to spend its way out of a crisis.

“Further delays in the monsoons would have implications for gross domestic product (GDP) growth, inflation and the proposed Food Security Act,” said Rohini Malkani of CitiGroup.

Economists said July remains the key month for sowing and the build-up in stocks of rice and wheat does provide cushion and would help avert an outright food crisis.

Government’s macroeconomic managers face the onerous task of reviving growth in the broader economy that is constrained by a high budget deficit and low tax buoyancy.

All told, the actual gross tax revenue for 2008-09 stood at Rs 609,705 crore, short by over Rs 18,000 crore (or 3 per cent) than the revised budget estimates, presenting Mukherjee and his team with a precarious state of public finances.

A monsoon failure can only aggravate the fiscal stress with a mounting food and fertiliser subsidy bill.

“Monsoon has significant impact on kharif crops like paddy, cotton, sugarcane, groundnuts, maize, pulses and sowing season for kharif crops is June and July,” said Rohan Gupta, economist, Emkay Research. “In crops like paddy, sowing starts after rains and farmers are still waiting for monsoon.”

The government has promised a National Food Security Act that would statutorily require supply of 25 kg of rice or wheat at Rs 3 per kg to poor families, a programme that could raise the food subsidy bill by thousands of crore of rupees.

In 2008-09 the food subsidy bill stood at Rs 43,627 crore.

With rains playing truant and chances of weak kharif crop looming large, maintaining a healthy buffer stock would be critical.

The Centre should be ready with an emergency contingency plan to handle the situation in case of a failed monsoon, said Prem S Vashishtha, former director, Agricultural Economics Research Centre. “The plan should be put in place at the earliest and the government should not tinker with fertiliser subsidy at this juncture.”