For a government hemmed in by rising prices, sliding economic growth and sagging political stock, the latest price data gives an occasion to rejoice in strained times. Wholesale Price Index (WPI)-based inflation grew 4.68% in February — its slowest pace in nine months.
Food inflation is now just above 8% from nearly 20% not too long ago. Vegetable prices have fallen in the last two months compared to last year and it is only logical that it will show up in the broader food price index. Onion prices, which have been emblematic of India’s recent inflation woes, have contracted 20% in February, a rapid deceleration from the nearly 400% jump five months ago in the prices of the staple in most vegetable curries, underlining the brisk pace at which the price curve has swung towards a more comfortable quadrant.
The cheer could travel to the average consumer if the Reserve Bank of India sprinkles water on these little green shoots by slashing interest rates next month.
That said, a caveat is in order. The spectre of a failed monsoon rain because of a probable El Nino effect — a weather glitch marked by an abnormal warming of the eastern Pacific Ocean known to trigger weaker rains and droughts — looms large over the economy’s horizon that is battling to climb out of decade-low growth rates. Most Indians look forward to the June-September rains for relief from a blazing summer, but the monsoon is more than just a cool respite: It’s the life-blood of the economy.
Two-thirds of Indians depend on farm income and just over 40% of our crop area does not have any form of irrigation. Millions of farmers wait for the rains to begin summer sowing of major staples, such as rice, sugar, cotton and coarse cereals. Half of India’s farm output comes from summer crops dependent on the monsoon. For good farm output, the rains have to be not just robust but also evenly spread across states. When rain-dependent farm output is robust, rural income and spending on almost everything go up. This creates demand for manufactured goods. Without this demand, industrial growth would slow down.
The government has estimated that the economy will grow at 4.9% in 2013-14, the second successive year of sub-5% growth. With the manufacturing sector showing little signs of revival, all hopes rest on this year’s summer rains to aid a turnaround. Adequate rains, apart from acting as a strong check on inflation by boosting farm output, are critical for a swift recovery. The rains, therefore, may turn out to be a critical variable in taming the inflation monster as well as economic recovery.