India may avoid drought, but may not control inflation

  • Hindustan Times
  • Updated: Aug 13, 2015 01:12 IST

The rains may have caused bumper-to-bumper traffic jams in some glitzy cities this summer, but its skewed spatial distribution remains an area of concern. The monsoon has been deficient so far and quite uneven in its spread. The rain-bearing system is entering the most critical phase that will largely determine whether the country can escape a drought for the first time in six years. As this newspaper has pointed out, overall, the rains have been 9% lower than normal, with sharper deficits in some areas. The weather bureau in a fresh update has forecast that rainfall during August-September, the remaining two months of the rainy season, could be poor at 84%. This could potentially toughen challenges for the Narendra Modi government, which is already struggling to get key legislation such as those related to the Goods and Services Tax (GST) approved in Parliament because of a political logjam.

Global credit rating agency Moody’s has warned that although India may avoid a drought, its economy remains vulnerable to fluctuations in rainfall, affecting its future sovereign rating profile. The report compared India to other countries in which agriculture has a material share of GDP, and concludes that the Indian economy’s vulnerability to drought stems from the combination of five factors: Relatively high share of agriculture in overall employment, weak rural infrastructure and irrigation, inefficient food distribution, large proportion of Indian household spending on food, and the share of food subsidy costs in the government’s fiscal deficits.

This year, while some areas have been inundated by floods, others have experienced prolonged dry spells. Plotted on a rainfall map, at least 35% of the country’s area appears to be in the deficient category, while 35% has received normal rain. When the rains fail, fewer people are engaged on farms. This, in turn, brings down farm rural wages. A poor monsoon could also stoke food prices, which have been increasing steadily, with the retail price inflation rate quickening to 5.4% in June, compared to a 4.8% rise in April. Dipping farm incomes and rising prices could leave the NDA government vulnerable to sharper opposition attacks, especially from the Congress. In strict technical parlance, India may not experience a drought this year. But this is not a guaranteed insulation against inflation or flat farm output. The ability of a country to manage unpredictable weather conditions is a function of administrative efficiency and preparedness. It is time to delink the growth model from weather changes. The income earned by individuals is fundamental. More than that, the per capita income of the bottom segment of the population is what we should focus on while crafting policy.

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