News APP

NewsApp (Free)

Read news as it happens
Download NewsApp
Rediff.com  » Business » Delayed monsoon: the economic impact

Delayed monsoon: the economic impact

By Madan Sabnavis
June 24, 2005 09:45 IST
Get Rediff News in your Inbox:

One can still recollect the days when the now legendary BBC commentators, John Arlott and Brian Johnston, would conjecture the movement of the clouds over Headingley, Leeds as the English batsmen faced the wrath of Lillee, Thomson and Walker on the final day.

But today, it is still more serious in our country with the spectre of an unsatisfactory monsoon casting a shadow over an otherwise robust economic performance.

Have we really made any progress in the field that matters most, that is, agriculture, in the face of all the goodies that liberalisation, free markets and economic reforms have brought to us at the superstore?

The irony is inescapable since even though we have been focusing on agriculture in all policies, we do not appear to have really managed to go far in insulating ourselves against the vicissitudes of nature.

Therefore, it is not surprising that any delay in the gathering of clouds causes consternation among us and we really seem to be getting back to the clichéd "square one".

In India, around 72 per cent of our cultivable land comes in the rain-fed region and while around a little over 20 per cent is classified as being well irrigated, another 7 per cent is adequately irrigated.

This really means that any shortfall in the monsoon has severe repercussions on agricultural output. The monsoon has been delayed this year, with the deficit increasing by the week and while the Indian Meteorological Department is still sanguine, the Council of Scientific and Industrial Research has contrary views.

A poor monsoon affects the rest of the economy. In this context, it would be interesting to study past experiences with monsoon setbacks and their impact on the economy.

Essentially, monsoons affect us directly in two ways. First, agricultural output gets impacted on this account, in particular, the kharif crop.

Second, a shortfall in agriculture also leads to an increase in the prices of primary articles, which is reflected in higher inflation.

The accompanied table provides information on actual rainfall as percentage of normal rainfall during the season (June 1 to September 30), foodgrains production during the kharif season and the inflation rate for only primary articles.

The data in the table can be examined to draw some rudimentary relationships between these three variables. The first observation is that in seven of the 15 years, monsoon has been less than 100 per cent of normal, indicating an even chance of a normal monsoon in any year.

It should be mentioned here that IMD treats a "normal" monsoon as one where rainfall is within a range of 19 per cent on both sides of the long-term average, which means that except for probably 2002, we have never really had a deficient monsoon.

But, more realistically, any deviation from normal in the downward direction could be considered as a concern, which is the focus of this exercise.

Second, in five of the seven years when monsoon levels were less than normal, there was also a fall in the foodgrains production.

We must, however, recognise that when we speak of a normal monsoon, it is really for the country and does not say anything on the regional dispersion, which actually could be more crucial for specific crops.

Also curiously, rainfall over 100 per cent of normal does not ensure that foodgrains production growth is positive (but this could be due to reasons other than rains).

Third, the average elasticity of foodgrains production to a shortfall in rainfall is as high as 0.81, meaning thereby that if monsoon is, say, 90 per cent of normal, that is, a shortfall of 10 per cent, then output can be expected to fall by around 8 per cent.

Fourth, a shortfall in kharif production of foodgrains has an inflationary impact of as high as 1.05 per cent for the full year because this shortfall is felt throughout the year.

This means that a 1 per cent fall in kharif production increases the wholesale price index of primary articles by as much as 1.05 per cent, which, in turn, implies that since the former has a weight of 22 per cent in the index, the overall inflationary impact would be 0.23 to 5 per cent drop in output has a potential impact of 1.15 per cent.

Therefore, the situation is definitely fairly worrisome, though there could be certain compensatory factors that can alleviate the scenario.

The first is the rabi crop, which has tended to be less rain-dependent. It has compensated for the loss in kharif harvest to improve the overall foodgrains situation even though the shortfalls remain in the kharif crops.

The second is the use of the strategic buffer stocks by the government, which came in handy in 2002 and 2004 to insulate prices from erratic production. The stocks are satisfactory, even though we are not in the situation of "surplus" as in the past.

Nevertheless, there is a need for us to reduce our dependence on the monsoons -- irrigation should be included under infrastructure so that it gets the pre-eminence that is accorded to other such structures such as roads, ports, power and so on.

There are several options in this area such as water retention, water conservation, water harvesting, micro irrigation projects, drip-sprinkler irrigation and so on.

We certainly need to get away from this overdependence on monsoons and get down to the other related business rather than have agriculture performance being guided by the supernatural. The clue is to move away from words and really get down to doing it.

The author is chief economist, NCDEX Ltd. The views expressed are personal.

Get Rediff News in your Inbox:
Madan Sabnavis
Source: source
 

Moneywiz Live!