Impact of El Nino on rural incomes can hurt India’s growth projections

  • Hindustan Times
  • Updated: Apr 19, 2015 22:50 IST

Some global meteorological agencies have pointed to the rising risks of an El Nino weather pattern this year which can trigger a poor monsoon in India, potentially posing an immediate challenge for the Narendra Modi government. El Nino, literally “little boy” in Spanish, is a climate phenomenon marked by higher sea-surface temperatures in the equatorial Pacific. Its effects vary, from storms in California to drought in Australia and India. The India Meteorological Department, which will unveil its monsoon forecast later this month, has said it is aware of the predictions. The historical data from a 126-year period (1880-2005) show that less than half of El Nino events have impacted India’s monsoon: 1997 was one of the strongest El Nino years but rainfall was quite normal. Yet, in 2009, El Nino triggered India’s worst drought in three decades, raising food inflation to an 11-year high of nearly 20% in December that year.

If El Nino occurs this year and the summer rains are deficient, it would mean that poor monsoon will occur just when the economy is showing strong signs of recovery. The relatively low share of agriculture in GDP, improved drought management techniques and availability of buffer food stocks can cushion the impact of sub-normal rains, but it is hard to ignore that confidence could be shaken. Prices of some agro commodities have already started moving up after last month’s unseasonal rains. Headline inflation can inch up above comfortable levels if El Nino conditions result in an unusually dry summer this year.

While inflation risks are obvious, the knock-on effect on growth is a real worry. The rural consumption story drives the overall growth engine. Truant monsoons may impede fuel supply to that engine. For instance, lower rural incomes will affect tractor and two-wheeler sales and the despair may spread to consumer goods. Achieving even 8% growth could be challenging in a drought scenario. The income earned by individuals is fundamental. And even more than that, the per capita income of the bottom segment of population is what we should focus on while crafting policy. We must learn to evaluate progress in terms of how its poorest segment fares. That is the fundamental focus of policymaking. While there is an urgent need to revive investment through long-term structural measures, policymaking should not become a zero-sum game and the precious bandwidth of policymakers might be used up in fire-fighting a monsoon failure. Administrative and other preparedness should begin now to tackle any eventuality, rather than a reactive approach later.

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